The Psychology of Home Price Changes

Implications: The author provides a scholarly examination of the relationship between expectations and price changes. The author concludes that Fed actions typically do not affect prices directly but they do impact expectations.

Analysis: Coming from the author of the book "Irrational Exuberance", this article is very well written and provides a view that is very close to mine -- expectations govern people's decisions about making home purchases more than anything else.

The expectations of the average buyer and seller is going through a period of indecisiveness at this point.

It will be important for people who are considered to be thought leaders to continue to reinforce that fact that while exceptionally exuberant expectations along with the availability of easy money may have fueled a portion of the run up in prices, the market is right now trying very hard to achieve normalcy in terms of prices and long term growth and we need to focus our attention on helping people adjust their expectations accordingly.