Enter News, Numbers, and Narratives
Newspapers eventually discovered that readers were interested in stories about
home prices in congested inner cities, where the price of land is more connected
with home prices because land is much more expensive there. These stories may
have gained contagion, leading people to think that their properties far from city
centers shared some of the same speculative trend to higher prices.
Another factor adding to contagion was the development of home price
indexes for existing homes. The first mention of median prices of existing homes
in ProQuest News & Newspapers appeared in 1957 in an Associated Press story
referring to a US Senate housing subcommittee report, which concluded that
low-income families were being priced out of the housing market partly because
of the increased price of land.8 Newspapers began publishing the National
Association of Realtors median price of existing homes in 1974. The Case-
Shiller home price index (now the S&P/CoreLogic/Case-Shiller home price
index), originally created by Karl Case and me, began to appear in 1991. These
indexes allowed news media to regularly announce large movements, thereby
lending concreteness to stories about movements in home prices.
Before the advent of statistical measures of home prices, it was relatively hard
for the news media to come up with regular stories about speculative movements
in that market. Before stock price indexes became popular in the 1930s, writers
for the news media were able to quote numbers illustrating big movements in the
stock market, usually by quoting the one-day change in a few major stocks,
which tended to move in the same direction on big move days. They lost no
opportunity to write such stories. But it is not so easy to write about regular news
in home prices. A house is almost never resold in just one day. Rather, most
house sales occur over long intervals of time, years or even decades. Even
changes in the median home price month to month were not newsworthy,
because one-month changes could be erratic when different kinds of houses sold
from one month to the next. The repeat-sales that Karl Case and I first started
publishing in 1991 marked the beginning of a new era, one in which month-to-
month changes in aggregate home prices could be inferred from highly disparate
houses, each of which sells very infrequently. The indexes led to a futures
market for single-family homes at the Chicago Mercantile Exchange that has the
potential to reveal day-to-day changes in home prices, though activity on that

market mostly dried up after the 2007–9 world financial crisis.
A common assumption in accounts of speculative bubbles in stock and
housing markets has been that investors are extrapolating recently successful
investment performance, expecting the price increases to continue and thereby
eagerly forcing prices up even higher. This process repeats again and again in
what may be called a vicious circle or feedback loop. However, narratives matter
as well. If we listen to the narrative at such times, investors may seem a lot less
calculating than they sometimes appear. Instead, the price increase appears to be
driven less by future expectations than by the proliferation of stories and talk
that draw attention to the asset that is booming, thereby fueling the bubble.

House Lust and Social Comparison
It is vital to listen to what people are saying during a rapid expansion of prices,
to understand just what is animating them. In his 2007 book House Lust:
America’s Obsession with Our Homes, Daniel McGinn sees psychological
factors at work. The book was published at the beginning of the world financial
crisis of 2007–9, right on the heels of the most rapid increase in house prices
during the record-setting US national home-price boom of 1997–2006.
McGinn chose the title House Lust because he believed that the emotions
displayed in conversations during the boom market just before the 2007–9 world
financial crisis and recession reflected a true lust: a lust for status, and maybe
power, that sometimes drives people to ruinous actions. During this lustful
period in US history, people relished stories of higher and higher home prices,
and of the people who benefited from them, a bit too much to be rational.
McGinn defines and explains some impulses and motives that are not in most
economists’ vocabulary. He describes the “high-five effect,” which is the
“vicarious thrill of cheering on a winner.” Most people enjoy seeing their own
recent success with their real estate investments, and, so long as they are
invested and not envious, they enjoy their friends’ and neighbors’ successes too.
They are happy to share in their neighbors’ victories, giving each other “high
fives,” the celebratory gesture that athletes give to each other after a big win, in a
moment of seeming joy.
McGinn also describes an “Our House Is Our Retirement Plan” effect: the
story that a house is necessary to successful living because it is a recognizable
store of value. The narrative in the recent boom fueled house prices by implying
the dictum that one should “stretch” or “reach” to buy a house. Buy the biggest
house you can afford, because you will be glad that you did so when the house’s
value goes even higher. McGinn also describes an “It’s So Easy to Peek in the
Window” effect, caused by the Internet and social media, that allows housing
voyeurs to get information about neighbors’ and celebrities’ home specs and
prices as never before. McGinn observed:
And in many neighborhoods, if you’d judged the nation’s interests by its
backyard barbecue conversation—settings where subjects like war, death, and
politics are risky conversational gambits—a lot of people find homes to be