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Real Estate Income and Value Cycles: A Model of Market Dynamics

Abstract

We develop a theoretical real estate cycles model linking economic fundamentals to real estate income and value. We estimate and test an econometric model specification, based on the theoretical model, using MSA level data for twenty office markets in the United States. Our major conclusion is that cities that exhibit seemingly different cyclical office market behavior may be statistically characterized by our three-parameter econometric specification. The parameters are MSA-specific amplitude, through the CAP rate, cycle duration (peak-to-peak), via the rate of partial adjustments to changing expectations about stabilized NOI and the market trend.

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File URL: http://pages.jh.edu/jrer/papers/pdf/past/vol18n01/v18p069.pdf
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Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

Volume (Year): 18 (1999)
Issue (Month): 1 ()
Pages: 69-96

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Handle: RePEc:jre:issued:v:18:n:1:1999:p:69-96
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

Web page: http://www.aresnet.org/
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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
Web: http://pages.jh.edu/jrer/about/get.htm Email:


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  • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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  1. Grenadier, Steven R, 1995. "The Persistence of Real Estate Cycles," The Journal of Real Estate Finance and Economics, Springer, vol. 10(2), pages 95-119, March.
  2. Waldo L. Born & Stephen A. Pyhrr, 1994. "Real Estate Valuation: The Effect of Market and Property Cycles," Journal of Real Estate Research, American Real Estate Society, vol. 9(4), pages 455-486.
  3. Meese Richard & Wallace Nancy, 1994. "Testing the Present Value Relation for Housing Prices: Should I Leave My House in San Francisco?," Journal of Urban Economics, Elsevier, vol. 35(3), pages 245-266, May.
  4. Yoon Dokko & Robert H. Edelstein & Marshall Pomer & E. Scott Urdang, 1991. "Determinants of the Rate of Return for Nonresidential Real Estate: Inflation Expectations and Market Adjustment Lags," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(1), pages 52-69.
  5. Dwight M. Jaffee & Kenneth T. Rosen, 1979. "Mortgage Credit Availability and Residential Construction," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(2), pages 333-386.
  6. John S. Hekman, 1985. "Rental Price Adjustment and Investment in the Office Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(1), pages 32-47.
  7. Richard Voith & Theodore Crone, 1988. "National Vacancy Rates and the Persistence of Shocks in U.S. Office Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(4), pages 437-458.
  8. Stephen A. Pyhrr & Waldo L. Born & James R. Webb, 1990. "Development of a Dynamic Investment Strategy under Alternative Inflation Cycle Scenarios," Journal of Real Estate Research, American Real Estate Society, vol. 5(2), pages 177-194.
  9. Richard K. Green, 1997. "Follow the Leader: How Changes in Residential and Non-residential Investment Predict Changes in GDP," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 25(2), pages 253-270.
  10. Clayton P. Pritchett, 1977. "The Effect of Regional Growth Characteristics on Regional Housing Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 5(2), pages 189-208.
  11. Leo Grebler & Leland S. Burns, 1982. "Construction Cycles in the United States Since World War II," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 10(2), pages 123-151.
  12. Dokko, Yoon & Edelstein, Robert H & Urdang, E Scott, 1990. "Does Credit Rationing Affect Residential Investment? Deja Vu All Over Again," The Journal of Real Estate Finance and Economics, Springer, vol. 3(4), pages 357-371, December.
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Cited by:

  1. Jim Clayton & David Ling & Andy Naranjo, 2009. "Commercial Real Estate Valuation: Fundamentals Versus Investor Sentiment," The Journal of Real Estate Finance and Economics, Springer, vol. 38(1), pages 5-37, January.
  2. Charles Ka Yui Leung & Nan-Kuang Chen, 2006. "Intrinsic Cycles of Land Price: A Simple Model," Journal of Real Estate Research, American Real Estate Society, vol. 28(3), pages 293-320.
  3. Charles Ka Yui Leung & Dandan Feng, 2004. "Testing Alternative Theories of Property Price-Trading Volume with Commercial Real Estate Market Data," Discussion Papers 00003, Chinese University of Hong Kong, Department of Economics.
  4. Robert Edelstein & Desmond Tsang, 2007. "Dynamic Residential Housing Cycles Analysis," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 295-313, October.
  5. Leung, Charles, 2004. "Macroeconomics and housing: a review of the literature," Journal of Housing Economics, Elsevier, vol. 13(4), pages 249-267, December.
  6. Elyas Elyasiani & Iqbal Mansur & Jill Wetmore, 2010. "Real-Estate Risk Effects on Financial Institutions’ Stock Return Distribution: a Bivariate GARCH Analysis," The Journal of Real Estate Finance and Economics, Springer, vol. 40(1), pages 89-107, January.
  7. Nan-Kuang Chen & Charles Leung, 2008. "Asset Price Spillover, Collateral and Crises: with an Application to Property Market Policy," The Journal of Real Estate Finance and Economics, Springer, vol. 37(4), pages 351-385, November.
  8. Davis, E. Philip & Zhu, Haibin, 2011. "Bank lending and commercial property cycles: Some cross-country evidence," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 1-21, February.
  9. Min Hwang, 2014. "Financing real estate development: a case study of the US real estate market in the 2000s," Chapters,in: The Global Financial Crisis and Housing, chapter 7, pages 149-179 Edward Elgar Publishing.
  10. Charles Leung & Dandan Feng, 2005. "What Drives the Property Price-Trading Volume Correlation? Evidence from a Commercial Real Estate Market," The Journal of Real Estate Finance and Economics, Springer, vol. 31(2), pages 241-255, September.

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