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We exploit a city-level panel comprised of individual house price estimatesto estimate the impact of COVID-19 on both small and big real-estate markets inCalifornia USA. Descriptive analysis of spot house price estimates, includingcontemporaneous price uncertainty and 30-day price change for individualproperties listed on the online real-estate platform Zillow.com, togetherfacilitate quantifying both the excess valuation and valuation confidenceattributable to this global socio-economic shock. Our quasi-experimentalpre-/post-COVID-19 design spans several years around 2020 and leveragescontemporaneous price estimates of rental properties - i.e., real estateentering the habitation market, just not for purchase (off-market) and hencefree of speculation - as an appropriate counterfactual to properties listed forsale, which are subject to on-market speculation. Combining unit-level matchingand multivariate difference-in-difference regression approaches, we obtainconsistent estimates regarding the sign and magnitude of excess price growthobserved after the pandemic onset. Specifically, our results indicate thatproperties listed for sale appreciated an additional 1% per month above whatwould be expected in the absence of the pandemic. This corresponds to an excessannual price growth of roughly 12.7 percentage points, which accounts for morethan half of the actual annual price growth in 2021 observed across the studiedregions. Simultaneously, uncertainty in price estimates decreased, signalingthe irrational confidence characteristic of prior asset bubbles. We explore howthese two trends are related to market size, local market supply and borrowingcosts, which altogether lend support for the counterintuitive roles ofuncertainty and interruptions in decision-making.

Shift in house price estimates during COVID-19 reveals effect of crisis on collective speculation