Predicting returns and rent growth in the housing market using the rent-price ratio: Evidence from the OECD countries

Tom Engsted and Thomas Pedersen ()

Journal of International Money and Finance, 2015, vol. 53, issue C, 257-275

Abstract: We conduct a comprehensive international study of predictability in housing markets using the rent-price ratio as a predictive variable. On data from 18 OECD countries we generally find return predictability in accordance with time-varying risk-premia, but we also document two puzzles. First, there is a highly unstable predictive pattern in rent growth across countries and time periods. Second, the predictive patterns are highly dependent on whether housing returns and rents are measured in nominal or real terms. These results are difficult to reconcile with fully rational expectations. Among other things, the results indicate that housing markets in many countries suffer from money illusion.

Keywords: Housing market predictability; Dynamic Gordon growth model; Rent-price ratio; VAR model; Expectations; Money illusion; OECD countries (search for similar items in EconPapers)
JEL-codes: C32 G12 R31 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Working Paper: Predicting returns and rent growth in the housing market using the rent-to-price ratio: Evidence from the OECD countries (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:53:y:2015:i:c:p:257-275

DOI: 10.1016/j.jimonfin.2015.02.001

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