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Real Estate Market Efficiency: A Survey of Literature

Author

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  • Gunther Maier
  • Shanaka Herath

Abstract

In this paper we discuss the question whether or not the real estate market is efficient. We define market efficiency and the efficient market hypothesis as it had been developed in the literature on financial markets. Then, we discuss the empirical evidence that exists concerning the efficiency or inefficiency of financial markets, usually seen as the reference markets as far as market efficiency is concerned. In a separate section we turn to the real estate market. There we define the real estate market and discuss various aspects that are decisive for the efficiency of that market. The theoretical issues that have received the most attention are information efficiency, and (in-) efficiencies related with the market fundamentals. Accordingly, we survey the studies that have investigated the relation between information and the real estate market efficiency, and provide a review of the studies that test the weak and the semi-strong forms of market efficiency. Additionally, the real estate market efficiency is looked at from a market fundamentals point of view as well. These tests of efficiency include the studies that examine the cyclical behaviour, volatility and dispersion of real estate prices, and real estate price bubbles. Several papers that test the positive-feedback hypothesis related to price dispersion are also included. As it turns out, the result found in the literature is inconclusive. Despite strong evidence of mechanisms distorting the real estate market at the micro level, the market at the aggregate level seems to be surprisingly close to efficient.

Suggested Citation

  • Gunther Maier & Shanaka Herath, 2009. "Real Estate Market Efficiency: A Survey of Literature," ERES eres2009_155, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2009_155
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    Cited by:

    1. Zhang, Hao & Huang, Yuyuan & Yao, Haixiang, 2016. "Heterogeneous expectation, beliefs evolution and house price volatility," Economic Modelling, Elsevier, vol. 53(C), pages 409-418.
    2. Felix Schindler, 2013. "Predictability and Persistence of the Price Movements of the S&P/Case-Shiller House Price Indices," The Journal of Real Estate Finance and Economics, Springer, vol. 46(1), pages 44-90, January.
    3. Correia, Inês C. & Ferreira, Fernando A.F. & Zopounidis, Constantin & Ferreira, Neuza C.M.Q.F., 2024. "Urban expansion effects on real estate ecosystems: Identification and neutrosophic analysis of causal dynamics," Socio-Economic Planning Sciences, Elsevier, vol. 93(C).
    4. Omokolade Akinsomi & Goodness C. Aye & Vassilios Babalos & Fotini Economou & Rangan Gupta, 2016. "Erratum to: Real estate returns predictability revisited: novel evidence from the US REITs market," Empirical Economics, Springer, vol. 51(3), pages 1191-1191, November.
    5. Luis A. Gil-Alana & Goodness C. Aye & Rangan Gupta, 2012. "Testing for Persistence with Breaks and Outliers in South African House Prices," Working Papers 201233, University of Pretoria, Department of Economics.
    6. Agnieszka Małkowska & Małgorzata Uhruska & Mateusz Tomal, 2019. "Age and Experience versus Susceptibility to Client Pressure among Property Valuation Professionals—Implications for Rethinking Institutional Framework," Sustainability, MDPI, vol. 11(23), pages 1-23, November.
    7. Roberto Dieci & Frank Westerhoff, 2012. "A simple model of a speculative housing market," Journal of Evolutionary Economics, Springer, vol. 22(2), pages 303-329, April.
    8. Felix Schindler, 2014. "Persistence and Predictability in UK House Price Movements," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 132-163, January.
    9. Maier, Gunther, 2011. "Immobilienbewertung - theoretische Konzepte und praktische Anwendungen," SRE-Discussion Papers 2011/03, WU Vienna University of Economics and Business.

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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