Long-Run Expectations, Learning and the US Housing Market
Daniel Tortorice ()
Eastern Economic Journal, 2019, vol. 45, issue 4, No 2, 497-531
Abstract In the US housing market, the price-to-rent ratio is volatile and autocorrelated. Returns on housing are positively autocorrelated. The price-to-rent ratio is negatively correlated with future returns and rent growth. Housing returns exhibit time-varying volatility. A benchmark asset pricing model is inconsistent with these facts. A model where prices adjust slowly to their fundamental value and where the agent does not know whether housing fundamentals are trend or difference stationary so has changing beliefs over time, increases the volatility of prices and the autocorrelation of returns. The price-to-rent ratio negatively forecasts returns and rent growth. This model generates time-varying volatility.
Keywords: Learning; Expectations; Housing demand; Asset pricing (search for similar items in EconPapers)
JEL-codes: D83 D84 R21 (search for similar items in EconPapers)
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Working Paper: Long Run Expectations, Learning and the U.S. Housing Market (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:pal:easeco:v:45:y:2019:i:4:d:10.1057_s41302-019-00141-8
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