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Consumption-Wealth Ratio and Expected Housing Return

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  • N. Kundan Kishor

    ()
    (University of Wisconsin-Milwaukee)

  • Swati Kumari

    ()
    (University of Wisconsin-Milwaukee)

Abstract

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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File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/new_current/vol36n01/04.87_108.pdf
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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

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