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Consumption-Wealth Ratio and Expected Housing Return

Author

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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.

Suggested Citation

  • N. Kundan Kishor & Swati Kumari, 2014. "Consumption-Wealth Ratio and Expected Housing Return," Journal of Real Estate Research, American Real Estate Society, vol. 36(1), pages 87-108.
  • Handle: RePEc:jre:issued:v:36:n:1:2014:p:87-108
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    File URL: http://pages.jh.edu/jrer/papers/pdf/new_current/vol36n01/04.87_108.pdf
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    References listed on IDEAS

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    1. J. Walter Milon & Jonathan Gressel & David Mulkey, 1984. "Hedonic Amenity Valuation and Functional Form Specification," Land Economics, University of Wisconsin Press, vol. 60(4), pages 378-387.
    2. Richard C. Bishop, 1982. "Option Value: An Exposition and Extension," Land Economics, University of Wisconsin Press, vol. 58(1), pages 1-15.
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    1. repec:jre:issued:v:39:n:2:2017:p:263_288 is not listed on IDEAS

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    JEL classification:

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

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