Momentum and Reversion to Fundamentals : Are They Captured by Subjective Expectations of House Prices?

Many studies documented that actual asset-price movements exhibit momentum and reversion to fundamentals. We study real estate markets and find that households' subjective house-price expectations capture momentum but not reversion to fundamentals. Moreover, if current house prices are deviated upwards (downwards) from the long-run relationship with economic fundamentals, households will have even higher (lower) expectations of future appreciations. Additional empirical results suggest that the more likely reason is that households do not have accurate perception of the fundamental value (fundamental-misperception conjecture) than that they do not believe that mispricing will be quickly corrected by the market (mispricing-persistence conjecture)