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Expectations, Efficiency, and Euphoria in the Housing Market

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  • Dennis R. Capozza
  • Paul J. Seguin

Abstract

This paper studies expectations of capital appreciation in the housing market. We show that expectations impounded in the rent/price ratio at the beginning of the decade successfully predict appreciation rates, but only if we first control for cross-sectional differences in the quality of rental versus owner-occupied housing. We also demonstrate that observed rent/price ratios contain a disequilibrium component that also has power to forecast subsequent appreciation rates. Finally, we provide evidence consistent with euphoria: participants in housing markets appear to overreact to income growth.

Suggested Citation

  • Dennis R. Capozza & Paul J. Seguin, 1995. "Expectations, Efficiency, and Euphoria in the Housing Market," NBER Working Papers 5179, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5179
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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