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Consumption-Wealth Ratio and Expected Housing Return


Author Info

  • N. Kundan Kishor

    (University of Wisconsin-Milwaukee)

  • Swati Kumari

    (University of Wisconsin-Milwaukee)

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    In this paper, we estimate expected return on housing by exploiting information from the variations in the consumption- wealth ratio. We combine a present-value model of consumption with an unobserved component model to express the excess consumption-assets ratio (consumption in excess of labor income) as a linear function of unobserved return on housing assets, financial assets, and consumption growth. We apply a Kalman filter to extract expected housing asset returns from the history of realized returns and excess consumption growth. Our results suggest that filtered housing returns do a significantly better job in predicting realized housing returns than other popular predictors.

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    Bibliographic Info

    Article provided by American Real Estate Society in its journal journal of Real Estate Research.

    Volume (Year): 36 (2014)
    Issue (Month): 1 ()
    Pages: 87-108

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    Handle: RePEc:jre:issued:v:36:n:1:2014:p:87-108

    Contact details of provider:
    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Order Information:
    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323

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