Download or read book What Factors Drive the Price Rent Ratio for the Housing Market A Modified Present Value Analysis written by N. Kundan Kishor and published by . This book was released on 2014 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider which factors determined the price-rent ratio for the housing market in 18 U.S. metropolitan areas (MSAs) and at the national level over the period of 1975 to 2012. Based on a present-value framework, our proposed empirical model separates the price-rent ratio for a given market into unobserved components related to the expected real rent growth and the expected housing return, but is modified from standard present-value analysis by also including a residual component that captures non-stationary deviations of the price-rent ratio from its present-value level. Estimates for the modified present-value model suggest that the present-value residual (PVR) component is always important and sometimes very large at the national and regional levels, especially for MSAs that have experienced frequent booms and busts in the housing market. In further analysis, we find that house prices in MSAs that have larger PVR components are more sensitive to mortgage rate changes. Also, comparing our results with a recent statistical test for periodically-collapsing bubbles, we find that MSAs with large estimated PVR components are the same MSAs that test positively for explosive sub-periods in their price-rent ratios, especially during the 2005-2007 subsample. Our approach allows us to estimate the correlation between shocks to expected rent growth, the expected housing return, and the PVR component. We find that the expected housing return and movements in the PVR component are highly positively correlated in the pre-2006 sample period, implying an impact of the expected housing return on house prices that is different than what a standard present-value model would imply, although this correlation declined significantly in the post- 2006 sample period. Our results also show that most of the variation in the present-value component of the price-rent ratio arises due to the variation in the expected housing return.
Download or read book Rents and Prices of Housing Across Areas of the U S written by Todd E. Clark and published by . This book was released on 1993 with total page 82 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A Trend and Variance Decomposition of the Rent price Ratio in Housing Markets written by and published by . This book was released on 2006 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Long Run Expectations Learning and the U S Housing Market written by Daniel L. Tortorice and published by . This book was released on 2015 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines key facts about the U.S. housing market. The price to rent ratio is highly volatile and significantly autocorrelated. Returns on housing are positively autocorrelated. The price to rent ratio is negatively correlated with future returns on housing and future rent growth. Finally, housing returns exhibit significant time varying volatility. I show that a benchmark rational expectations general equilibrium asset pricing model is inconsistent with these facts. I modify the model in two ways to improve its fit with the data. First, I allow for pricing frictions so prices adjust slowly to their fundamental value. Second, I assume the agent does not know if housing fundamentals, captured by rental flows, are stationary or non-stationary and has changing beliefs depending on how well each model fits the current data. I find that these modifications allow the model to increase the volatility of the price to rent ratio and to match the autocorrelation of housing returns. The price to rent ratio then negatively forecasts returns and rent growth. Finally the model generates time varying volatility consistent with the data.
Download or read book Bubble Detective City Level Analysis of House Price Cycles written by Mr. Serhan Cevik and published by International Monetary Fund. This book was released on 2023-02-17 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates house price dynamics at high frequency using city-level observations during the period 1994-2022 in Lithuania. We employ multiple time series-based econometric procedures to examine whether real house prices and house price-to-rent ratios exhibit explosive behavior. According to these recursive right-tailed test results, we reject the null hypothesis of no-bubble and find evidence for long and multiple periods of explosive behavior in the real estate market in all major cities during the sample period. While the size of bubbles varies across cities, especially when we use the house price-to-rent ratio, there is clearly a similar boom-bust pattern. Large house price corrections can in turn have adverse effects on economic performance and financial stability, as experienced during the global financial crisis and other episodes in history.
Download or read book A Trend and Variance Decomposition of the Rent Price Ratio in Housing Markets written by Joshua Gallin and published by . This book was released on 2015 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use the dynamic Gordon-growth model to decompose the rent-price ratio for owner-occupied housing in the U.S., four Census regions, and twenty-three metropolitan areas into three components: The expected present value of real rental growth, real interest rates, and future housing premia. We use these components to decompose the trend and variance in rent-price ratios for 1975-2005, for an early sub-sample (1975-1996), and for the recent housing boom (1997-2005). We have three main findings. First, variation in expected future real rents accounts for a small share of variation in our sample rent-price ratios; variation in real interest rates and housing premia account for most of the variability. Second, expected future real rates and housing premia were so strongly negatively correlated prior to 1997 that changes to real interest rates did not affect the rent-price ratio. After 1997, rates and premia have been positively correlated, and the decline in the rent-price ratio that has occurred in almost every geographic area in our sample since 1997 reflects both declining real rates and declining premia. Third, we show that in the recent housing boom, 65 percent of the decline in the aggregate rent-price ratio is due to a declining housing premium.
Download or read book The Housing Boom and Bust written by Thomas Sowell and published by Basic Books (AZ). This book was released on 2009-05-12 with total page 194 pages. Available in PDF, EPUB and Kindle. Book excerpt: Explains how we got into the current economic disaster that developed out of the economics and politics of the housing boom and bust. The "creative" financing of home mortgages and "creative" marketing of financial securities based on these mortgages to countries around the world, are part of the story of how a financial house of cards was built up--and then collapsed.
Download or read book Developing a Regime Switching Present Value Model written by Jan R. Kim and published by . This book was released on 2017 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: In contrast to the prediction of the present-value model, many empirical studies find the price-rent ratio nonstationary. This finding is frequently interpreted as evidence of speculative bubbles. In this paper, we seek an alternative explanation. Allowing the expectations of future housing market variables to switch between two distinctive regimes, we derive a present value formula for the price-rent ratio whose mean is regime-dependent. Applied to the U.K. housing market, our model successfully identifies two distinctive regimes in the expectations of the investors and the mean of the price-rent ratio. Standard unit root tests are strongly supportive of the stable relation between house price and rents, once the regime-specific means of the ratio are taken into account. It is also found that the higher mean of the ratio in one regime does not reflect higher rates of expected rent growth. Instead, it is due to the lower discount rate for future payoffs in that regime.
Download or read book Fundamental Drivers of House Prices in Advanced Economies written by Ms.Nan Geng and published by International Monetary Fund. This book was released on 2018-07-13 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: House prices in many advanced economies have risen substantially in recent decades. But experience indicates that housing prices can diverge from their long-run equilibrium or sustainable levels, potentially followed by adjustments that impact macroeconomic and financial stability. Therefore there is a need to monitor house prices and assess whether they are sustainable. This paper focuses on fundamentals expected to drive long run trends in house prices, including institutional and structural factors. The scale of potential valuation gaps is gauged on the basis of a cross-country panel analysis of house prices in 20 OECD countries.
Download or read book Price Expectations and the U S Housing Boom written by Pascal Towbin and published by International Monetary Fund. This book was released on 2015-07-30 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Between 1996 and 2006 the U.S. has experienced an unprecedented boom in house prices. As it has proven to be difficult to explain the large price increase by observable fundamentals, many observers have emphasized the role of speculation, i.e. expectations about future price developments. The argument is, however, often indirect: speculation is treated as a deviation from a benchmark. The present paper aims to identify house price expectation shocks directly. To that purpose, we estimate a VAR model for the U.S. and use sign restrictions to identify house price expectation, housing supply, housing demand, and mortgage rate shocks. House price expectation shocks are the most important driver of the boom and account for about 30 percent of the real house price increase. We also construct a model-based measure of exogenous changes in price expectations and show that this measure leads a survey-based measure of changes in house price expectations. Our main identification scheme leaves open whether expectation shifts are realistic or unrealistic. In extensions, we provide evidence that price expectation shifts during the boom were primarily unrealistic and were only marginally affected by realistic expectations about future fundamentals.
Download or read book House Price Developments in Europe written by Angana Banerji and published by International Monetary Fund. This book was released on 2008-09-01 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: House prices in Europe have shown diverging trends, and this paper seeks to explain these differences by analyzing three groups of countries: the "fast lane", the average performers, and the slow movers. Price movements in the first two groups are found to be driven mostly by income and trends in user costs, and housing markets in these countries seem relatively more susceptible to adverse developments in fundamentals. Real house price declines among the slow movers are harder to explain, although ample supply, low home ownership, and less complete mortgage markets are likely factors. The impact of macroeconomic, prudential and structural policies on housing markets can be large and should be a factor in policy decisions.
Download or read book Measurement of Rent Inflation written by Jonathan McCarthy and published by DIANE Publishing. This book was released on 2011 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is a print on demand edition of a hard to find publication. Rent, paid either to a landlord or to oneself as an owner-occupant, has a large weight in the CPI and in the personal consumption expenditures deflator. The authors describe how the Bureau of Labor Stat. (BLS) estimates tenant rent and owners¿ equivalent rent. They then estimate alternative inflation rates for tenant rent and owners¿ equivalent rent based on Amer. Housing Survey data, following BLS methodology as closely as possible. The authors¿ alternative tenant rent inflation series is generally consistent with the corresponding BLS series. However, their alternative owners¿ equivalent rent inflation series is consistently lower than the corresponding BLS series by an amount large enough to have a significant effect on the overall inflation rate.
Download or read book The Long run Relationship Between House Prices and Rents written by Joshua Hojvat Gallin and published by . This book was released on 2004 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: "I show that when house prices are high relative to rents (that is, when the rent-price ratio is low) changes in real rents tend to be larger than usual and changes in real prices tend to be smaller than usual. Standard error-correction models provide inconclusive results about the predictive power of the rent-price ratio at a quarterly frequency. I use a long-horizon regression approach to show that the rent-price ratio helps predict changes in real rents and real prices over three-year periods. This result withstands the inclusion of a measure of the user cost of capital. I show that a long-horizon regression approach can yield biased estimates of the degree of error correction if prices have a unit root but do not follow a random walk. I construct bootstrap distributions to conduct appropriate inference in the presence of this bias. The results lend empirical support to the view that the rent-price ratio is an indicator of valuation in the housing market"--Abstract.
Download or read book The Rent Price Index in U S Housing Markets written by Philip Murphy and published by . This book was released on 2009 with total page 13 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, the relationship between house prices and rents across eight major metropolitan areas in the U.S. is examined, and a rent price index to provide the framework of our analysis is developed. Adjustments in the rent-price ratio can theoretically occur through the numerator, the denominator, or both. Intuitively, rents are stickier than prices, and therefore, prices are expected to do most of the adjusting when the ratio significantly deviates from historical norms. Our results support this intuition. Our analysis shows that low rent-price ratios are associated with subsequent periods of low or negative house price changes. This implies that house prices overshoot fundamental values associated with capitalization of future rents, and revert to equilibrium through subsequent price correction. Based on rent-price index levels across the eight regions we analyzed, the current housing market correction has already unwound much of its previous overshooting, but it is important to note that the overshooting process may work to the downside as well as the upside. For house price data, we utilize the Samp;P/Case-Shiller Home Price Indices. For rent data, we utilize the Bureau of Labor Statistic's metro area owner's equivalent rent indices, an input to the Consumer Price Index (CPI).
Download or read book Rent Control Undermaintenance and Housing Deterioration written by C. Peter Rydell and published by . This book was released on 1982 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Changing Rates of Return on Rental Property and Condominium Conversions written by Theodore M. Crone and published by . This book was released on 1984 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Real Estate Market Valuation and Analysis written by Joshua Kahr and published by John Wiley & Sons. This book was released on 2006-02-10 with total page 257 pages. Available in PDF, EPUB and Kindle. Book excerpt: "A fresh, insightful look at how real estate professionals actually value properties and analyze markets. The focus on different product types as well as market segments are especially useful." --Barry Hersh, AICP, Associate Professor of Real Estate and Urban Planning, City University of New York This in-depth look at the core tools of real estate valuation will show you how to analyze the real estate market and assess the financial feasibility of a project. Many people go with their instincts or past experience when reviewing the financials and fail to utilize the useful data and analytical tools available in this field. Get the analytical data and tools you need to assess the financial feasibility of any project. Order your copy today.
