A comprehensive investigation into the dynamics shaping global housing markets reveals an intriguing yet concerning behavioral pattern: global herding driven by psychological biases. Drawing on extensive quarterly data compiled by the Organisation for Economic Co-operation and Development (OECD) spanning from 1970 through 2022, recent research uncovers how housing markets across various nations exhibit synchronized behavior influenced significantly by the US market’s price-to-rent regimes alongside average price fluctuations. This convergence does not merely arise from economic fundamentals or policy measures alone but is deeply rooted in investors’ collective cognitive distortions, most notably confirmation bias. Such findings mark a paradigm shift in understanding the forces that propagate global housing market trends.
At the core of the investigation is the notion of global herding, a phenomenon wherein investors across different countries tend to imitate one another’s market behaviors, often disregarding local fundamental indicators in favor of perceived global signals. The US housing market, due to its size and perceived leadership role, acts as an influential beacon. When investors perceive signals from the US market—especially when the US price-to-rent ratios denote either overvaluation or undervaluation—they unconsciously seek confirmation of their market expectations by comparing these signals with the ongoing average price changes globally. This reliance on the so-called “pseudo signal” emanating from the US market exacerbates herding tendencies, whereby individual decision-making is subordinated to collective momentum.
Crucially, the research delineates this herding into two discrete types: downside and upside herding. Downside herding transpires when investors confront a scenario where average housing prices decline simultaneously with an overvalued US market regime. Here, a successive psychological cascade unfolds, starting with investors’ fear that a US market downturn will ripple internationally. This fear-induced chain triggers confirmation bias, whereby market participants interpret coinciding downward price trends as validation of their pessimistic outlook. Their growing overconfidence in this negative feedback loop amplifies sell-side trading activity, effectively mimicking the US market’s perceived behavior and cementing a global sell-off.
Conversely, upside herding manifests during periods where the US housing market is undervalued in conjunction with rising global average prices. Through a similar cognitive mechanism, investors perceive the upward trend as endorsed by a recovering or undervalued US market, validating optimistic expectations. This recognition fosters overconfidence, leading to increased buy-side trading as investors collectively chase positive momentum. The psychological underpinning remains identical: investors seek confirmation from the US market’s status to justify their market positions, thereby reinforcing global herding behavior.
The implications of these findings extend beyond academic curiosities, potentially reshaping policy frameworks addressing housing market stability. Traditionally, interest rate adjustments have served as one of the primary tools deployed by central banks to cool overheated housing markets or stimulate sluggish ones. Measures centered around regulating household debt ratios—such as debt-to-income (DTI) and loan-to-value (LTV) constraints—have also played pivotal roles. However, the persistence of global herding behavior suggests that such instruments could face inherent limitations in efficacy, particularly because the herding originates from psychological biases transcending national boundaries and economic fundamentals.
Recognizing these challenges, the study proposes novel avenues for market stabilization rooted not in direct economic intervention but in behavioral debiasing. One promising approach is the development of an early warning system calibrated to measure the intensity of herding behavior in housing markets. By leveraging specific coefficients indicative of downside and upside herding signals—labeled as γ_g,d2 and γ_us,d2 for downside herding and γ_g,u1 and γ_us,u1 for upside herding—policymakers can theoretically establish tolerance thresholds. Crossing these thresholds would trigger timely policy or regulatory responses intended to dampen excessive herding before it spirals into market instability.
Beyond algorithmic thresholds, the research advocates for subtle behavioral “nudges” as an effective means to counteract investors’ cognitive biases. Nudges, as conceptualized in behavioral economics, represent gentle interventions that reshape decision-making environments without restricting freedom of choice. By strategically designing decision frames or implementing choice architecture that highlights an investor’s susceptibility to confirmation bias, regulators and market facilitators might help participants self-recognize their psychological pitfalls. Such increased metacognition could limit the unmoderated escalation of herding behavior in response to US market signals.
Furthermore, the ubiquitous role of social media and other information networks cannot be underestimated. In today’s hyperconnected financial ecosystems, incorrect or unverified beliefs can propagate rapidly among investors, sometimes fueled by anecdotal narratives or speculative gossip. These rapid information cascades contribute substantially to confirmation biases and, by extension, global herding. The study underscores the importance of accurate and authoritative information dissemination through these channels as a counterweight against disruptive speculative waves. Strategic communication campaigns leveraging social media platforms could serve as “corrective contagions,” rapidly debunking false market narratives and helping stabilize collective investor sentiment.
While these behavioral insights push the frontier of understanding housing market dynamics, the research is careful to acknowledge alternative explanatory frameworks and limitations inherent in the current analysis. Notably, the “club convergence theory” offers a plausible rival interpretation. This theory suggests that countries sharing similar economic, cultural, and political characteristics naturally gravitate towards synchronized growth patterns, which could manifest as herding-like correlations in housing markets. Given that the current dataset focuses extensively on OECD member countries—entities who already pursue coordinated economic policies—the observed global herding may partially reflect genuine structural convergence rather than pure psychological phenomena.
Another potential constraint lies in the choice of proxy indicators for housing market fundamentals. Price-to-rent (PTR) and price-to-income (PTI) ratios, though widely used, may imperfectly capture the multifaceted realities underpinning housing prices. Their susceptibility to psychological biases or inability to encompass emergent monetary policies and other macroeconomic shifts means the fishing for alternative or complementary indicators remains an open methodological challenge. In particular, the central role attributed here to PTR regimes in the US as primary signals guiding investor expectations invites further exploration of monetary regimes or PTI-based regimes that could exert comparable influence.
Despite these caveats, the study’s insights remain compelling and point toward the necessity for more integrative approaches in managing housing market risks. Future investigations expanding the dataset to include non-OECD countries, particularly large emerging economies such as China, might provide a broader lens to disentangle psychological from structural effects. Incorporating more diverse geopolitical contexts could validate or challenge the universality of identified herding dynamics and the role of confirmation bias as their root cause.
Crucially, the investigation culminates in highlighting the primacy of psychological factors over mere economic fundamentals in steering global housing market trends. While traditional theories emphasize rational responses to changing market metrics or policy shifts, this research adds a vital layer: the human tendency to seek validation for pre-existing beliefs amplifies collective movements beyond what fundamentals alone would justify. Such cognitive phenomena, operating on a global scale, challenge conventional economic models and underscore the urgent need for behavioral economic perspectives integrated with empirical data.
In an era continuously shaped by globalization and rapid information exchange, the emergent patterns of housing market behavior point toward a complex interplay of economics and psychology. The dominant role played by the US housing market as a reference point for investors worldwide reflects not only economic size but also the psychological power of “lead markets” in shaping global sentiments. This reliance on a “pseudo signal” is what ultimately catalyzes global herding, engulfing local markets within shared cycles of overconfidence and collective action.
The insights garnered here offer hope as well as caution. Understanding that confirmation bias is a formidable driver behind herding opens pathways for novel policy designs inclusive of psychological elements, long overlooked in economic governance. Whether through calibrated early warning systems, behavioral nudges, or strategic social media utilization, effective interventions are conceptually attainable. However, the challenge lies in transcending disciplinary boundaries to blend economic rigor with psychological acuity in real-world applications.
This research is not merely an academic exercise but a clarion call to policymakers, investors, and information disseminators alike. As housing markets continue to command global attention and impact economies fundamentally, a nuanced appreciation of the psychological drivers behind synchronized market behavior will be indispensable in crafting resilient frameworks. Only by embracing this interdisciplinary approach can the persistent threat of global housing market instability be mitigated in a world deeply interconnected both economically and cognitively.
Ultimately, the study underscores a crucial paradigm: the forces that precipitate housing market cycles extend far beyond interest rate changes and regulatory ceilings. The psychology of confirmation, magnified through interconnected global signals and investor networks, propels herding behaviors that may override conventional interventions. Recognizing and addressing these hidden currents promises a more stable and equitable housing market landscape in the decades to come.
Subject of Research: Global herding behavior and confirmation bias in housing markets.
Article Title: Confirmation bias and herding behavior across the housing markets.
Article References:
You, T. Confirmation bias and herding behavior across the housing markets.
Humanit Soc Sci Commun 12, 708 (2025). https://doi.org/10.1057/s41599-025-05021-5
Image Credits: AI Generated
