Expectations, Efficiency, and Euphoria in the Housing Market
Working Paper 5179
DOI 10.3386/w5179
Issue Date
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.
Published Versions
Regional Science & Urban Economics, vol. 26, no. 3-4, pp. 369-386, June 1996 citation courtesy of