Housing booms occur whenever these expectations are either especially high or low.

http://web.stanford.edu/~piazzesi/illusion.pdf

The key assumptions are that (i) agents who suffer from inflation illusion interact with “smart” agents in markets for nominal credit instruments and (ii) borrowing must be backed by real estate. We show under these assumptions that nominal interest rates move with smart agents’ inflation expectations, and housing booms occur whenever these expectations are either especially high or low.