Academic Research

Faculty research provides new perspectives on industry challenges, energizes curriculum development, prompts compelling case study creation, and influences policy decisions and solutions.

Our research focuses on understanding the determinants of commercial property capital expenditure decisions, on constructing price indices for illiquid assets (commercial and residential real estate), and modeling spatial and temporal variations in house prices.

Our faculty frequently partner with distinguished industry professionals who bring relevant, real-time experience to the classroom setting. Lecturers include experts in the areas of architecture, development, engineering, and law.

Research Papers

Housing Bubbles

Author: Thomas G. Thibodeau

Status: Published

Publication: Encyclopedia of Housing 2nd Edition (2012)

Many places across the globe experienced house price bubbles during the first seven years of this century. A May 2003 article in The Economist titled Castles in Hot Air identified “six countries where houses appear to be overvalued (America, Britain, Australia, Ireland, the Netherlands and Spain).” Four years later, The Economist’s depiction of house price bubbles proved to be true in a number of cities across the globe. This article first defines house price bubbles. It then illustrates house price bubbles using price indices for selected cities in the United States over the 2000 through 2010 period. The article then examines some literature that attempts to identify bubbles and finally explores some of the underlying causes of these house price fluctuations.

PDF


The Effect of Airport Closure on House Prices

Author: Chen Huo, Thomas G. Thibodeau and Ron Throupe

Status: Working Paper

This paper analyzes the effect of a major airport closure on house prices. Because of the unique history and proximity to housing, the closure of the Stapleton International Airport in Denver CO allows for the study of house prices before and after the closure of the facility. We study these effects using a combination of hedonic pricing models and the geographic location of noise contours for airport sound levels. The results show price discounts prior to closure, typical of other studies. Discounts vanish in one city but remain in another after closure.

PDF


Idiosyncratic risk of House Prices: Evidence from 26 Million Home Sales

Author: Liang Peng and Thomas G. Thibodeau

Status: Under Review

This paper uses about 26 million home sales to measure house price idiosyncratic risk for 7,580 U.S. zip codes during three periods: (1) when the U.S. housing market was stable (1996 to 2000), (2) booming (2001 to 2007), and (3) busting (2007 to 2012), and investigates the determinants of house price risk. We find very strong relationships between risk and some basic housing market characteristics. There is a U-shaped relationship between risk and zip-code level median household income; risk is higher in zip codes with more appreciation volatility; and risk is not compensated with higher appreciation.

PDF


Do Value-added Real Estate Investments Add Value?

Author: Liang Peng and Thomas G. Thibodeau

Status: Working Paper

Not really. This paper compares the unlevered returns on value added and core investments of private commercial real estate equity in the National Council of Real Estate Investment Fiduciaries (NCREIF) database. We use capital expenditures on building improvements to identify value added investments, and use a difference in differences approach to control for mismatch in holding periods and locations of investments. The results provide no evidence for difference in average returns on value added and core investments, despite higher perceived risk for the former. We also find that value added investments have lower unlevered returns when “value creation” starts in booming real estate markets and when “value creation” costs more, which suggests possible systematic mispricing of the real options embedded in value added investments.

PDF


How Integrated Is the Commercial Real Estate Asset Market? Evidence from Transaction Cap Rates

Author: Liang Peng

Status: Working Paper

This paper empirically measures the integration of the asset market of commercial real estate by studying the respective explanatory power of three types of variables – macroeconomic conditions, local market conditions, and property attributes – for property transaction cap rates. Results from analyzing about 10,000 sales of institutional grade commercial properties from 1977 to 2012 indicate that the asset market is substantially but not completely integrated. Macroeconomic conditions, particularly credit availability, risk-adjusted returns of past real estate investments, lagged house price appreciation, and nonresidential construction spending, play a dominating role in explaining property cap rates. Core Business Statistic Area (CBSA) fixed effects and property attributes provide some incremental explanatory power, but local market conditions explain very little of transaction cap rates.

PDF


Neighborhood Attributes and House Price Risk

Authors: Liang Peng and Thomas G. Thibodeau

Status: Working Paper

Idiosyncratic risk in house prices is important to homeowners as it directly affects uncertainty in home value appreciation. This paper empirically examines whether this risk is systematically related to the level of house price, household income, and contemporaneous average home value appreciation of the neighborhood (delineated with zip codes), using 26.5 million transactions of single-family homes sold between 1996:Q1 and 2012:Q3 in 7,862 zip codes across the US. For each neighborhood, we fit the same hedonic model to home sales in each of three separate time periods: (1) when US house prices were essentially constant in real terms; (2) during the recent housing boom; and (3) during the recent housing bust, and then use the standard deviation of the residuals to measure the house price risk. We find that U-shape relationships between house price risk and home values, and between house price risk and household income in all three periods. The risk is relatively high in both low- and high-income neighborhoods; is relatively high in both low- and high-home value neighborhoods. Further, we find that house price risk increased during the housing bust for low-income neighborhoods; and that the relationship between cross-sectional house price risk and house price appreciation varies across income groups and over time.

PDF


The Subprime Crisis and House Price Appreciation

Authors: William N. Goetzmann, Liang Peng, and Jacqueline Yen

Status: Published Article

Publication: Journal of Real Estate Finance and Economics (2012) 44 (1): 36-66

This paper argues that econometric analysis of housing price indexes before 2006 generated forecasts of future long-term price growth and low estimated probabilities of extreme price decreases. These forecasts of future increases in home-loan collateral values may have affected both the demand and the supply of mortgages. Standard time series models using repeat-sales indexes suggest that positive trends had a long-half-life. Expectations based on such models support expectations that could lead to an asset bubble.

Analysis of data from the HMDA loan database and LoanPerformance.com at the MSA level and at the loan level substantiates the effects of past price trends on the demand and supply of subprime mortgages. On the demand side, at the MSA level, past home price increases are associated with more subprime applications, higher loan to income ratios and lower loan to value ratios of applications for both prime and subprime mortgages. This is consistent with the notion that households not only borrowed more but also invested more in home equity conditional on greater past house price increases. On the supply side, past home price appreciation had a significantly greater impact on the approval rate of subprime applications than the approval rate of prime applications. Loan level analysis indicates that past home price appreciation increased the approval rate of subprime applications but did not affect the approval rate of prime applications. Further, approved HMDA subprime loans had higher loan to income ratios in MSAs with greater past house price trends.

PDF


Financing Residential Development with Special Districts

Authors: Stephen Billings and Thomas G. Thibodeau

Status: Published

Publication: Real Estate Economics

This paper empirically examines the extent to which the property tax liability created by financing residential infrastructure using special district bonds is capitalized in house prices. We compare house prices for single-family detached homes built within development districts to similar properties located outside development districts. Our hedonic specification includes the usual housing characteristics and controls for the influence of spatial attributes using Census Block Group 'neighborhood' fixed effects. The preferred empirical specification restricts the data to neighborhoods that have numerous sales of recently constructed single-family detached homes located both within and outside development districts. The empirical results indicate that house prices for homes located within development districts are lower than house prices for similar homes located outside of development districts, but the amount of property tax capitalization is significantly less than full. Results depend on our Generalized Methods of Moments estimator, which instruments property tax rates using the characteristics of development districts. We identify valid instruments by restricting transactions to properties located in rapidly growing suburban developments.

PDF


Risk Segmentation of American Homes: Evidence from Denver

Authors: Liang Peng and Thomas G. Thibodeau

Status:Published

Publication: Real Estate Economics

This paper empirically examines the segmentation of house price risk across 99 zip-code delineated neighborhoods in metropolitan Denver. The house price risk in each neighborhood is measured with the temporal variation of quarterly appreciation rates of the neighborhood house price index over the 2002 to 2007 period. Cross sectional regressions of neighborhood house price risk on the median household income and the percentage of population in poverty from the 2000 census data for the same neighborhood provide strong evidence that the house price risk is significantly higher in low-income/poor neighborhoods. Sub-period analyses further indicate that the risk segmentation exists in both a booming period (pre 2005:2) and a busting period (post 2005:3). The results indicate that homeownership can be a much riskier investment for low-income/poor households

PDF


Interest Rate and Investment under Uncertainty: Evidence from Commercial Real Estate Capital Improvements

Authors: Liang Peng and Thomas G. Thibodeau

Status: Working Paper

This paper empirically analyzes the non-monotonic influence that interest rate changes have on irreversible investment in income producing properties. Using the complete history of quarterly capital improvements for 1,416 commercial properties over the 1978 to 2009 period, we find strong evidence of the non-monotonic effect for apartment, office, and retail properties, but not for industrial properties. For the first three property types, a decrease in the Treasury yield dramatically increases capital improvements when property values are high, but has a weak or negative effect when property values are low. This result has important implications for monetary and fiscal policies.

PDF


Intrametropolitan Decentralization: Is Government Structure Capitalized in Residential Property Values?

Authors: Stephen Billings and Thomas G. Thibodeau

Status: Published Article

Publication: Journal of Real Estate Finance and Economics (2011) 42: 416-450

This paper examines the influence that the intrametropolitan growth in special districts has on residential property values. Our empirical approach tests whether the benefits of decentralizing local public good providers increases, decreases or leaves residential property appreciation rates unchanged. Past research in this area has been limited by the lack of variation in government structure within a region and by the self-selection of areas that decentralize governments. This research overcomes these limitations by 1) comparing appreciation rates for single-family homes that were located in areas that added local governments to appreciation rates for properties that were not; and 2) employing an estimation technique that border matches repeat sales to control for the self-selection of government structure. Overall, empirical results indicate that institutional decentralization has no influence on single-family property appreciation rates. It makes no dierence whether the new government is the 3rd, 4th, 5th or 6th new jurisdiction-the new government does not influence appreciation rates. Residential property values for homes located in jurisdictions that added security special districts experienced rates of appreciation that were lower than otherwise comparable properties. Recreation, fire, water, sewer and other special districts had no measurable influence on appreciation rates. Empirical results also indicate that more overlap among local governments reduces appreciation rates. New governments created in areas whose residents have greater income heterogeneity increase appreciation rates. The distance separating the new government from existing governments, the land area of the new government and the creation of multiple new governments have no influence on appreciation rates. Finally, these results depend on the border matching repeat sales estimation technique employed here.

PDF


Does the Diversification Potential of Securitized Real Estate Vary Over Time and Should Investors Care?

Authors: Liang Peng and Rainer Schulz

Status: Published/h4>

Publication: Journal of Real Estate Finance and Economics

This paper examines the dynamics of the covariance matrix of return rates for securitized real estate, other company stocks, and government bonds for a cross- section of eight countries. In-sample analysis establishes that in all countries the covariance matrix is time-varying and reacts stronger to bad than to good news. Using a realistic out-of-sample exercise, we find that portfolios selected with a forecasted dynamic covariance matrix are less risky than portfolios constructed with the static matrix. However, benefits of using the dynamic covariance matrix for active portfolio management are mostly offset by rebalancing cost. Passive buy-and-hold investors benefit, because the forecasted dynamic covariance matrix provides better risk assessment.


Mortgage Fund Flows, Capital Appreciation, and Real Estate Cycles

Authors: Marcel Arsenault, Jim Clayton, and Liang Peng

Status: Published

Publication: Journal of Real Estate Finance and Economics

This paper provides strong evidence for a positive feedback loop between property prices and mortgage supply, using data from the U.S. commercial property and mortgage markets over the 1991 to 2011 period. The empirical analyses control for the endogeneity of property prices, mortgage flows, mortgage interest rates, and loan to value ratios, and provide two main findings. First, exogenous increases in mortgage supply, measured with the growth of the CMBS market, significantly reduce property cap rates. Second, volatility of past price changes and the "biggest loss" in property values in the past significantly affect mortgage supply. This positive feedback loop may be an important driving force for real estate cycles.

PDF


House Prices and Economic Growth

Authors: Norman Miller, Liang Peng, and Michael Sklarz

Status: Published Article

Publication: Journal of Real Estate Finance and Economics (2011) 42(4), 522-541

Using quarterly data for all 379 metropolitan statistic areas (MSAs) in the U.S. from 1980:1 to 2008:2, this paper empirically studies the effect of house prices on local Gross Metropolitan Product (GMP). We compare the effects of predictable and unpredictable house price changes, which we use to capture the collateral and wealth effects of house prices respectively. We further analyze the relationship between the effects and household borrowing constraints, as well as the temporal pattern of the effects. Our analysis provides the following findings. First, house price changes have significant effects on GMP growth, and the effect of predictable changes (the collateral effect) is about three times stronger than the effect of unpredictable changes (the wealth effect). Second, the persistent component of predictable changes has a stronger collateral effect than the novel component. Third, when households are more financially constrained, the collateral effect is stronger, the wealth effect is weaker, and the total effect remains unchanged. Finally, the effects last for eight quarters, and peak on the fourth quarter after house price changes take place.

PDF


The Economic Impact of Anticipated House Price Changes—Evidence from Home Sales

Authors: Norman G. Miller, Liang Peng, and Michael Sklarz

Status: Published Article

Publication: Real Estate Economics (2011) 39 (2), 345-378

If realized house prices have the wealth effect and the collateral effect on the economy, anticipated house price changes should have similar economic effects. This paper empirically analyzes the effects of single family home sales, which are shown to be able to predict house prices in the literature, on economic production, using 372 Metropolitan Statistic Areas in the U.S. from the first quarter of 1981 to the second quarter of 2008 in a panel Vector Error Correction Model. Changes in home sales are found to Granger cause the growth rate of per capita Gross Metropolitan Product, and the dynamic effects are visualized with impulse response functions. Supporting evidence for the economic impact of home sales is also found in contemporaneous regressions.

PDF


Risk and Returns of Commercial Real Estate: A Property Level Analysis

Authors: Liang Peng

Status: Under Review

This paper analyzes the risk and returns of direct commercial real estate investments at the property level. A novel regression is developed to use property level cash flows instead of index returns to estimate the sensitivity of real estate returns to economic variables. Monte Carlo simulations suggest that this regression is more accurate than the conventional index approach. Applying this regression to 3,125 commercial properties held between 1978 and 2009, this paper finds that commercial real estate risk premium is positively related to GDP growth and the change in the credit spread, and negatively related to inflation, the stock market risk premium, and the change in the term spread. The sensitivities vary across property types and time. This paper also finds that the risk characteristics of commercial real estate, such as loadings on Fama French factors, vary across property types and time.

PDF


Repeat Sales Regression on Heterogeneous Properties

Authors: Liang Peng

Status: Published

Publication: Journal of Real Estate Finance and Economics

This paper proposes a generalized repeat sales regression (GRSR) that uses repeat sales from the entire market, in which properties may have heterogeneous value appreciation processes, to estimate price indices for not only the entire market, but also submarkets or customized portfolios of properties that only have small numbers of value observations. Monte Carlo simulations provide strong evidence that the GRSR indices more accurately measure the index for the entire market as well as individual property value appreciation than conventional RSR indices. This paper also proposes a Chi-square test to detect the heterogeneity in property value appreciation across submarkets/portfolios, and use simulations to show that the test is powerful in small samples. This paper finally illustrates the application of the GRSR using a historical dataset of the Chicago housing market from 1970 to 1986.

PDF


Government Interference and Market Efficiency: Evidence from the Land Market in China

Authors: Liang Peng and Thomas G. Thibodeau

Status: Published Article

Publication: Journal of Real Estate Finance and Economics

Municipal governments in China established direct control of the supply of urban land in August 2004. This paper examines whether this government action mitigates the efficiency of the residential land market. Using a unique data set of detailed land and residential community transactions with manually collected location information for residential land lots in seven Chinese cities, this paper analyzes the relationship between the land lease prices and residential property prices from the first quarter of 2001 to the fourth quarter of 2007. Results indicate that property prices determined land prices both before and after 2004:3, but the effect was significantly weaker after 2004:3. This is consistent with the hypothesis that the market for residential land became less efficient after municipal governments gained direct control of the land supply.

PDF


Price-Volume Correlation in the Housing Market: Causality and Co-Movements

Authors: Jim Clayton, Norman Miller, and Liang Peng

Status: Published Article

Publication: Journal of Real Estate Finance and Economics (2010) 40(1), 14-40

Housing market cycles are featured by a positive correlation of prices and trading volume, which is conventionally attributed to a causal relationship between prices and volume. This paper analyzes the housing markets in 114 metropolitan statistical areas in the United States from 1990 to 2002, treats both prices and volume as endogenous variables, and studies whether and how exogenous shocks cause comovements of prices and volume. At quarterly frequency, we find that, first, both home prices and trading volume are affected by conditions in labor markets, the mortgage market, and the stock market, and the effects differ between markets with low and high supply elasticity. Second, home prices Granger cause trading volume, but the effects are asymmetric—decreases in prices reduce trading volume, and increases in prices have no effect. Third, trading volume also Granger causes home prices, but only in markets with inelastic supply. Finally, we find a statistically significant positive price-volume correlation; which, however, is mainly explained by co-movements of prices and volume caused by exogenous shocks, instead of the Granger causality between prices and volume.

PDF


Evolution of the American Real Estate and Urban Economics Association

Authors: Patric H. Hendershott, Halbert C. Smith and Thomas G. Thibodeau

Status: Published Article

Publication: Real Estate Economics

(2009) 37(4):559-598

This paper summarizes the 45-year history of the American Real Estate and Urban Economics Association (AREUEA). It describes how AREUEA was created in the mid-1960s by a few academics interested in promoting real estate research. It tracks the Association's growth into a highly respected international association of real estate academics and researchers employed by industry and governments. The paper also examines the activities of its members: officers elected, awards presented, conferences organized and scholars' contributions to its main academic publication—Real Estate Economics. The article identifies the most prolific contributors to the Journal (located both in the US and internationally) and the impact that the Journal's publications have had on real estate research. Finally, we describe how real estate research interests have changed over time.

PDF


Do Individual Investors Learn From Their Trading Experience?

Authors: Gina Nicolosi, Liang Peng, and Ning Zhu

Status: Published Article

Publication: Journal of Financial Markets

(2009) 12(2), 317-336

After analyzing retail investors' stock trades for potential learning behavior, we present evidence that individual investors learn from their trading experience. Initially, we question whether investors' previous forecasting ability (inferred from prior purchases' subsequent risk-adjusted performance) affects their future trade profitability and activity. Indeed, as an investor's inferred ability increases, so does her ensuing trade profitability and intensity. Further, because additional investment experience allows more accurate ability inference, we posit that trading experience should help investors obtain better investment performance. Consistent with this hypothesis, not only do excess portfolio returns improve with account tenure, but we also find that trade quality (i.e., average raw and excess buy-minus-sell returns) significantly increases with experience (i.e., calendar time and account tenure). In sum, individual stock investors do learn, and they consequently adjust their behavior and thus effectively improve their investment performance.


Time Variation of Liquidity in the Private Real Estate Market: An Empirical Investigation

Authors: Jim Clayton, Greg MacKinnon, and Liang Peng

Status: Published Article

Publication: Journal of Real Estate Research

(2008), 30(2), 125-160

This paper proposes and empirically evaluates competing models to explain the time variation in private real estate market liquidity documented in Fisher et al. (2003). We test three classes of models. In the first, that seller estimates of property value lag market conditions because of an asymmetric information problem. Sellers, at least in part, base their estimates of value on observations of signals from the market, but the presence of noise means a change in signal is not fully reflected in sellers' updated value estimates. The second class of models incorporates the value of waiting or opportunity cost of not transacting, recently introduced by Krainer (2001) and Nov-Marx (2004), into seller's optimal valuation strategy. In the third, we allow for the possibility of noise traders, or investors who are not fully rational in the sense that they trade on market sentiment. We follow Baker and Stein (2003) and consider a formal model that links stock market-wide liquidity to investor sentiment with higher liquidity being due to the presence of irrationally over-optimistic traders. In this model measures of aggregate liquidity act as an indicator of the relative presence (or absence) of sentiment-based traders in the market place and therefore the divergence of asset price from fundamental value. Empirical findings are generally consistent with models of optimal valuation with rational updating and provide support for the opportunity cost.

PDF


Where Are The Speculative Bubbles in US House Prices?

Authors: Allen C. Goodman and Thomas G. Thibodeau

Status: Published Article

Publication: Journal of Housing Economics (2008) 17(2): 117-137

In the first half of this decade, US house prices experienced significant real rates of appreciation. The dramatic increase in house prices led some economists to conclude that there was a speculative bubble in the US housing market. This paper explores how much of the recent appreciation in US house prices was attributable to the fundamental economic determinants of house prices. On the demand side, we note that the rate of homeownership in the US increased from 66.8% in 1999 to 69% in the fourth quarter of 2005 1 . Each percentage point increase in the homeownership rate increases the demand for owner-occupied housing by about one million units. On the supply side, land prices and housing construction costs increased substantially in real terms over this period. The national average increase in house prices conceals significant spatial variation in appreciation rates. According to OFHEO, house prices in California cities increased by more than fifteen percent per year during this period while house prices in Texas cities increased four percent per year. The increase in aggregate housing demand had different effects on metropolitan area house prices because housing market supply elasticities vary spatially. We estimate housing supply elasticities for 133 metropolitan areas and conclude that although areas on the East Coast and in California had large observed price increases, they owe much of their house price increases to inelastic supplies of owneroccupied housing.

PDF


Beijing’s Land Use Reforms

Authors: Wenbin Li, Thomas G. Thibodeau, and Ying Xaio

Status: Working Paper

During the 2002-2004 period, the Beijing government's procedures for transferring land use rights changed twice in economically significant ways. We examine the effect that these reforms have had on local house prices using a hedonic house price equation and transaction data for newly constructed homes over the 1998-2006 period. We employ five alternative house price specifications to control for spatial variation in Beijing house prices. We observe significant increases in house prices after the August 31, 2004 reform became effective.

PDF


The Spatial Proximity of Metropolitan Area Housing Submarkets

Authors: Allen C. Goodman and Thomas G. Thibodeau

Status: Published Article

Publication: Real Estate Economics (2007) 35(2): 209-232

An important question related to housing submarket construction is whether geographic areas must be spatially adjacent in order to be considered the same submarket. Housing consumers do not necessarily limit their search to spatially concentrated areas and may search similarly priced neighborhoods located throughout a metropolitan area when making housing consumption decisions. This paper examines two alternative procedures for delineating submarkets: one that combines adjacent census block groups into areas with enough transactions to estimate the parameters of a hedonic house price equation; and a second that permits spatial discontinuities in submarkets. The criterion used to evaluate the alternative techniques is the accuracy of hedonic house price predictions. The empirical research is conducted using data obtained from the Dallas Central Appraisal District (DCAD). The DCAD provided information for every parcel of real property in Dallas County. As of January 1, 2003, there were approximately 500,000 single-family homes in the DCAD area and 44,000 transactions in the 2000:4-2002:4 period. We find that both submarket constructs significantly increase hedonic prediction accuracy over a standard pooled model, but that neither construct statistically dominates the other. These results have important implications for empirically modeling submarkets within metropolitan area housing markets. Creating housing submarkets by combining spatially adjacent census block groups that lie within the same municipality and same independent school district is time consuming and costly. These results suggest that comparable increases in hedonic prediction accuracy can be achieved by delineating submarkets by dwelling size and median census block group per square foot transaction price.

PDF


Do Homebuyers Value Low Density Housing and Protected Open Lands: Evidence from Colorado Mountain Communities

Authors: Christopher R. Cunningham and Tom Thibodeau

Status: Working Paper

Zoning is often pursued by homeowners seeking to protect themselves from the subsequent introduction of a disamenity on neighboring properties that may negatively affect their home values (Fischel 2001). However, in the many communities the feared disamenity, is not industry or commercial land uses, but simply other housing. absence of zoning protections, developers can mimic these safe guards through restrictive covenants Siegan (1970), and homebuyers can seek out locations near land that is protected from development because of government ownership or the existence of conservation easements, Walsh (2003). We examine the home prices and development activity in several communities in the mountains of Colorado in which the feared disamenity may be additional housing developments. We go on to explore the unsuccessful efforts to pass binding growth management legislation in 2001. The analysis incorporates GIS to construct several novel right hand side variables including the share of housing protected or developed land within a given buffer distance of homes which are included in a hedonic regression framework. Our initial findings are that homebuyers are willing to pay a premium for houses near but not adjacent to protected or conserved land. We also find that homes with a higher share of protected land around them were worth more when there was an increased likelihood that the state would place constraints on rural development.

PDF


Exploring Metropolitan Housing Price Volatility

Authors: Norman Miller and Liang Peng

Status: Published Article

Publication: Journal of Real Estate Finance and Economics (2006) 33(1), 5-18

This paper uses GARCH models and a panel VAR model to analyze possible time variation of the volatility of single-family home value appreciation and the interactions between the volatility and the economy, using a large quarterly data set that covers 277 MSAs in the U.S. from 1990:1 to 2002:2. We find evidence of time varying volatility in about 17% of the MSAs. Using volatility series estimated with GARCH models, we find that the volatility is Granger-caused by the home appreciation rate and GMP growth rate. On the other hand, the volatility Granger causes the personal income growth rate but the impact is not economically significant.


Estimating Indices in the Presence of Seller Reservation Prices

Authors: William Goetzmann and Liang Peng

Status: Published Article

Publication: Review of Economics and Statistics (2006) 88(1), 100-112

We analyze a bias in transaction-based price indices due to the presence of seller reservation prices. We develop a model in which the ratio of seller's reservation prices to the market value affects trading volume and biases of observed transaction prices: when trading volume decreases (increases), index returns are estimated with an upward (downward) bias. We propose a new econometric procedure to mitigate the bias, and use simulations to demonstrate the effectiveness of the procedure. We construct a reserve-conditional unbiased index for the Los Angeles housing market, which substantially differs from a traditional repeat sale index.

PDF


The Preservation of Open Space on Housing Markets in Mountain Resort Communities: Evidence from Summit County Colorado

Authors: Christopher R. Cunningham and Thomas G. Thibodeau

Status: Working Paper

This paper examines the relationship between open space and housing price in a mountain region of Colorado. Recent innovations in information technology have freed a growing number of workers from traditional urban employment centers. This trend, combined with the improving health and activity of retirees, has created substantial demand for housing in areas with special scenic value and access to wilderness. However, too much development may threaten the very amenity that brings people to these areas in the first place. Successful housing development in these communities requires that we identify the premium, if any, homebuyers place on low density housing. In addition, we assess how the legal protection against development is valued by homebuyers in these bucolic settings. This paper utilizes a rich dataset of housing attributes and electronic maps of parcels to identify the effects of housing density and preserved open space on home prices in Summit County Colorado.

PDF


Have the GSE Affordable Housing Goals Increased the Supply of Mortgage Credit?

Authors: Brent W. Ambrose and Thomas G. Thibodeau

Status: Published Article

Publication: Regional Science and Urban Economics (2004) 34(3): 263-274

In the 1980's, housing market analysts and policymakers were concerned that Freddie Mac and Fannie Mae were not adequately facilitating the financing of affordable housing for low- and moderate-income families. To address these concerns, the Department of Housing and Urban Development establish quantitative Affordable Housing Goals requiring the Government Sponsored Enterprises (GSEs) to increase their purchases of mortgages originated by low- and moderate-income households and for homes located in low-income neighborhoods. Our analysis indicates that the goals increased the supply of mortgage credit available to low- and moderate-income households, after controlling for other mortgage market factors. Our analysis suggests that the increase in the supply of low-income mortgage credit occurred primarily in 1998.

PDF


The Impact of Interest Rates and Employment on Nominal Housing Prices

Authors: Norman G. Miller, Michael A. Sklarz, and Thomas G. Thibodeau

Status: Published Article

Publication: International Real Estate Review (2005) 8(1): 26-42

This research examines how well nominal income, nominal interest rates and employment explain temporal variation in nominal metropolitan area house prices. Rather than use a traditional model of real house prices, we explain nominal house prices with a measure of "intrinsic" house value that combines local economic factors with an affordable price based upon what the local median income household could afford to pay at prevailing interest rates. The affordable price variable captures local household income trends and current interest rates. We then relate temporal variation in observed house prices to "intrinsic" value and estimate the parameters of separate autoregressive house price models for 316 cities. Like Capozza, Hendershott and Mack [2004], and Abraham and Hendershott [96] before them, we observe that the coastal markets exhibit much greater appreciation/depreciation rates and much more volatility than cities in the central portions of the country. Here we focus primarily on the impact of interest rates on nominal prices in various MSAs, a factor that many housing analyst have pointed to when debating the existence of housing bubbles. Some markets are much more or less responsive to interest rates than others. Supply constraints may explain some of but not all of this increased responsiveness.

PDF