| In the first chapter, using a nationally representative sample of wealthy home owners and their investment records during the recent housing boom, I show that investors reporting high home value appreciation on their own primary residences in the past are more likely to make future investments in the housing market by remodeling their home or purchasing a new investment property. The impact of perceived returns from the past on future investment decisions is short-lived and hump-shaped, roughly doubles in size during the peak of the housing boom, and is much stronger for younger investors. This investment strategy does not appear to be driven by an increase in wealth, (expected) changes in permanent income, relaxed credit constraints through rising collateral values, willingness to take financial risks, or the q of the house. Further decomposing perceived returns on housing using zip code level returns, home owners' subjective valuation of their own homes is found to be chiefly responsible for the observed investment strategy. These findings suggest that feedback from return to expectation to behavior may have amplified the housing boom.;In the second chapter, using a comprehensive zip-code level panel on housing transactions from 33 states, I examine the eect of an experienced real estate investor (among the average 400 other new residents) who has recently moved into the community on housing purchases during the recent housing boom. Consistent with word-of-mouth communication being an important propagation channel, existing residents of a community treated with an experienced real estate investor increase investment property purchases by up to 24% of the sample average during the housing boom. This word-of-mouth effect on subsequent housing investments is almost entirely concentrated during the peak of the housing boom, between 2002 and 2006. Existing residents living in the sand states---Arizona, California, Florida, and Nevada---respond more strongly to the word-of-mouth shock. Finally, the word-of-mouth effect is stronger if the expert has favorable real estate investment returns prior to her move into the community. |
