A Review of the Structure and Dynamics of House Price Changes

J. OF HOUSING RESEARCH, Vol. 7 No. 2, 1996

Posted: 11 Oct 1996

See all articles by Man Cho

Man Cho

Federal National Mortgage Association (Fannie Mae)

Abstract

During the last decade, studies on intertemporal changes in house prices have increased rapidly. Contributive factors include wider availability of micro-level data, progress in modeling techniques, and heightened need for business applications for house price indices. This article reviews main theoretical, empirical, and methodological issues related to analyzing house price dynamics. The theoretical issue receiving greatest attention is the informational efficiency of the housing market. Conclusions from the literature support our intuition that real estate markets are probably not efficient: short-run intertemporal changes in house prices and excess returns are positively serially correlated. There is also evidence of mean reversion. However, studies reviewed are generally short in developing a trading rule that consistently yields above-normal returns due to substantial transaction costs in housing market. A number of studies examine methodological issues in estimating house price indices and returns to holding real estate. Literature in this vein indicates that, given the severe measurement problems and biases in estimating house price models, results of a study on housing market efficiency might be an artifact of the house price index used rather than revealing housing market features. More research is needed before firmer conclusions about the inefficiency of residential real estate markets can be reached.

JEL Classification: C81

Suggested Citation

Cho, Man, A Review of the Structure and Dynamics of House Price Changes. J. OF HOUSING RESEARCH, Vol. 7 No. 2, 1996, Available at SSRN: https://ssrn.com/abstract=9161

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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