Real Estate Market

Gian Maria Tomat ()
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Gian Maria Tomat: Bank of Italy

Chapter Chapter 8 in Financial Markets Efficiency and Economic Behaviour, 2023, pp 111-132 from Palgrave Macmillan

Abstract: Abstract In the real estate market, the no arbitrage condition defines a relation between the housing price in the current period, the rent and the subsequent period price. The housing premium is the excess housing rate of return over the riskless rate. The quarterly real housing excess return has on average been greater than 10 per cent at a yearly rate in Italy in the 1996q01–2020q04 sample period and its standard deviation is of the same order of magnitude. The housing Sharpe ratio provides further evidence on the completeness of financial markets. In forecasting regressions the natural logarithm of the rent/price ratio is positively correlated to forthcoming real housing excess returns and housing return volatility at horizons of 4, 8 and 16 quarters. Rational speculative bubbles may explain housing price volatility, although they do not entail return predictability. A behavioural approach considers the implications of under- and overreaction to news regarding fundamental value, due to the use of heuristic rules. The two most common forms of mortgage contracts are adjustable and fixed rate mortgages.

Date: 2023
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DOI: 10.1007/978-3-031-36836-3_8

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