Speculative Dynamics of Prices and Volume

Using data on 50 million home sales from the last U.S. housing cycle, we document that much of the variation in volume came from the rise and fall in speculation. Cities with larger speculative booms have larger price booms, sharper increases in unsold listings as the market turns, and more severe busts. We present a model in which predictable price increases endogenously attract short-term buyers more than longterm 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.