Bidding with Confidence: The Effect of Financial and Economic Beliefs on Housing Markets

This paper examines the role of consumer confidence in shaping housing market participation and transaction prices. We combine individual-level measures of consumer confidence with administrative housing transaction data for the Netherlands over the period 2006 to 2024, exploiting within-quarter cross-sectional variation in confidence observed prior to market entry. Consumer confidence is a strong predictor of participation on both sides of the housing market, with substantially larger effects for buyers than for sellers. Conditional on participation and accounting for endogenous selection, buyers with more positive expectations pay 2.2% higher transaction prices in supply-constrained markets, with effects increasing to 4.4% in the most constrained areas. In contrast, seller confidence has no economically meaningful impact on transaction prices. The findings identify two distinct channels through which expectations affect housing market outcomes: by influencing market participation decisions and, conditional on participation, by affecting buyers’ willingness to pay. These results suggest that housing market dynamics are driven not only by valuation differences among active participants but also by confidence-induced selection into the market.

Keywords: Consumer Confidence; Expectations; Market Participation; Transaction Prices; Housing Markets
JEL codes C34; D12; D84; G40; R30

Working paper no. 874