Year Published
2000
Abstract
This paper examines the dynamics of owner-occupied housing prices both at the
level of the individual dwelling and in aggregate. Using a unique data set, a model
of individual dwelling prices is estimated that represents features of housing markets
more faithfully than competing models. Statistical tests strongly reject the hypothesis
that individual housing prices follow a random walk in favor of the alternative hypoth-
esis that housing prices are mean reverting. This result also holds in aggregate, and
provides an explanation for the \inertia" reported in housing return series. The paper
then demonstrates that real and excess returns are forecastable. Finally, it considers
empirically the extent to which the transactions costs associated with home ownership
preclude pro table speculation in owner-occupied housing markets.
level of the individual dwelling and in aggregate. Using a unique data set, a model
of individual dwelling prices is estimated that represents features of housing markets
more faithfully than competing models. Statistical tests strongly reject the hypothesis
that individual housing prices follow a random walk in favor of the alternative hypoth-
esis that housing prices are mean reverting. This result also holds in aggregate, and
provides an explanation for the \inertia" reported in housing return series. The paper
then demonstrates that real and excess returns are forecastable. Finally, it considers
empirically the extent to which the transactions costs associated with home ownership
preclude pro table speculation in owner-occupied housing markets.
Research Category