Housing Returns with Mortgage and Price Shocks

Peter Chinloy, Man Cho, Cheng Jiang and Inho Song

Journal of Real Estate Research, 2020, vol. 42, issue 1, 105-124

Abstract: We examine the sum of the net rent-price ratio plus the expected real capital gains, which is the real return to holding a house. The rent-price ratio depends on expectations about interest rates, inflation, and real house prices. The shock coefficients are their incidences, which are the proportions of risk that occupants bear. Occupants are on the demand side, as tenants or owners. For U.S. houses with quarterly data between 1981 and 2016, these incidences are below 0.15, limiting rent-price volatility. The low-volatility yield forces real capital gains to near zero, leading houses to bond-like returns.

Date: 2020
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DOI: 10.22300/0896-5803.42.1.105

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