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The Efficiency of the Market for Single-Family Homes

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  • Case, Karl E
  • Shiller, Robert J

Abstract

Tests of the efficiency of single family home prices are performed using repeat sales prices of 39,210 individual homes in Atlanta, Chicago, Dallas, and San Francisco/Oakland for 1970-86. The market does not appear to be efficient. Year-to-year changes in prices tend to be followed by changes in the same direction in the subsequent year. Moreover, information about real interest rates does not appear to be incorporated in prices. There is, thus, a profitable trading rule for persons who are free to time the purchase of their homes. Still, overall, individual housing price changes are not very forecastable. Copyright 1989 by American Economic Association.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 79 (1989)
Issue (Month): 1 (March)
Pages: 125-37

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Handle: RePEc:aea:aecrev:v:79:y:1989:i:1:p:125-37
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  1. Gau, George W, 1984. "Weak Form Tests of the Efficiency of Real Estate Investment Markets," The Financial Review, Eastern Finance Association, vol. 19(4), pages 301-20, November.
  2. Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, vol. 65(3), pages 269-82, June.
  3. Engle, Robert F. & Lilien, David M. & Watson, Mark, 1985. "A dymimic model of housing price determination," Journal of Econometrics, Elsevier, vol. 28(3), pages 307-326, June.
  4. George W. Gau, 1985. "Public Information and Abnormal Returns in Real Estate Investment," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(1), pages 15-31.
  5. Huizinga, John & Mishkin, Frederic S., 1986. "Monetary policy regime shifts and the unusual behavior of real interest rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 231-274, January.
  6. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October.
  7. Linneman, Peter, 1986. "An empirical test of the efficiency of the housing market," Journal of Urban Economics, Elsevier, vol. 20(2), pages 140-154, September.
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