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What drives returns to euro area housing? Evidence from a dynamic dividend–discount model


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  • Hiebert, Paul
  • Sydow, Matthias
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    We apply a dynamic dividend–discount model to analyse housing returns for eight euro area countries comprising over 90% of euro area GDP, both individually and as a panel. A vector autoregressive model (VAR) is estimated for four variables – excess return to housing, rents, the real interest rate and real disposable per capita income – using quarterly data over the period 1978–2009. This empirical investigation – which allows for a decomposition of house price movements into movements in rent (cash-flow) and expected return news components – indicates that the bulk of the variability of euro area house price movements can be attributed to movements in fundamentals. There remains nonetheless an important but less sizeable influence of market-wide (or expected-return) variations in house prices. Country-specific estimation indicates considerable heterogeneity around the euro area result, both for what concerns long-term impacts and dynamics. Notably, changes in expected returns play a relatively strong role in the house prices of Ireland and Spain.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Urban Economics.

    Volume (Year): 70 (2011)
    Issue (Month): 2 ()
    Pages: 88-98

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    Handle: RePEc:eee:juecon:v:70:y:2011:i:2:p:88-98

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    Keywords: House price; Housing rental yield; Return decomposition; Panel VAR estimation; Cash flow news;

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    Cited by:
    1. Robert J. Hill & Iqbal A. Syed, 2012. "Hedonic Price-Rent Ratios, User Cost, and Departures from Equilibrium in the Housing Market," Graz Economics Papers, University of Graz, Department of Economics 2012-08, University of Graz, Department of Economics.
    2. Kajuth, Florian & Knetsch, Thomas A. & Pinkwart, Nicolas, 2013. "Assessing house prices in Germany: Evidence from an estimated stock-flow model using regional data," Discussion Papers, Deutsche Bundesbank, Research Centre 46/2013, Deutsche Bundesbank, Research Centre.


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