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House prices and fundamental value

Author

Listed:
  • John Krainer
  • Chishen Wei

Abstract

This Economic Letter describes one of the measures commonly used to gauge the fundamental value of housing—the price-rent ratio. We describe the kinds of forces that cause the ratio to move over time and document which forces appear to be most important. We document the way that the housing market typically adjusts to changes in economic fundamentals.

Suggested Citation

  • John Krainer & Chishen Wei, 2004. "House prices and fundamental value," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct1.
  • Handle: RePEc:fip:fedfel:y:2004:i:oct1:n:2004-27
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    File URL: http://www.frbsf.org/publications/economics/letter/2004/el2004-27.html
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    File URL: http://www.frbsf.org/publications/economics/letter/2004/el2004-27.pdf
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    References listed on IDEAS

    as
    1. John Y. Campbell, Robert J. Shiller, 1988. "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," Review of Financial Studies, Society for Financial Studies, vol. 1(3), pages 195-228.
    2. Cochrane, John H, 1992. "Explaining the Variance of Price-Dividend Ratios," Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 243-280.
    3. Jonathan McCarthy & Richard Peach, 2004. "Are home prices the next "bubble"?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-17.
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    Cited by:

    1. repec:kap:jrefec:v:55:y:2017:i:4:d:10.1007_s11146-016-9565-0 is not listed on IDEAS
    2. Hiebert, Paul & Sydow, Matthias, 2011. "What drives returns to euro area housing? Evidence from a dynamic dividend–discount model," Journal of Urban Economics, Elsevier, vol. 70(2), pages 88-98.
    3. Engsted, Tom & Hviid, Simon J. & Pedersen, Thomas Q., 2016. "Explosive bubbles in house prices? Evidence from the OECD countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 40(C), pages 14-25.
    4. Ryan R. Brady, 2011. "Measuring the diffusion of housing prices across space and over time," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(2), pages 213-231, March.
    5. Taipalus, Katja, 2012. "Detecting asset price bubbles with time-series methods," Scientific Monographs, Bank of Finland, number 2012_047, December.
    6. Sock-Yong Phang, 2010. "Affordable homeownership policy: Implications for housing markets," International Journal of Housing Markets and Analysis, Emerald Group Publishing, vol. 3(1), pages 38-52, March.
    7. Richard Green & Roberto Mariano & Andrey Pavlov & Susan Wachter, 2009. "Misaligned Incentives and Mortgage Lending in Asia," NBER Chapters,in: Financial Sector Development in the Pacific Rim, East Asia Seminar on Economics, Volume 18, pages 95-111 National Bureau of Economic Research, Inc.
    8. Kristopher S. Gerardi & Christopher L. Foote & Paul S. Willen, 2010. "Reasonable people did disagree : optimism and pessimism about the U.S. housing market before the crash," Public Policy Discussion Paper 10-5, Federal Reserve Bank of Boston.
    9. Winston T. H. Koh & Roberto S. Mariano & Andrey Pavlov & Sock Yong Phang & Augustine H. H. Tan & Susan M. Wachter, 2006. "Underpriced Default Spread Exacerbates Market Crashes," Working Papers 12-2006, Singapore Management University, School of Economics.
    10. Baltagi, Badi H. & Li, Jing, 2015. "Cointegration of matched home purchases and rental price indexes — Evidence from Singapore," Regional Science and Urban Economics, Elsevier, vol. 55(C), pages 80-88.
    11. Hiebert, Paul & Sydow, Matthias, 2009. "What drives returns to euro area housing? Evidence from a dynamic dividend-discount model," Working Paper Series 1019, European Central Bank.
    12. Goodman, Allen C. & Thibodeau, Thomas G., 2008. "Where are the speculative bubbles in US housing markets?," Journal of Housing Economics, Elsevier, vol. 17(2), pages 117-137, June.
    13. Sae Park & Doo Bahng & Yun Park, 2010. "Price Run-up in Housing Markets, Access to Bank Lending and House Prices in Korea," The Journal of Real Estate Finance and Economics, Springer, vol. 40(3), pages 332-367, April.
    14. Andrey Pavlov & Susan Wachter, 2009. "Mortgage Put Options and Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 38(1), pages 89-103, January.
    15. Frédérick Demers, 2005. "Modelling and Forecasting Housing Investment: The Case of Canada," Staff Working Papers 05-41, Bank of Canada.

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    Keywords

    Housing - Prices;

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