House Price Dynamics: A Survey of Theoretical and Empirical Issues

Posted: 1 May 1998

See all articles by Man Cho

Man Cho

Federal National Mortgage Association (Fannie Mae)

Date Written: Undated

Abstract

During the last decade, the number of studies dealing with dynamic movements of house prices has been rapidly increasing. Main contributive factors for this trend include better availability of extensive micro data sets, the progress in various dynamic modeling techniques, and heightened business applications. The current article aims to review the main theoretical, empirical, and methodological issues related to analyzing house price dynamics. The theoretical issue that received the most attention in the literature was the informational efficiency of the housing market. Despite the housing literature's short history on this topic, 29 papers, all focusing on residential real estate market, were identified and reviewed. The general conclusion from these studies supports our intuition that real estate markets are not efficient: that is, short-run intertemporal changes in house prices and excess returns are found to be positively serially correlated. There is also some evidence of mean reversion. However, the reviewed studies are generally short in developing a trading rule that can consistently yield above-normal returns, mainly due to substantial transaction costs in the housing market. There are also numerous recent studies that propose alternative models for estimating house price indices and measuring excess returns. These suggested models and related methodological issues are also surveyed to document the current state of research in this area. The paper concludes by discussing future research directions and some promising new modeling techniques.

JEL Classification: R21, R31

Suggested Citation

Cho, Man, House Price Dynamics: A Survey of Theoretical and Empirical Issues (Undated). Available at SSRN: https://ssrn.com/abstract=9116

Man Cho (Contact Author)

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States
202-752-2134 (Phone)
202-752-4933 (Fax)

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