"Irrational Exuberance in the U.S. Housing Market: Were Evangelicals Left Behind?"
IMF Working Paper No. 09/57
CHRISTOPHER CROWE, International Monetary Fund (IMF)
Abstract: The recent housing bust has reignited interest in psychological theories of speculative excess (Shiller, 2007). I investigate this issue by identifying a segment of the U.S. population—evangelical protestants—that may be less prone to speculative motives, and uncover a significant negative relationship between their population share and house price volatility. Evangelicals' focus on Biblical prophecy could account for this difference, since it may enable them to interpret otherwise negative events as containing positive news, dampening the response of house prices to shocks. I provide evidence for this channel using a popular internet measure of "prophetic activity" and a 9/11 event study. I also analyze survey data covering religious beliefs and asset holding, and find that 'end times' beliefs are associated with a one-third decline in net worth, consistent with these beliefs providing a form of psychic insurance (Scheve and Stasavage, 2006a and 2006b) that reduces asset demand.
I love the irreverence, but I remain confused. If I believed that the end-times were at hand, shouldn't I shift from investment goods like houses to consumption? What's end-game if you think the rapture closer at hand and you have an evangelical's utility function? I'd guess selling capital stock and using the cash to make a last ditch effort to save heathens, but it's hard for me to tell. It would just seem odd that the proposed response is to spend more on housing. He finds that areas with more evangelicals see an upward trend in housing prices in the wake of 9/11 while the heathen areas see a downturn. Is it possible that the cross-sectional effects are instead picking up the region's likelihood of being the next terrorist target? Or, perhaps, outmigration of those proportionately-few evangelicals in the big cities back to the Bible Belt as the rapture seems closer, bidding up the price of housing in those places?
I keep thinking about the old Heckman paper on the effects of prayer on God's attitude to mankind and Jack Van Impe's prognostications of the end times. Should the latter count any the less as satire just because they don't mean it to be so?