Speculative Dynamics of Prices and Volume

Using data on 50 million home sales from the recent U.S. housing cycle, we document that much of the variation in volume came from the rise and fall in short-term speculation. Cities with larger speculative booms have larger price cycles, sharper increases in unsold listings as the market turns, and more eventual foreclosures. We present a model in which predictable price increases endogenously attract short-term buyers more than long-term buyers. Short-term buyers amplify volume by selling faster and destabilize prices through positive feedback. Our model matches key aggregate patterns, including the lead–lag price–volume relation and a sharp rise in inventories