Home price expectations are believed to play an important role in housing dynamics, yet we have limited understanding of how they are formed and how they affect behaviour. Using a unique “information experiment” embedded in an online survey, this article investigates how consumers’ home price expectations respond to past home price growth, and how they impact investment decisions. After eliciting respondents’ priors about past and future local home price changes, we present a random subset of them with factual information about past (one- or five-year) changes, and then re-elicit expectations. This unique “panel” data allows us to identify causal effects of the information, and provides insights on the expectation formation process. We find that, on average, year-ahead home price expectations are revised in a way consistent with short-term momentum in home price growth, though respondents tend to underpredict the strength of momentum. Revisions of longer-term expectations show that respondents do not expect the empirically-occurring mean reversion in home price growth. These patterns are in line with recent behavioural models of housing cycles. Finally, we show that home price expectations causally affect investment decisions in a portfolio choice experiment embedded in the survey.
For-profit providers are becoming an increasingly important fixture of US higher education markets. Students who attend for-profit institutions take on more educational debt, have worse labor market outcomes, and are more likely to default than students attending similarly-selective public schools. Because for-profits tend to serve students from more disadvantaged backgrounds, it is important to isolate the causal effect of for-profit enrollment on educational and labor market outcomes. We approach this problem using a novel instrument combined with more comprehensive data on student outcomes than has been employed in prior research. Our instrument leverages the interaction between changes in the demand for college due to labor demand shocks and the local supply of for-profit schools. We compare enrollment and postsecondary outcome changes across areas that experience similar labor demand shocks but that have different latent supply of for-profit institutions. The first-stage estimates show that students are much more likely to enroll in a for-profit institution for a given labor demand change when there is a higher supply of such schools in the base period. Among four-year students, for-profit enrollment leads to more loans, higher loan amounts, an increased likelihood of borrowing, an increased risk of default and worse labor market outcomes. Two-year for-profit students also take out more loans, have higher default rates and lower earnings. But, they are more likely to graduate and to earn over $25,000 per year (the median earnings of high school graduates). Finally, we show that for-profit entry and exit decisions are at most weakly responsive to labor demand shocks. Our results point to low returns to for-profit enrollment that have important implications for public investments in higher education as well as how students make postsecondary choices.
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