Expectations, Efficiency, and Euphoria in the Housing Market
AbstractThis paper studies expectations of capital appreciation in the housing market. We show that expectations impounded in the rent/price ratio at the beginning of the decade successfully predict appreciation rates, but only if we first control for cross-sectional differences in the quality of rental versus owner-occupied housing. We also demonstrate that observed rent/price ratios contain a disequilibrium component that also has power to forecast subsequent appreciation rates. Finally, we provide evidence consistent with euphoria: participants in housing markets appear to overreact to income growth.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5179.
Date of creation: Jul 1995
Date of revision:
Publication status: published as Regional Science & Urban Economics, vol. 26, no. 3-4, pp. 369-386, June 1996
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
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Other versions of this item:
- Capozza, Dennis R. & Seguin, Paul J., 1996. "Expectations, efficiency, and euphoria in the housing market," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 369-386, June.
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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