Most recent papers:

• On the Value of Environmental Certification in the Commercial Real Estate Market.
  Rogier Holtermans, Nils Kok.
  Real Estate Economics. October 12, 2017
  A significant part of the global carbon externality stems from the real estate sector. Environmental certification is often hailed as an effective means to resolve the information asymmetry that may prevent markets from effectively pricing the energy performance of buildings. This study analyzes the adoption and financial outcomes of environmentally certified commercial real estate over time. We document that nearly 40 percent of space in the 30 largest U.S. commercial real estate markets holds some kind of environmental certification in 2014, as compared to less than 5 percent in 2005. Tracking the rental growth of 26,212 office buildings, we measure the performance of environmentally certified real estate over time. We document that certified office buildings, on average, have slightly higher rental, occupancy and pricing levels, but do not outperform non‐certified buildings in rental growth over the 2004‐2013 period. Further performance attribution analysis indicates that local climate conditions, local energy prices and the extent of certification lead to significant heterogeneity in market pricing. On aggregate, these findings provide some evidence on the efficiency of the market in the adoption and capitalization of environmental characteristics in the commercial real estate market. This article is protected by copyright. All rights reserved

  October 12, 2017   doi: 10.1111/1540-6229.12223   open full text
• The Big Short: Short Selling Activity and Predictability in House Prices.
  Pedro A. C. Saffi, Carles Vergara‐Alert.
  Real Estate Economics. September 24, 2017
  We study how investors can use financial securities to speculate on the decrease of house prices. Unlike most asset types, houses are subject to high trading frictions and cannot be sold short directly. Using U.S. equity lending data from 2006 through 2013, we find evidence that an increase in the short selling activity of real estate investment trusts (REITs) forecasts a decrease in house prices in the subsequent month. The magnitude and significance of this effect vary with the geographical location of the REITs' underlying properties and with the housing cycle. This article is protected by copyright. All rights reserved

  September 24, 2017   doi: 10.1111/1540-6229.12219   open full text
• Financial Flexibility and Investment: Evidence from REIT At‐the‐Market (ATM) Equity Offerings.
  Shawn D. Howton, Shelly W. Howton, Benjamin Scheick.
  Real Estate Economics. September 14, 2017
  This article examines changes in real estate investment around the establishment of at‐the‐market (ATM) equity programs by equity REITs. We document a significant increase in the rate of investment following an ATM program announcement and its subsequent use. However, we find that ATM access has a differential impact on the investment activity of REITs facing more significant financial constraints. We also provide further evidence that REITs with ATM programs generate positive long‐run returns in excess of that of similarly timed SEOs.

  September 14, 2017   doi: 10.1111/1540-6229.12211   open full text
• Environmental Hazards and Mortgage Credit Risk: Evidence from Texas Pipeline Incidents.
  Minhong Xu, Yilan Xu.
  Real Estate Economics. September 12, 2017
  This study examines the effects of pipeline hazards on credit risk using evidence from the 2005–2011 home mortgage loans in Texas. Difference‐in‐difference analyses show a permanently lower origination rate by 1.9% in the pipeline‐present areas compared to the pipeline‐free areas, which was further enlarged by 1.8% whenever pipeline incidents happened. Evidence suggests that the permanent difference in credit access reflects lenders’ concerns about collateral value and borrowers’ repayment ability. The elevated post‐incident risk perceptions indicate lenders’ aversion to environmental liabilities. Lenders’ risk management strategies differed by borrowers’ income and evolved with the tightening of the securitization market.

  September 12, 2017   doi: 10.1111/1540-6229.12213   open full text
• Cross‐Border Residential Lending: Theory and Evidence from the European Sovereign Debt Crisis.
  Jaime Luque.
  Real Estate Economics. September 12, 2017
  We examine bank strategies to rebalance residential mortgage portfolios toward other geographical regions in the context of the European sovereign debt crisis. For banks in Greece, Ireland, Cyprus, Italy, Portugal and Spain (GICIPS), we find evidence of flight‐to‐quality if banks were undercapitalized and had high funding cost, and evidence of risky‐lending if banks were undercapitalized but without funding problems. For banks in core safe European countries, we find evidence of flight‐to‐quality among banks with high capital ratios, and risky‐lending among banks with low funding cost. We rationalize these empirical results with a general equilibrium model of cross‐border mortgage lending.

  September 12, 2017   doi: 10.1111/1540-6229.12214   open full text
• How Do Firms Finance Nonprimary Market Investments? Evidence from REITs.
  James Conklin, Moussa Diop, Mingming Qiu.
  Real Estate Economics. September 11, 2017
  This study explores the impact of investment characteristics, mainly investment location relative to the firm's primary market, on financing choices by real estate investment trusts (REITs). Using a large sample of commercial property acquisitions, we show that REITs are 4–8% less likely to use secured (mortgage) debt when acquiring properties in their primary markets than elsewhere. The documented evidence supports a demand‐side story for the relation between investment characteristics and financing. Moreover, the evidence is consistent with the hypothesis that REITs avoid mortgage financing in their primary markets to preserve operational flexibility in those markets.

  September 11, 2017   doi: 10.1111/1540-6229.12212   open full text
• Big‐Box Stores and Urban Land Prices: Friend or Foe?
  Barrett A. Slade.
  Real Estate Economics. September 06, 2017
  This study examined the effect of a new Walmart store on nearby U.S. urban land prices and found that, within one quarter mile of a new Walmart store locale, land prices increased by almost 39% over the four‐year development time period. Supercenters and commercial land sales were instrumental in driving the positive price effects. Robustness tests found a positive land price effect with other big‐box stores, suggesting that the land price effect was not limited to Walmart stores, but in fact, was a big‐box store effect.

  September 06, 2017   doi: 10.1111/1540-6229.12209   open full text
• Contact High: The External Effects of Retail Marijuana Establishments on House Prices.
  James Conklin, Moussa Diop, Herman Li.
  Real Estate Economics. September 05, 2017
  Using publicly available data from the city of Denver and the state of Colorado, this study examines the effects of retail conversions (conversions from medical marijuana to retail marijuana stores) on neighboring house values in Denver, Colorado. The study period reflects a time before and after retail marijuana sales became legal in Colorado in 2014. Using a difference‐in‐differences approach, we compare houses that were in close proximity to a conversion (within 0.1 miles) to those that are farther away from a conversion. We find that single family residences close to a retail conversion increased in value by approximately 8% relative to houses that are located slightly farther away. We perform a battery of robustness checks and falsification tests to provide additional support for this finding. To our knowledge this is the first study to examine at a micro‐level the highly localized effect of retail marijuana establishments on house prices and hope that it can contribute to the debate on retail marijuana laws. This article is protected by copyright. All rights reserved

  September 05, 2017   doi: 10.1111/1540-6229.12220   open full text
• The Dynamics of REIT Pricing Efficiency.
  Mike Aguilar, Walter I. Boudry, Robert A. Connolly.
  Real Estate Economics. August 30, 2017
  We study the dynamics of pricing efficiency in the equity REIT market from 1993 to 2014. We measure pricing efficiency at the firm level using variance ratios calculated from quote midpoints in the TAQ database. We find four main results. First, on average, the market is efficient, with variance ratios close to one. However, in any given year, there is considerable cross‐sectional variation in variance ratios, suggesting at least some firms are priced inefficiently. Second, higher institutional ownership by active institutional investors is related to better pricing efficiency, while passive ownership does not reduce pricing efficiency. Third, REITs that are included in the S&P 500 and S&P 400 are priced more efficiently than other REITs. For the S&P 500 firms, we find evidence that this was purely driven by sample selection, while for S&P 400 firms, we find evidence that it is inclusion in the index that drives efficiency. Finally, we find evidence that firm investment, analyst coverage and debt capital raising activity can influence pricing efficiency.

  August 30, 2017   doi: 10.1111/1540-6229.12210   open full text
• Real Assets, Collateral and the Limits of Debt Capacity.
  Erasmo Giambona, Antonio S. Mello, Timothy J. Riddiough.
  Real Estate Economics. July 05, 2017
  We develop a model in which better quality firms separate themselves by issuing unsecured debt and committing to maintain a strong balance sheet, something lower‐quality firms find too costly to do. Lower‐quality firms, in contrast, pledge real assets in secured debt transactions. However, during turbulent financial periods, pooling occurs in the secured debt market, which raises the average quality of firms in that market. We use the 1998 Russian crisis together with the role played by Fannie Mae and Freddie Mac for apartment REITs to highlight the relation between financing outcomes and firm type.

  July 05, 2017   doi: 10.1111/1540-6229.12207   open full text
• Catch Animal Spirits in Auction: Evidence from New Zealand Property Market.
  Song Shi, M. Humayun Kabir.
  Real Estate Economics. June 30, 2017
  Following the animal spirits theory proposed by Akerlof and Shiller, this article contributes to behavior economics by investigating the possibility of using auction sales data to capture evidence of irrational exuberance in the housing market. Using the monthly percentages of residential property auction sales for Auckland, Wellington and Christchurch regions in New Zealand from 2006 to 2015, and the exuberance testing method proposed by Phillips, Shi and Yu, we find that animal spirits have been developing in the Auckland housing market since 2013, but not in other regions. When compared to the results based on price‐to‐rent ratios, auction sales provide more meaningful results for identifying market‐wide irrational exuberance at an early stage. The causality test on price‐to‐rent ratios and auction sales volume shows that asset prices and animal spirits influence each other in the short run. In the long run, prices have significant effect on animal spirits, but not vice versa.

  June 30, 2017   doi: 10.1111/1540-6229.12206   open full text
• Risk and Returns of Income Producing Properties: Core versus Noncore.
  Jianhua Gang, Liang Peng, Thomas G. Thibodeau.
  Real Estate Economics. June 29, 2017
  This article empirically analyzes whether core and noncore private income producing properties have different investment returns, using a large sample of about 5,000 individual properties during the 1997–2014 period. We use a holding‐period factor model to control for both systematic risk, including loadings of both public equity factors and a real estate factor, and nonsystematic risk. We find that core properties have lower systematic risk but higher returns than noncore properties before and after adjusting for both systematic and nonsystematic risk.

  June 29, 2017   doi: 10.1111/1540-6229.12208   open full text
• Lender Steering in Residential Mortgage Markets.
  Sumit Agarwal, Brent W. Ambrose, Vincent W. Yao.
  Real Estate Economics. June 12, 2017
  In this article, we examine the incentives for lenders to steer borrowers into piggyback loan structures to circumvent regulations requiring primary mortgage insurance (PMI) for loans with loan‐to‐value ratios (LTV) above 80%. Our empirical analysis focuses on propensity score‐matched portfolios of piggyback and single‐lien loans having the same combined LTV based on a full set of observed risk characteristics. Our results confirm that mortgages originated with the piggyback structure have much lower ex post default rates and faster prepayment speeds than corresponding PMI loans. We also find a significant causal effect of interstate banking deregulation on the growth of piggybacks in these years, confirming that the ex post performance gap is primarily driven by lender steering on the supply side and not by borrower self‐selection. We then perform a number of tests to explore different origination and execution channels of mortgage steering.

  June 12, 2017   doi: 10.1111/1540-6229.12203   open full text
• Beauty in the Eye of the Home‐Owner: Aesthetic Zoning and Residential Property Values.
  Thies Lindenthal.
  Real Estate Economics. June 12, 2017
  This article empirically confirms one core motivation for architectural zoning: Shape homogeneity among neighboring homes increases the value of residential buildings. Drawing on large‐scale shape and transaction data, this study first develops a data‐driven measure of architectural similarity, condensing three‐dimensional shapes to univariate shape distributions. These algorithm‐based similarity estimates are good predictors of human perceptions of shape similarity and are linked to property attributes and transaction prices. For the city of Rotterdam, a price premium of approximately 3.5% is estimated for row houses within very homogeneous ensembles over buildings facing heterogeneous neighbors.

  June 12, 2017   doi: 10.1111/1540-6229.12204   open full text
• The Consequences of REIT Index Membership for Return Patterns.
  Andrey Pavlov, Eva Steiner, Susan Wachter.
  Real Estate Economics. June 05, 2017
  The impact of stock market index membership on Real Estate Investment Trust (REIT) stock returns is unclear. Returns may become more like those of other indexed stocks and less like those of their underlying properties. Taking advantage of the inclusion of REITs in major S&P indexes starting in 2001, we find that shared index membership significantly increases the correlation between REIT returns. However, index membership also enhances the link between REIT returns and the underlying real estate, consistent with improved pricing efficiency.

  June 05, 2017   doi: 10.1111/1540-6229.12202   open full text
• Tenant Protection, Temporal Vacancy and Frequent Reconstruction in the Rental Housing Market.
  Masatomo Suzuki, Yasushi Asami.
  Real Estate Economics. June 05, 2017
  In Japan, tenants are protected in the sense that owners must compensate them for evicting them against their will, while owners cannot foresee the intended tenure length of prospective tenants. If owners cannot specify the term of a lease, social inefficiency emerges: (i) detached houses owned by individual households remain vacant for a certain period; (ii) alternatively, landlords’ newly constructed apartments, which are free from eviction risk, accommodate a large proportion of tenants; and (iii) the apartments are rebuilt frequently even though they remain viable. If a fixed‐term contract is available, only short‐term tenants choose it, and the information asymmetry is dissolved, realizing social efficiency.

  June 05, 2017   doi: 10.1111/1540-6229.12205   open full text
• Real Estate Investments, Product Market Competition and Stock Returns.
  Moussa Diop.
  Real Estate Economics. June 02, 2017
  By limiting operating flexibility, real estate investments are found to increase firm risk, thus expected returns. This study introduces product market competition as a critical determinant of the relation between real estate investments and stock returns. As part of capacity strategies, these investments are generally associated with increased market power and lower cash flow volatility in oligopolistic industries. I present a simple model of oligopolistic competition showing a negative relation between real estate holdings and firm beta, and empirically confirm this prediction. Controlling for product market competition enhances identification of the endogenous relation between real estate investments and stock returns.

  June 02, 2017   doi: 10.1111/1540-6229.12201   open full text
• Self‐Reported vs. Market Estimated House Values: Are Homeowners Misinformed or Are They Purposely Misreporting?
  Jung Hyun Choi, Gary Painter.
  Real Estate Economics. May 25, 2017
  Extant research finds significant gaps between a homeowner's self‐reported house value and market estimates, and that the gap is largest for underwater homeowners. Prior studies, however, have largely overlooked the possibility that homeowners’ self‐reported house value may be more accurate due to private information. Previous research has also neglected the possibility that there could be discordance between what homeowners know and what they report as their house value. Using the Panel Study of Income Dynamics, this study examines how the choices of households reveal their knowledge of the true home value. In so doing, we find that that post move housing choices reveal that market estimates are accurate assessments of the housing value. Further, we find evidence that these underwater homeowners are aware of the actual house value, but are reporting them incorrectly. The results show that misreporting underwater homeowners are as likely to be late on their mortgage payments as homeowners that are reporting negative equity. Underwater homeowners’ reluctance to admit their losses accords with the theory of loss aversion.

  May 25, 2017   doi: 10.1111/1540-6229.12199   open full text
• Gender Equality in Mortgage Lending.
  Lu Fang, Henry J. Munneke.
  Real Estate Economics. May 21, 2017
  Using a sample of 30‐year fixed‐rate subprime mortgage loans, this article empirically examines whether gender inequality exists in the mortgage market, specifically whether a borrower's gender affects the loan contract rate charged, beyond the impact of the borrower's probability of default and prepayment. The results, based on a competing‐risks loan hazard model, reveal that borrowers of different genders have different loan termination patterns. After controlling for the probability of a borrower defaulting or prepaying, female borrowers pay higher contract rates in the subprime mortgage market over the study period.

  May 21, 2017   doi: 10.1111/1540-6229.12198   open full text
• Does Temporal Aggregation Explain the Persistence of the S&P/Case‐Shiller Indices? Evidence from a Longitudinal Specification.
  Antoine Giannetti.
  Real Estate Economics. May 16, 2017
  Temporal aggregation is a repeat sale index construction methodology that consists of aggregating paired‐transactions in a moving‐average window. In particular, the methodology is used to calculate the popular S&P/Case‐Shiller home price indices. In this article, I focus the insights of the literature on measurement error to demonstrate that temporal aggregation produces idiosyncratic biases in predictive regression slopes. I further estimate a dynamic instrumental variable (IV) panel for the 20 S&P/Case‐Shiller metro areas. The main empirical finding is that temporal aggregation is a short‐lived statistical disturbance that does not explain the homogenous robust persistence of the indices.

  May 16, 2017   doi: 10.1111/1540-6229.12200   open full text
• The Capitalization of School Quality into Renter and Owner Housing.
  Eli Beracha, William G. Hardin.
  Real Estate Economics. May 10, 2017
  Residential property amenities including school quality should be capitalized into both rent and property sale prices. Evidence of price and rent premiums for higher school quality is provided. The price premium for school quality for owners exceeds the premium for renters. The premiums paid by renters and owners vary with the likelihood the household directly uses school services, housing market conditions, whether the property is in an urban or suburban area and by the observed school quality in the years leading to the transaction. The larger price premium paid by owners is supported by enhanced liquidity and tempered price volatility for properties located in quality school districts.

  May 10, 2017   doi: 10.1111/1540-6229.12195   open full text
• The Accuracy of Senior Households’ Estimates of Home Values: Application to the Reverse Mortgage Decision.
  Donald Haurin, Stephanie Moulton, Wei Shi.
  Real Estate Economics. May 08, 2017
  Using a unique data set of more than 14,000 senior homeowners in the United States, this study compares self‐assessed home values to arm's length contemporaneous appraisals. In a sample of seniors who received counseling for a reverse mortgage, the absolute value of the assessment error averages 18.9% of appraised value and it is biased upwards by 13.4%. When adjusted to reflect the general population of seniors, the size and bias of the average error fall to 16.1% and 4.2%. Both the bias and the size of the error tend to be lower for households with higher income and credit scores but it is greater for black households. In our sample period of 2009–2011, house prices were falling. The greater the rate of price reduction, the greater is the upward bias and size of the assessment error. When seniors who applied for a reverse mortgage learn that they overvalued their home, their probability of closing the loan falls.

  May 08, 2017   doi: 10.1111/1540-6229.12197   open full text
• Who Is “Misleading” Whom in Real Estate Transactions?
  Jia Xie.
  Real Estate Economics. May 05, 2017
  The observation that real estate agents sell their clients' homes cheaper and faster than their own homes has been well identified in the literature and interpreted as evidence of an agency problem originated from information asymmetry. This article studies whether this well‐known result holds true for all types of agents and clients, and whether information asymmetry is the full story. By using the Multiple Listing Service (MLS) data from Indiana, we find that, after controlling for observables, mainly homes owned by institutional clients are sold cheaper and faster than agent‐owned homes, and the differences are mainly driven by less and moderately experienced agents. Besides information asymmetry, we also find evidence of motivation heterogeneity—institutions themselves are very motivated to sell, and therefore are willing to sell cheaper in order to sell faster.

  May 05, 2017   doi: 10.1111/1540-6229.12196   open full text
• Early Termination of Small Loans in the Multifamily Mortgage Market.
  Anthony Pennington‐Cross, Brent C Smith.
  Real Estate Economics. April 27, 2017
  This article uses micro‐level data on small (as defined by Fannie Mae) multifamily loans in the Fannie Mae loan portfolio to examine prepayment and default performance. The results document the importance of equity, as measured by the loan‐to‐value ratio, and contemporaneous property operating income relative to debt service obligations, as measured by the debt‐to‐income ratio. Our results indicate that the expiration of prepayment penalties and yield maintenance provisions lead to large spikes in prepayment and default. The results also illustrate that multifamily loans, as they are not fully amortized, also have a substantial risk of both extension and default at term. The operating efficiency of the property, cash reserves and local economic conditions can also impact terminations.

  April 27, 2017   doi: 10.1111/1540-6229.12194   open full text
• They Would If They Could: Assessing the Bindingness of the Property Holding Constraints for REITs.
  Tobias Mühlhofer*.
  Real Estate Economics. March 31, 2017
  This study examines the bindingness of the property holding constraints which Real Estate Investment Trusts (REITs) face on their portfolios (the dealer rule), and illustrates how these constraints hinder REITs from exploiting opportunities to time the property market. I first simulate a set of filter‐based market timing strategies, which outperform a buy‐and‐hold strategy out of sample, and show that imposing a four‐year (or even the newer two‐year) holding constraint significantly reduces the excess returns the strategies generate. I then analyze actual holding periods of properties in REIT portfolios and find that there seems to exist a large degree of demand for short property holding periods and that the trades generated by the filter strategy generally resemble actual REIT trading activity, validating the relevance of the simulation results. A direct test for the constraint reveals that REITs' propensity to hold a property beyond the minimum period increases, the higher the profit from the transaction, consistent with the asymmetric nature in which the rule is enforced. By contrast, this effect is insignificant for Umbrella‐Partnership REITs (UPREITs), which are not as affected by the constraint. I further show that UPREITs overall achieve significantly better ex‐post market timing performance than non‐UPREITs. I thus find that overall REITs are limited by the dealer rule.

  March 31, 2017   doi: 10.1111/1540-6229.12141   open full text
• Dividend Manipulation at Unlisted REITs.
  Jonathan A. Wiley.
  Real Estate Economics. March 15, 2017
  Dividend policy at unlisted firms is confounded by the continuous equity offering—as exists for unlisted REITs. Unlisted firms lack visible share prices, which heightens the sensitivity of investors to dividends paid during the offering. By paying high dividends early, managers of unlisted REITs positively influence the flow of new equity. Dividend manipulation occurs when discretionary yields are exceptionally high and predominantly favorable dividend changes occur during the equity offering, followed by a surge in unfavorable changes after the offering. Evidence of dividend manipulation at unlisted REITs is provided where even discretionary yields are significantly reduced once the offering expires.

  March 15, 2017   doi: 10.1111/1540-6229.12193   open full text
• Internet Search Behavior, Liquidity and Prices in the Housing Market.
  Dorinth W. Dijk, Marc K. Francke.
  Real Estate Economics. February 07, 2017
  We employ detailed internet search data to examine price and liquidity dynamics of the Dutch housing market. We show that the number of clicks on properties listed online proxies demand and the number of listed properties proxies supply. From this internet search behavior, we create a market tightness indicator and we find that this indicator Granger causes changes in both house prices and housing market liquidity. The results of a panel VAR suggest that a demand shock results in a temporary increase in liquidity and a permanent increase in prices in urban areas. This is in accordance with search and matching models.

  February 07, 2017   doi: 10.1111/1540-6229.12187   open full text
• Real Estate Returns by Strategy: Have Value‐Added and Opportunistic Funds Pulled Their Weight?
  Joseph L. Pagliari.
  Real Estate Economics. February 07, 2017
  Real estate strategies broadly fall into three categories: core, value‐added and opportunistic. This empirical examination of net returns from these three strategies indicates that, on a risk‐adjusted basis, the value‐added funds have strongly underperformed and the returns from opportunistic funds have weakly underperformed the returns available from core funds. In so concluding, this article departs from standard asset‐pricing models in two important respects: the total risk is used and the cost of borrowing increases as leverage increases. While the first departure has no substantive effect, the second departure lowers the estimate of the underperformance of noncore funds.

  February 07, 2017   doi: 10.1111/1540-6229.12190   open full text
• Valuing the Redevelopment Option Component of Urban Land Values.
  Henry J. Munneke, Kiplan S. Womack.
  Real Estate Economics. February 06, 2017
  This study draws from the redevelopment, real option, and urban spatial growth literatures to explore the spatial dynamics of the components of house prices. More specifically, the paper proposes that the capitalized value of the option to redevelop housing at the property level can be estimated by incorporating the likelihood of exercising the redevelopment option (the probability of redevelopment) into spatial and nonspatial hedonic house price models. Accordingly, option values are estimated for properties across the spectrum of the housing life cycle. Results from the study reveal a substantial level of spatial variation and clustering in the predicted option values, indicating that location is a major determinant of redevelopment and real option values. Furthermore, the results provide new evidence in support of the theoretical construct that properties purchased for immediate redevelopment are only valued for the underlying land.

  February 06, 2017   doi: 10.1111/1540-6229.12192   open full text
• Large‐Scale Buy‐to‐Rent Investors in the Single‐Family Housing Market: The Emergence of a New Asset Class.
  James Mills, Raven Molloy, Rebecca Zarutskie.
  Real Estate Economics. January 31, 2017
  In 2012, several large firms began purchasing single‐family homes, creating large portfolios of rental property, and securitizing these investments in capital markets. We present the first systematic evidence on this new investor activity in order to shed light on the factors that have supported its emergence. Three key factors were the ample supply of property for sale, tight mortgage financing and a decrease in acquisition and managerial costs brought about by technological advances. In addition, we show that buy‐to‐rent investors appear to have supported house prices in the neighborhoods where they concentrated.

  January 31, 2017   doi: 10.1111/1540-6229.12189   open full text
• Servicer Contracts and the Design of Mortgage‐Backed Security Pools.
  Robert M. Mooradian, Pegaret Pichler.
  Real Estate Economics. January 24, 2017
  We develop a unified model of mortgage and servicer contracts. Renegotiating mortgage contracts following default is strictly Pareto improving, if the lender gathers updated information. An incentive compatible servicer contract requires the servicer to hold a risk position that has a value strictly greater than the cost of exerting effort. This risk position cannot in general be approximated with a horizontal “first‐loss” position. An alternative, forming a nondiversified pool, preserves pool‐wide information, avoids the cost of an incentive compatible servicer contract, and may increase MBS value.

  January 24, 2017   doi: 10.1111/1540-6229.12188   open full text
• Asset Growth and Stock Performance: Evidence from REITs.
  David C Ling, Joseph T.L. OOI, Ruoran XU.
  Real Estate Economics. January 11, 2017
  In this article, we examine the impact of asset growth rates on the future stock performance of 308 publicly traded real estate investment trusts (REITs). We observe that fast‐growing REITs tend to underperform slow growing REITs. However, we find evidence that the growth effect is significantly less negative for REITs selling at a premium to net asset value. In addition, we observe the asset growth effect only in the subsample of REITs that engages in equity issuance over the next 12 months. The combined evidence suggests contemporaneous equity dilution, which has not been considered in previous studies, may provide an explanation for the underperformance of fast‐growing firms.

  January 11, 2017   doi: 10.1111/1540-6229.12186   open full text
• REIT Leverage and Return Performance: Keep Your Eye on the Target.
  Emanuela Giacomini, David C. Ling, Andy Naranjo.
  Real Estate Economics. December 14, 2016
  This article examines U.S. REIT leverage decisions and their effects on risk and return. We find that the speed at which REITs close the gap between current debt levels and target leverage levels is 17% annually. REITs that are highly levered relative to the average REIT tend to underperform REITs with less debt in their capital structure. However, REITs that are highly levered relative to their target leverage tend to perform better on a risk‐adjusted basis than under‐levered REITs. Taken together, our results show that REIT leverage has significant return performance effects conditional on deviations from target leverage.

  December 14, 2016   doi: 10.1111/1540-6229.12179   open full text
• Housing Price Forecastability: A Factor Analysis.
  Lasse Bork, Stig V. Møller.
  Real Estate Economics. December 07, 2016
  We examine U.S. housing price forecastability using principal component analysis (PCA), partial least squares (PLS) and sparse PLS (SPLS). We incorporate information from a large panel of 128 economic time series and show that macroeconomic fundamentals have strong predictive power for future movements in housing prices. We find that (S)PLS models systematically dominate PCA models. (S)PLS models also generate significant out‐of‐sample predictive power over and above the predictive power contained by the price–rent ratio, autoregressive benchmarks and regression models based on small datasets.

  December 07, 2016   doi: 10.1111/1540-6229.12185   open full text
• Geographic Portfolio Allocations, Property Selection and Performance Attribution in Public and Private Real Estate Markets.
  David C. Ling, Andy Naranjo, Benjamin Scheick.
  Real Estate Economics. November 27, 2016
  This article examines the effects of geographic portfolio concentrations on the return performance of U.S. public real estate investment trusts versus private commercial real estate over the 1996–2013 time period. Adjusting private market returns for differences in geographic concentrations with public markets, we find that core private market performance falls. Using return performance attribution analysis, we find that the geographic allocation effect constitutes only a small portion of the total return difference between listed and private market returns, whereas individual property selection within geographic locations explains, in part, the documented outperformance of listed versus private real estate market returns.

  November 27, 2016   doi: 10.1111/1540-6229.12184   open full text
• Housing Preferences of Asian and Hispanic/Latino Immigrants in the United States: A Melting Pot or Salad Bowl.
  Yi Wu, Vivek Sah, Alan Tidwell.
  Real Estate Economics. November 22, 2016
  Several factors affecting household formations of first‐ and second‐generation Asian and Hispanic/Latino immigrants are identified, including contextual social interaction effects. Using household data from the American Housing Survey and Public Use Micro‐data Sample, we find that first‐generation Asian and Hispanic/Latino immigrants are more likely to live in coresidence households; and this is influenced by immigrant gender, age, education, income, employment and density. Education and income are inversely related to coresiding, while higher immigrant density increases the propensity to coreside. Contextual effects reveal that neighborhoods with a relatively large Caucasian average household size increase coresidence behavior among immigrants; and the income of Caucasians living in the area is inversely related to immigrant coresiding behavior. Second‐generation Asian immigrants are more likely to live independently, while second‐generation Hispanic/Latino immigrants have a higher propensity to coreside; however, they are influenced contextually by geographic household and income patterns. We further specify findings by considering local housing price, the fusion of immigrants in the United States, agglomeration of immigrants in central city and a comparison between immigrants in United States and similarly aged natives in China. Our results are robust to potential sample‐selection bias and social interaction boundary selection bias.

  November 22, 2016   doi: 10.1111/1540-6229.12178   open full text
• Variation Across Price Segments and Locations: A Comprehensive Quantile Regression Analysis of the Sydney Housing Market.
  Sofie R. Waltl.
  Real Estate Economics. November 18, 2016
  Standard house price indices measure average movements of average houses in average locations belonging to an average price segment and hence obscure spatial and cross‐sectional variation of price appreciation rates even within a single metropolitan area. This article combines penalized quantile regression techniques with the hedonic imputation approach to reveal such kind of variation. The method is applied to house transactions from Sydney between 2001 and 2014. The analysis finds significant variation across sub‐markets over time and in particular during the boom‐and‐bust cycle peaking in 2004. Appreciation rates were highest for suburban, low‐priced and lowest for inner‐city, high‐priced houses.

  November 18, 2016   doi: 10.1111/1540-6229.12177   open full text
• Asymmetric Dominance and Its Impact on Mortgage Default Deficiency Collection Efforts.
  Michael J. Seiler.
  Real Estate Economics. November 11, 2016
  The surge in mortgage default rates during the financial crisis has led to a corresponding dramatic increase in the type and number of firms who are entering the deficiency collection space. As such, we study the methods by which hedge funds and private equity collection firms can more profitably unwind this toxic debt. Specifically, we employ the theory of Asymmetric Dominance and find support that introducing a similar payment amount (i.e., a “decoy”) significantly induces borrowers to change their preference from one that is optimal for them to one that is suboptimal. We then employ the Left‐Most Digit effect in a new manner and demonstrate a statistically significant ability to mitigate the Asymmetric Dominance effect. Finally, we empirically find that Caucasians, males, and those of a greater net worth are more adept at avoiding violating the Independence of Irrelevant Alternatives axiom.

  November 11, 2016   doi: 10.1111/1540-6229.12176   open full text
• Does Homeownership Prolong the Duration of Unemployment?
  Ahmet Ali Taşkın, Fırat Yaman.
  Real Estate Economics. October 21, 2016
  We examine the effects of homeownership on individuals' unemployment durations. An unemployment spell can terminate with a job or with nonparticipation. The endogeneity of homeownership is addressed by estimating a full maximum likelihood function jointly modeling the competing hazards and the probability of being a homeowner. Unobserved factors contributing to the probability of being a homeowner are allowed to be correlated with unobservable heterogeneity in the hazard rates. Not controlling for ownership selection, there is neither a significant difference in the job‐finding hazard nor in the nonparticipation hazard of unemployed owners and renters. If we jointly model the ownership selection, we find that unemployed homeowners are more likely to find a job than renters.

  October 21, 2016   doi: 10.1111/1540-6229.12173   open full text
• Are Rising College Premiums Capitalized into House Prices? Evidence from China.
  Leilei Shen, Tracy M. Turner.
  Real Estate Economics. October 09, 2016
  Many areas in China experienced steeply rising house prices beginning in 2003. We test whether a change in local residency requirements may have played a role in driving up house prices in some places by tying access to Chinese universities to local homeownership status in the presence of a rising college premium. We generate a novel dataset that combines China housing market and neighborhood data with household and university admission data. We find evidence of capitalization effects and a sizable increase in the likelihood of homeownership postpolicy change in places with the greatest preferential access to China's elite universities.

  October 09, 2016   doi: 10.1111/1540-6229.12172   open full text
• Federal Home Loan Bank Advances and Bank and Thrift Holding Company Risk: Evidence from the Stock Market.
  Scott Deacle, Elyas Elyasiani.
  Real Estate Economics. October 07, 2016
  Using bivariate GARCH models of stock portfolio returns and risk, we find that bank and thrift holding companies that relied the most on Federal Home Loan Bank (FHLB) advances exhibited less total risk and market risk than those that relied on them the least between 2001 and 2012. When we control for differences in holding company size, stock trading volume, residential mortgage lending, and holding company type (bank vs. thrift), the most FHLB‐reliant holding companies sustain the aforesaid risk advantages except during the crisis of 2007–2009, when they exhibit greater idiosyncratic risk. The latter finding suggests that investors perceived the high reliance of the borrowing institutions on advances as a sign of distress. Portfolios that consist of only bank holding companies show qualitatively similar results.

  October 07, 2016   doi: 10.1111/1540-6229.12174   open full text
• On the Relation between Local Amenities and House Price Dynamics.
  Eli Beracha, Ben T Gilbert, Tyler Kjorstad, Kiplan Womack.
  Real Estate Economics. September 01, 2016
  This study explores the extent to which local amenities are related to house price volatility, returns and risk‐adjusted returns across 238 MSAs. We find strong evidence that high amenity areas experience greater price volatility. In regards to returns, high amenity areas experience greater (lower) real returns in appreciating (depreciating) markets. However, high amenity areas experience little to no abnormal risk‐adjusted returns. Results from the study are robust to an endogenous treatment of amenities and land supply elasticity. Overall, we conclude that the desirability of a metropolitan area is a significant channel through which land values drive house price dynamics.

  September 01, 2016   doi: 10.1111/1540-6229.12170   open full text
• Searching for Goldilocks: The Distance‐Based Capitalization Effects of Local Public Services.
  Trey Dronyk‐Trosper.
  Real Estate Economics. August 30, 2016
  This article empirically models the effect of distance on residential property values of three different types of services, fire, police and emergency medical services. Interesting economic trade‐offs emerge as service station proximity provides both amenity and disamenity effects. Using over three million home sales from the state of Florida along with two different measures of distance, this study provides evidence of nonlinear capitalization effects on local housing values. A difference‐in‐difference model utilizing new facility construction provides corroborating evidence of these findings.

  August 30, 2016   doi: 10.1111/1540-6229.12171   open full text
• On the Nature of Self‐Assessed House Prices.
  Morris A. Davis, Erwan Quintin.
  Real Estate Economics. August 30, 2016
  In models of optimal household behavior, the value of housing affects consumption, savings and other variables. But homeowners do not know the value of their house for certain until they sell, so while they live in their home they must rely on local house price data to estimate its value. This article uses data from the recent housing boom and bust to demonstrate that changes in households' self‐assessed home values are strongly consistent with the predictions of a model in which households optimally filter available house price data. Specifically, we show that self‐assessed house prices did not increase as rapidly as house price indexes during the boom and did not decline as severely during the bust. A Kalman filter model nearly perfectly replicates these data. These findings have direct implications for economists studying asking prices during booms and busts, optimal default decisions and other key housing‐related phenomena.

  August 30, 2016   doi: 10.1111/1540-6229.12168   open full text
• Mortgage Shoppers: How Much Do They Save?
  Sven Damen, Erik Buyst.
  Real Estate Economics. August 16, 2016
  Survey evidence suggests that many U.S. and European consumers do not spend a lot of time comparing mortgage products. We show, however, that mortgage shopping is associated with a substantial monetary payoff, using a unique data set from a website where borrowers (not the lenders) can post their complete set of received mortgage rate offers. A borrower who shops for five mortgage offers is able to save 7,078 euros in net present value on average. The potential savings suggest suboptimal mortgage shopping as the opportunity cost of time to renegotiate additional quotes is unlikely to be that high.

  August 16, 2016   doi: 10.1111/1540-6229.12167   open full text
• Why Are Foreclosures Contagious?
  Lingxiao Li.
  Real Estate Economics. August 03, 2016
  This article investigates the mechanism by which foreclosed properties depress neighboring property prices. Using a novel dataset on housing capital expenditure, I verify as accurate the claim of disinvestment theory made in earlier studies. When capital expenditure investment, neighborhood price trends, number of Multiple Listing Service listings and neighborhood fixed effects are controlled for, the negative effect on property prices is significant from nearby foreclosures, real estate owned (REO) listings and REO sales, but not from default and delinquent properties. The effect is larger in a depressed market than in an appreciating market. I argue that the most plausible explanation for these results is that a foreclosure discount drives down the reference prices for nearby properties and depresses neighborhood values. This discount information is revealed to the public through foreclosures, REO listings and REO sales.

  August 03, 2016   doi: 10.1111/1540-6229.12162   open full text
• Are New Homes Special?
  N. Edward Coulson, Adele C. Morris, Helen R. Neill.
  Real Estate Economics. July 04, 2016
  This article describes alternative ways of identifying new homes and, using a large dataset of property sales in Las Vegas, Nevada, tests for the extent to which new homes sell at a price premium relative to otherwise similar existing homes. We also investigate whether the results differ across time and location, including before and after the housing bust. Our results suggest that price premia for new homes arise primarily in circumstances in which the supply of new houses is relatively low. In some cases rising to over 20% relative to otherwise similar existing homes. When new homes are plentiful, they are not special and the premium disappears.

  July 04, 2016   doi: 10.1111/1540-6229.12165   open full text
• Diversification Benefits of REIT Preferred and Common Stock: New Evidence from a Utility‐based Framework.
  Walter I. Boudry, Jan A. deRoos, Andrey D. Ukhov.
  Real Estate Economics. June 29, 2016
  We study the diversification benefits of REIT preferred and common stock using a utility‐based framework in which investors segment based on risk aversion. We examine optimal mean‐variance portfolios of investors with different levels of risk aversion given access to different classes of assets and establish three main results. First, REIT common stock helps low risk aversion investors attain portfolios with higher returns, while REIT preferred stock helps high risk aversion investors by providing a venue for risk reduction. Second, REIT preferred stock has a risk‐return profile not easily replicated by other asset classes. Finally, conclusions drawn from the empirical analysis are markedly different under these constraints compared to the classical unconstrained setting.

  June 29, 2016   doi: 10.1111/1540-6229.12166   open full text
• Graduated Flood Risks and Property Prices in Galveston County.
  Ajita Atreya, Jeffrey Czajkowski.
  Real Estate Economics. June 22, 2016
  Our hedonic property analysis approach in Galveston County, Texas aims at estimating the impacts of flood risks and water‐related amenities in a more systematic way. First, we interact distance to the nearest coastline and flood risk in order to account for these impacts acting together on housing sales prices in our coastal community. Second, we use more granular flood risk measure in the analysis compared to the existing literature. Results show that the hedonic price effect is dependent upon the distance to the nearest coastline, and as expected the distance effect varies by flood risk type. We find that in this coastal housing market properties located in the highest risk flood area, for up to nearly a quarter mile from the nearest coastline, actually command a price premium. A recent movement toward risk‐based flood insurance premiums in the United States was deeply opposed by the real estate sector for fear of causing property values to steeply decline. This analysis sheds some further light on this depressed property value assertion highlighting its sensitivity to distance to the water.

  June 22, 2016   doi: 10.1111/1540-6229.12163   open full text
• Using Experimental and Neurological Data to Gain a Deeper Understanding of Realization Utility Theory.
  Scott Gibson, Michael J. Seiler, Eric Walden.
  Real Estate Economics. June 13, 2016
  Starting with the premise that realization utility theory helps explain trading behavior, this study combines a carefully crafted experimental design with functional magnetic resonance imaging technology to offer a more inclusive examination of factors that affect REIT trading behavior beyond whether a REIT is simply trading up or down. We add to the nascent field of neurological real estate by finding that local gains/loss domains are more relevant than are global gain/loss considerations, financial skewness is a significant determinant of trading behavior, and that performance inside the REIT market influences how hard subjects think when performing tasks outside the market.

  June 13, 2016   doi: 10.1111/1540-6229.12164   open full text
• Anchoring under Currency Substitution: A Ratchet Price Mechanism in the Housing Market.
  Danny Ben‐Shahar, Roni Golan.
  Real Estate Economics. June 03, 2016
  The currency substitution experienced by the Israeli real estate market in the past decades serves as a unique case for studying the effect of the anchoring heuristic on prices. We hypothesize that players utilize current and past exchange rates between the old and new currency to affect the closing price in their favor. Results of micro‐ and macro‐level estimations indicate that exchange rate fluctuations associate with an upward ratchet price effect. Furthermore, we find that the ratchet price mechanism disappears once the currency substitution is completed. These findings provide new evidence of the effect of anchoring on a market whose transactions involve substantial, long‐term economic consequences.

  June 03, 2016   doi: 10.1111/1540-6229.12161   open full text
• Real Estate and Consumption Growth as Common Risk Factors in Asset Pricing Models.
  Benoît Carmichael, Alain Coën.
  Real Estate Economics. May 31, 2016
  Using a linear multifactor pricing model, we study the influence of equity market, the consumption growth and the return on real estate wealth on asset returns. The real estate risk factor is proxied alternatively by the National Association of Real Estate Investment Trusts (NAREIT) index, unlevered NAREIT index and National Council of Real Estate Investment Fiduciaries property index. Estimates are based on CRSP's monthly decile portfolio returns from January 1972 to December 2013 (including the Vintage REIT era and the New REIT era). Generalized method of moment results show that the real estate factor is particularly useful to explain the cross‐sectional variation of returns in the last two decades generally associated with the so‐called real estate bubble.

  May 31, 2016   doi: 10.1111/1540-6229.12160   open full text
• Commuting Costs and Geographic Sorting in the Housing Market.
  Thomas Blake.
  Real Estate Economics. May 26, 2016
  The demand for housing is heavily influenced by access to employment opportunities. The cost of gasoline determines, in part, the cost of such access and therefore the relative demand across markets with varying commuting needs. Locally exogenous gasoline price movements demonstrate the causal impact of higher fuel costs on housing markets: a shift of market demand toward real estate markets with less costly commutes. Higher fuel prices increase the value of real estate with shorter commutes and easier access to driving alternatives relative to more driving dependent homes. Every incremental $1 per gallon of gasoline reduces home values by 0.143% for every additional mile relative to counterfactual markets, or $5,200 for the average home and commute. This translates into a discount rate of 6.4%, comparable to mortgage rates for the period.

  May 26, 2016   doi: 10.1111/1540-6229.12159   open full text
• Characteristics of Depreciation in Commercial and Multifamily Property: An Investment Perspective.
  Sheharyar Bokhari, David Geltner.
  Real Estate Economics. May 25, 2016
  This article reports empirical evidence on the nature and magnitude of real depreciation in commercial and multifamily investment properties in the United States. The article is based on a much larger and more comprehensive database than prior studies of depreciation in such properties, and it is based on actual transaction prices rather than appraisal estimates of property or building structure values. The article puts forth an “investment perspective” on depreciation, which differs from the tax policy perspective that has dominated the previous literature in the United States. From the perspective of the fundamentals of investment performance, depreciation is measured as a fraction of total property value, not just structure value, and it is oriented toward cash flow and market value metrics of investment performance such as internal rate of return and holding period return. Depreciation from this perspective includes all three age‐related sources of long‐term secular decline in real value: physical, functional and economic obsolescence of the building structure. The analysis based on 107,805 transaction price observations finds an overall average depreciation rate of 1.5%/year, ranging from 1.82%/year for properties with new buildings to 1.12%/year for properties with 50‐year‐old buildings. Apartment properties depreciate slightly faster than nonresidential commercial properties. Depreciation is caused almost entirely by decline in the property's current real income, only secondarily by increase in the capitalization rate (“cap rate creep”). Depreciation rates vary considerably across metropolitan areas, with areas characterized by space market supply constraints exhibiting notably less depreciation. This is particularly true when the supply constraints are caused by physical land scarcity as distinct from regulatory constraints. Commercial real estate asset market pricing, as indicated by transaction cap rates, is importantly related to depreciation differences across metro areas.

  May 25, 2016   doi: 10.1111/1540-6229.12156   open full text
• Mortgage Insurance Adoption in the Netherlands.
  Ruben H.G.M. Cox, Remco C.J. Zwinkels.
  Real Estate Economics. May 19, 2016
  Individuals tend to underinsure on low probability, high consequence risks. Using a survey data set from a unique institutional context, we provide an assessment of the underinsurance puzzle by studying mortgage insurance adoption among Dutch homeowners. The results indicate that the demand for mortgage insurance is affected by risk exposure, type of mortgage lender, and the involvement of financial advisors. We document that wealthier and younger mortgagors are more likely to insure. However, locus of control, house price expectations, and precautionary savings are not related to insurance demand. Finally, we find evidence that borrower (over)confidence negatively affects the likelihood that insurance is bought.

  May 19, 2016   doi: 10.1111/1540-6229.12157   open full text
• REIT Capital Structure Choices: Preparation Matters.
  Andrey Pavlov, Eva Steiner, Susan Wachter.
  Real Estate Economics. April 12, 2016
  Sun, Titman and Twite find that capital structure risks, namely, high leverage and a high share of short‐term debt, reduced the cumulative total return of U.S. REITs in the 2007–2009 financial crisis. We find that mitigating capital structure risks ahead of the crisis by reducing leverage and extending debt maturity in 2006 was associated with a significantly higher cumulative total return 2007–2009, after controlling for the levels of those variables at the start of the financial crisis. We further identify two systematic cross‐sectional differences between those REITs that reduced capital structure risks prior to the financial crisis and those that did not: the exposure to capital structure risks and the strength of corporate governance. On balance, our findings are consistent with the interpretation of risk‐reducing adjustments to capital structure ahead of the crisis as a component of managerial skill and discipline with significant implications for firm value during the crisis.

  April 12, 2016   doi: 10.1111/1540-6229.12155   open full text
• Measuring House Price Bubbles.
  Steven C. Bourassa, Martin Hoesli, Elias Oikarinen.
  Real Estate Economics. April 06, 2016
  Using data for six metropolitan housing markets in three countries, this article provides a comparison of methods used to measure house price bubbles. We use an asset pricing approach to identify bubble periods retrospectively and then compare those results with results produced by six other methods. We also apply the various methods recursively to assess their ability to identify bubbles as they form. In view of the complexity of the asset pricing approach, we conclude that a simple price–rent ratio measure is a reliable method both ex post and in real time. Our results have important policy implications because a reliable signal that a bubble is forming could be used to avoid further house price increases.

  April 06, 2016   doi: 10.1111/1540-6229.12154   open full text
• REIT Stock Price Volatility and the Effects of Leverage.
  Yuichiro Kawaguchi, Jarjisu Sa‐Aadu, James D. Shilling.
  Real Estate Economics. April 04, 2016
  This article sheds light on several puzzling empirical observations. We examine the volatility implications of equity Real Estate Investment Trust (REIT) stock returns over the sample period from January 1985 through October 2012. We find a negative “leverage effect” in the pre‐ and post‐Greenspan era, but not during the Greenspan era (circa 1994–2006). We argue that the positive elasticity of variance with respect to the value of equity during the Greenspan era can be explained by a decline in the spread between the yield on commercial mortgages and 10‐year Treasuries, which triggered a wealth transfer from REIT equity holders to REIT debt holders. We also argue that the declining commercial‐mortgage‐10‐year‐Treasury yield spread during the Greenspan era allowed REITs to take on far more risk than most people realized. We then document that average REIT stock return volatility increased significantly in the 2007–2010 period in the midst of a historic decline in REIT stock prices. The results have significant implications for the good deal of interest and debate in the media over the status of REITs and whether equity REITs have become excessively risky relative to the returns they generate.

  April 04, 2016   doi: 10.1111/1540-6229.12153   open full text
• The Impact of Employment on Parental Coresidence.
  Gary V. Engelhardt, Michael D. Eriksen, Nadia Greenhalgh‐Stanley.
  Real Estate Economics. March 02, 2016
  We examine the extent to which parents use housing and shared living arrangements as a form of risk‐sharing for their adult children, using detailed data on children and parents in the Health and Retirement Study for 1998–2012. On average, a young man moving from full‐time to nonemployment raises the likelihood of coresiding with a parent by 1.5 percentage points; moving from full‐time employment to being part‐time employed raises the likelihood of coresiding with a parent by 2 percentage points. The implied elasticity of parental coresidence with respect to the son's income is ‐1.1; for daughters, the elasticity is ‐0.5.

  March 02, 2016   doi: 10.1111/1540-6229.12152   open full text
• REIT Stock Market Volatility and Expected Returns.
  Richard Chung, Scott Fung, James D. Shilling, Tammie X. Simmons–Mosley.
  Real Estate Economics. February 24, 2016
  We study the relation between REIT stock volatility and future returns, focusing particularly on the financial crisis period of 2007–2009. There is ongoing debate about whether stock volatility can forecast future returns. Our findings suggest that REIT‐implied volatility is negatively related to contemporaneous stock returns; there is a significant positive relationship between REIT implied volatility and future stock volatility; and there is a significant negative relation between REIT implied volatility and future stock returns. Lastly, we develop trading rules based on REIT implied volatility to test whether these relationships are exploitable. The result suggests a potentially profitable trading strategy.

  February 24, 2016   doi: 10.1111/1540-6229.12128   open full text
• Immigration and the Property Market: Evidence from England and Wales.
  Nils Braakmann*.
  Real Estate Economics. February 19, 2016
  This article investigates the link between immigration and property markets in England and Wales. Evidence from fixed effects and shift‐share–based instrumental variable regressions suggests that an increase in regional immigration, depending on the specification, either decreases prices at the lower end of the distribution up to the median or leaves them unchanged and has (almost) no effect on mean property prices or prices above the median. The evidence suggests that these findings can be explained through an interaction between the markets for rented and owned properties as well as through changes in the usage of housing space.

  February 19, 2016   doi: 10.1111/1540-6229.12151   open full text
• Why Mortgage Borrowers Persevere: An Explanation of First and Second Lien Performance Mismatch.
  Paul S. Calem, Robert F. Sarama.
  Real Estate Economics. February 16, 2016
  Borrowers with a pair of mortgages collateralized by the same property sometimes continue to make payments on one while defaulting on the other. We articulate a framework for understanding this performance mismatch that emphasizes two types of borrowers: those with stable equity positions who perceive they are facing moderate or temporary liquidity shocks, and those facing severe financial stress in combination with negative equity. The former have an incentive to enter mismatch and subsequently cure, while the latter would default on both contracts. Our empirical analysis using newly available, national samples of matched first‐ and second‐lien mortgages supports this view.

  February 16, 2016   doi: 10.1111/1540-6229.12139   open full text
• Idiosyncratic Risk of House Prices: Evidence from 26 Million Home Sales.
  Liang Peng, Thomas G. Thibodeau.
  Real Estate Economics. February 16, 2016
  This paper uses about 26 million home sales to measure house price idiosyncratic risk for 7,580 U.S. zip codes during three periods: (1) when the U.S. housing market was stable (1996–2000), (2) booming (2001–2007) and (3) busting (2007–2012), and investigates the determinants of house price risk. We find very strong relationships between risk and some basic housing market characteristics. There is a U‐shaped relationship between risk and zip‐code level median household income; risk is higher in zip codes with more appreciation volatility; and risk is not compensated with higher appreciation.

  February 16, 2016   doi: 10.1111/1540-6229.12136   open full text
• Another Take on Real Estate's Role in Mixed‐Asset Portfolio Allocations.
  Joseph L. Pagliari.
  Real Estate Economics. February 13, 2016
  This article examines real estate's role in institutional mixed‐asset portfolios using both private‐ and public‐real estate indices, as a means of examining varying real estate‐related risk/return opportunities. In so doing, this article also examines the effects of: (1) increasing the investment horizon, (2) placing constraints on the maximum allocation to any one asset class, and (3) varying the risk preferences of investors. The empirical results suggest—using infinite‐horizon returns and all of the caveats that accompany such a perspective—that real estate allocations of approximately 10–15% of the mixed‐asset portfolio represent an upper bound for most investors. For those investors preferring low‐risk portfolios, (unlevered) private real estate is the vehicle serving this allocation preference; for those investors preferring high‐risk portfolios, public real estate (with its embedded leverage of 40–50%) is the vehicle serving this allocation preference—with such vehicles serving as substitutes for a variety of noncore real estate strategies. In some sense, the distinction between private and public real estate is more about the use of leverage. For those investors preferring moderate‐risk portfolios, an intermediate‐leverage approach seems optimal.

  February 13, 2016   doi: 10.1111/1540-6229.12138   open full text
• Financial Flexibility and At‐the‐Market (ATM) Equity Offerings: Evidence from Real Estate Investment Trusts.
  David Hartzell, Shawn D. Howton, Shelly Howton, Benjamin Scheick.
  Real Estate Economics. February 03, 2016
  This article examines at‐the‐market (ATM) equity programs as an additional source of financial flexibility. We find that firms with higher market‐to‐book ratios and greater institutional ownership are more likely to announce an ATM program. Firms using ATM programs are also more likely to issue shares when they have exhausted other viable financing alternatives, have timely investment opportunities and when market conditions are favorable. Finally, we document a significant negative announcement effect around the establishment of an ATM program, though the magnitude of this effect is significantly less negative than that of a comparable SEO.

  February 03, 2016   doi: 10.1111/1540-6229.12131   open full text
• Can the Consumption–Wealth Ratio Predict Housing Returns? Evidence from OECD Countries.
  Guglielmo Maria Caporale, Ricardo M. Sousa, Mark E. Wohar.
  Real Estate Economics. February 01, 2016
  We use a representative consumer model to analyze the relation between the transitory deviations of consumption from its common trend with aggregate wealth and labor income, cay, and the housing risk premium. The evidence based on data for 15 OECD countries shows that, if financial and housing assets are seen as complements, investors will temporarily allow consumption to rise when they expect a rise in future housing returns. By contrast, if housing assets are treated as substitutes for financial assets, consumption will be reduced.

  February 01, 2016   doi: 10.1111/1540-6229.12135   open full text
• The Economics of Style: Measuring the Price Effect of Neo‐Traditional Architecture in Housing.
  Edwin Buitelaar, Frans Schilder.
  Real Estate Economics. February 01, 2016
  Vintage effects have received considerable attention from economists in the context of house prices. Although strongly related, the impact of architectural building styles on prices has not been studied yet. Using a cross‐sectional hedonic price analysis including building styles of recently developed homes in the Netherlands we find a significant price premium for housing with neo‐traditional architecture. Extensive intervention by local authorities on the supply side of the housing market seems the most probable explanation of this effect. The decreasing price premium over time reflects the impact of supply restrictions on price, but also indicates that style does matter.

  February 01, 2016   doi: 10.1111/1540-6229.12137   open full text
• U.S. House Prices over the Last 30 Years: Bubbles, Regime Shifts and Market (In)Efficiency.
  Rose Neng Lai, Robert Order.
  Real Estate Economics. February 01, 2016
  This paper studies U.S. house prices across 45 metropolitan areas from 1980 to 2012. It applies a version of the Gordon dividend discount model for long‐run “fundamentals” and uses Mean Group and Pooled Mean Group estimation to estimate long‐run and short‐run determinants of house prices. We find great similarity across cities in that the long‐run house prices are largely explained by the same fundamentals; the long‐run rent to price ratio is approximately 5% plus 0.75 times the real interest rate (which is on the order of 2%). However, adjustments to deviations from the fundamentals are slow, in the long‐run, closing the gap at a rate of around 10% per year. We find sharp differences in short‐run adjustments (momentum) away from the fundamentals across cities, and the differences are correlated with local supply elasticities (more momentum with lower elasticity). Analysis of residuals suggests strong cyclical deviations, which are mean‐reverting.

  February 01, 2016   doi: 10.1111/1540-6229.12127   open full text
• Appraisers and Valuation Bias: An Empirical Analysis.
  Konstantinos Tzioumis.
  Real Estate Economics. January 28, 2016
  Using appraisals from a lender across the 2005–2006 period, we find that the association between appraisers’ valuation inflation patterns and work volume varies across states. Moreover, we find a considerable occupational exit for appraisers, and provide evidence that appraisers, as applicants, did not receive better loan pricing compared with the population of applicants. Overall, this article offers novel insights concerning the political economy of financial regulation through the lens of a specific profession.

  January 28, 2016   doi: 10.1111/1540-6229.12133   open full text
• Estimating the Value of Proximity to Water, When Ceteris Really Is Paribus.
  Jan Rouwendal, Or Levkovich, Ramona van Marwijk.
  Real Estate Economics. January 28, 2016
  Proximity to water is appreciated by households. Hedonic analyses that try to measure the value of this amenity are potentially biased by omitted variables because locations close to water may be selected by households with higher incomes who construct more luxury houses. Because it is difficult to observe all the relevant characteristics, the coefficient for proximity to water may be biased upwards. We circumvent this problem by exploiting a specific characteristic of the Dutch system of planned residential development: often a number of exactly similar houses are constructed close to each other. By comparing the values of such identical houses, we can measure the effect of proximity to water under almost ideal circumstances. Introduction of these fixed effects lowers the estimated impact of this amenity, thereby confirming the conjectured presence of an omitted variable bias.

  January 28, 2016   doi: 10.1111/1540-6229.12143   open full text
• Do Liquidated Damages Clauses Affect Strategic Mortgage Default Morality? A Test of the Disjunctive Thesis.
  Michael J. Seiler.
  Real Estate Economics. January 28, 2016
  We test the disjunctive thesis as it relates to mortgage contracts and find that a liquidated damages clause shifts ones view of a mortgage from a promise to perform to either a promise to perform or pay compensatory damages. However, when a strategic mortgage default is responsible for the breach, the perceived immorality of this action overwhelms the liquidated damages clause effect in support of the disjunctive thesis. We also find that people's conscious “experimentally stated preference” moral stance on installment loan (mortgages, auto loans, credit card debt and even cell phone contracts) default significantly differs from their subconscious “experimentally revealed preference” moral stance indicating a difference between what people say they believe and what they actually believe.

  January 28, 2016   doi: 10.1111/1540-6229.12142   open full text
• Financial Literacy, Broker–Borrower Interaction and Mortgage Default.
  James N. Conklin*.
  Real Estate Economics. January 28, 2016
  This article examines the relationship between broker–borrower interaction in the origination process and subsequent mortgage performance. I show that face‐to‐face interaction between a mortgage broker and borrower before the loan funds is associated with lower levels of ex post default. The relation between face‐to‐face broker–borrower interaction and mortgage performance holds only for borrowers that have characteristics associated with low levels of financial literacy. Specifically, face‐to‐face interaction is negatively related to default for minorities, borrowers located in areas with low levels of education, low‐income borrowers and borrowers with low FICO scores. My results suggest that face‐to‐face interaction between the mortgage broker and borrower may reduce problems associated with financial illiteracy.

  January 28, 2016   doi: 10.1111/1540-6229.12140   open full text
• Optimal Sharing of Interest‐Rate Risk in Mortgage Contracts: The Effects of Potential Prepayment and Default.
  Jan K. Brueckner, Kangoh Lee.
  Real Estate Economics. January 28, 2016
  Much of the literature on the economics of mortgage markets has studied the fixed vs. adjustable‐rate mortgage choice made by individual borrowers. However, to decide if the outcome of such a choice is efficient or approximately so, it is necessary to explore the question of optimal risk‐sharing in mortgage contracts. But because only a small literature has studied this question, more research is clearly warranted. The present article helps fill this gap by developing a simplified version of Arvan and Brueckner's model, using it to characterize optimal contracts in the absence of mortgage termination, and then exploring how termination via prepayment or default affects optimal risk‐sharing. The broad conclusion of the analysis is that potential mortgage termination makes higher risk exposure for borrowers optimal.

  January 28, 2016   doi: 10.1111/1540-6229.12149   open full text
• Real Assets, Liquidation Value and Choice of Financing.
  Crocker H. Liu, Peng Liu, Zhipeng Zhang.
  Real Estate Economics. January 28, 2016
  We use real estate firms to examine how asset liquidation values influence a firm's financing choice, because the productivity and quality of each asset is observable and potential measures of an asset's liquidation value are easier to ascertain ex ante. We show that compared to firms that issue equity, firms that issue debt have higher asset quality. The effect of their expected asset liquidation value is significant, even after we control for other factors that influence financing decisions. For firms whose assets' quality is not easily observable, we find that firms' financing choices depend heavily on conditions in the overall real estate market.

  January 28, 2016   doi: 10.1111/1540-6229.12148   open full text
• Determinants of Differential Rent Changes: Mean Reversion versus the Usual Suspects.
  Randal Verbrugge, Alan Dorfman, William Johnson, Fred Marsh, Robert Poole, Owen Shoemaker.
  Real Estate Economics. January 28, 2016
  This is a hedonic regression study of the 2001–2004 and 2004–2007 rent growth of 18,000 rental units. Which variables matter: Location? Age? Rent level? Occupancy duration? Structure type? The answers deepen understanding of the rental market and help guide statistical agency practice. We document significant rent stickiness. Initial relative rent level is the best predictor, mainly because of mean reversion. (This problem likely extends well beyond the present study.) “Location” comes in second, though often not statistically significant: the relative value of location is persistent. Age and occupancy duration are also notable. Our findings support statistical agency practices.

  January 28, 2016   doi: 10.1111/1540-6229.12145   open full text
• Product Market Competition and Corporate Real Estate Investment under Demand Uncertainty.
  Brent W. Ambrose, Moussa Diop, Jiro Yoshida.
  Real Estate Economics. January 28, 2016
  This article theoretically and empirically analyzes the interactions among corporate real estate investment, product market competition and firm risk. In our model, firms own strategic real estate or lease generic real estate. Our model predicts that strategic real estate ownership is positively correlated with industry concentration and negatively related to demand uncertainty. Also, firm risk is higher for firms with more strategic real estate operating in a more concentrated market. This prediction arises because smaller investments induce greater market competition, which effectively eliminates the right tail of the firm's profit distribution. We provide strong empirical support for our predictions. In particular, firm value is more volatile in less competitive markets for a given level of demand uncertainty.

  January 28, 2016   doi: 10.1111/1540-6229.12150   open full text
• The Subsequent Market Value of Former REO Properties.
  Jessica Rutherford, Ronald C. Rutherford, Elizabeth Strom, Lei Wedge.
  Real Estate Economics. January 22, 2016
  In this study, we find the subsequent price for a property initially sold as a real estate owned (REO) property occurs at market prices. The subsequent price to the REO purchaser is related to indicators that the property has been remodeled, renovated, or updated. This suggests that the difference between the price received by servicers/lenders that foreclose and sell a REO property, and the price received by subsequent property owners that sell is in large part due to timely improvements made postforeclosure. Lenders are not selling REO properties at irrational prices, but rather at prices that reflect the condition of the properties.

  January 22, 2016   doi: 10.1111/1540-6229.12134   open full text
• Assessment Inequity in a Declining Housing Market: The Case of Detroit.
  Timothy R. Hodge, Daniel P. McMillen, Gary Sands, Mark Skidmore.
  Real Estate Economics. January 21, 2016
  We examine the degree to which assessment practices in the City of Detroit have created substantial inequities in property tax payments across residential properties. Two key contributions of this article include: (1) inequities created by assessment practices are examined in a collapsed real estate market, and (2) quantile regression techniques are used to determine how assessment practices have altered assessment distributions within and across property value groups. Results show that current practices have created a wide range of property tax payments across properties with similar value (horizontal inequity), and similar tax payments for properties of differing values (vertical inequity).

  January 21, 2016   doi: 10.1111/1540-6229.12126   open full text
• Land, Structure and Depreciation.
  Marc K. Francke, Alex M. Minne.
  Real Estate Economics. January 21, 2016
  We introduce a hedonic price model that enables us to disentangle the value of a property into the value of land and the value of structure. For given reconstruction costs, we are able to estimate the impact of physical deterioration, functional obsolescence and vintage effects on the structure and the impact of time on sale (and external obsolescence) on the land value simultaneously. Our findings show that maintenance has a substantial impact on the rate of physical deterioration. After 50 years of not or barely maintaining a home, a typical structure has lost around 43% of its value. In contrast, maintaining a home very well results in virtually no physical deterioration in the long run.

  January 21, 2016   doi: 10.1111/1540-6229.12146   open full text
• Heterogeneous Investor Sentiment and Institutional Real Estate Investments.
  Julia Freybote, Philip A. Seagraves.
  Real Estate Economics. January 20, 2016
  Commercial real estate investors differ in their sentiment due to factors such as market expertise, investment strategies and expectations about future market conditions. Focusing on the office market, we investigate whether investors with a multiasset investment focus such as pension funds or insurance companies rely on the sentiment of specialized real estate investors such as public REITs or private developers/owners as source of information in their investment decision‐making. Using disaggregated sentiment measures and vector autoregression (VAR) we find evidence that changes in REIT and private real estate investor sentiment lead to changes in institutional investor sentiment in the suburban office and office REIT market. Our findings suggest that institutional investors rely on the sentiment of specialized real estate investors to make real estate investment decisions. Our study contributes to the existing literature on sentiment in commercial real estate markets by emphasizing the heterogeneity of investor sentiment and introducing a disaggregated sentiment measure. We also contribute to the institutional herding literature.

  January 20, 2016   doi: 10.1111/1540-6229.12132   open full text
• Hedging House Price Risk in China.
  Jia He, Jing Wu, Haishi Li.
  Real Estate Economics. January 20, 2016
  The increasing risk associated with China's housing prices is globally recognized. However, hedging this risk is challenging because of a lack of financial derivatives on China's housing assets. We suggest that the short sale of futures contracts for construction raw materials, i.e., iron ore or/and steel, can act as useful tools to hedge the systematic risk of China's new home price. We first present evidence that there is a strong and stable correlation between changes in China's housing prices and global steel/iron ore prices. Using a hedging strategy model, we then show that, during the sample period between 2009 and 2015, 20.6% of the total unpredicted variance in Chinese housing prices can be hedged by shorting rebar and iron ore futures. We further examine this strategy with an event study based on the announcement of the “home‐purchase restriction” policy in April, 2010. The cumulative abnormal returns show that both steel and iron ore prices reacted significantly to this negative shock, and therefore the proposed strategy could substantially help investors offset losses in the housing market. We finally provide some evidences that this strategy can also help investors in specific regional housing markets, or the resale housing markets.

  January 20, 2016   doi: 10.1111/1540-6229.12147   open full text
• Real Estate Fund Openings and Cannibalization.
  David H. Downs, Steffen P. Sebastian, René‐Ojas Woltering.
  Real Estate Economics. January 11, 2016
  This article examines the trade‐offs in launching new real estate funds, specifically open‐end, direct‐property funds. This investment vehicle, which is designed to provide the risk‐return benefits of private market real estate, is available to retail investors in a number of countries. At the same time, these funds are also subject to liquidity risk, because they hold an inherently illiquid asset in an open‐end structure. This format presents fund‐family managers with unique challenges, particularly with the decision to open new funds. The data consist of 2,127 German fund openings across 76 fund families in 12 asset classes over the 1992–2010 period. Including a wide range of asset classes allows for a comparison between real estate and other investment objectives. We find a substantial cannibalization effect across the existing real estate funds of a family, while we note the opposite effect—i.e., flows into existing funds increase following a fund opening within the same objective—for all other asset classes. Our analysis of fund opening determinants shows that inflows mitigate the cannibalization risk for new real estate funds. Additional evidence highlights the role of scale and scope economies in real estate fund openings. Overall, the results provide new insights into the relatively large size and small number of real estate funds when compared to mutual funds dedicated to other investment objectives.

  January 11, 2016   doi: 10.1111/1540-6229.12144   open full text
• The Economic Implications of House Price Capitalization: A Synthesis.
  Christian A. L. Hilber*.
  Real Estate Economics. December 27, 2015
  In this article, I synthesize an emerging literature that explores the conditions under which public and private investments and intergovernmental transfers are capitalized into local house prices and the broader economic implications of such capitalization. The main insights are: (1) house price capitalization is more pronounced in locations with strict regulatory and geographical supply constraints; (2) capitalization can induce the provision of durable local public goods and club goods; and (3) capitalization effects—which are habitually ignored by policy‐makers—have important adverse consequences for a wide range of policies such as intergovernmental aid and the mortgage interest deduction.

  December 27, 2015   doi: 10.1111/1540-6229.12129   open full text
• Price Expectations, Distressed Mortgage Markets and the Housing Wealth Effect.
  Yvonne McCarthy, Kieran McQuinn.
  Real Estate Economics. December 24, 2015
  Using a unique combination of regulatory and survey microdata, we examine the importance of the life cycle theory of consumption in estimating housing wealth effects for the Irish mortgage market. Since the recent financial crisis, this market has experienced substantial house price declines and negative equity. Thus, house price expectations are likely to be important in influencing housing wealth effects. We find a positive correlation between consumption and changes in housing wealth among our sample of mortgaged Irish households. Furthermore, we find that this positive association only exists when housing wealth changes are perceived to be of a permanent nature.

  December 24, 2015   doi: 10.1111/1540-6229.12125   open full text
• Short Sales and Price Discovery in the Hong Kong Real Estate Market.
  Siu Kei Wong, Thomas C. C. Lai, Kuang Kuang Deng.
  Real Estate Economics. December 09, 2015
  Indirect real estate (IRE) returns are often shown to lead direct real estate (DRE) returns. Apart from differences in liquidity, transaction costs, and management skills, the DRE market is also less complete than the IRE market—when negative shocks arrive, one can only short IRE (e.g., real estate stocks or REITs), but not DRE. This study investigates if short sales in the IRE market convey any information to the DRE market. Based on high‐frequency (weekly) property price data in Hong Kong from 2000 to 2012, we find that short sales in the IRE market led DRE returns, even after controlling for the lagged IRE returns in a VAR model. This supports an information spillover mechanism in which the DRE market learns private information that is not reflected in IRE returns. The spillover effect, however, weakened after the recent global financial crisis because the increased uncertainty over the credibility of individual firms made short sales more reflective of firm‐specific information than real estate market fundamentals.

  December 09, 2015   doi: 10.1111/1540-6229.12130   open full text
• Negative Externalities of Rail Noise and Housing Values: Evidence from the Cessation of Railway Operations in Singapore.
  Mi Diao, Yu Qin, Tien Foo Sing.
  Real Estate Economics. November 04, 2015
  The governments of Malaysia and Singapore reached a landmark agreement in May 2010 to end the operations of nearly 80‐year‐old railway lines and stations in Singapore. In our study, the cessation of the railway services operated by Keretapi Tanah Malaya (KTM), a firm owned by the Malaysian government, with effect from July 1, 2011 is used in a quasi‐experiment design to test the effects of the removal of train noise externalities on real estate values. Based on the nonlanded private housing transactions data from January 2005 to June 2013, we find that average prices for houses located within a 400‐m boundary from the railway lines increased by 3.5% relative to prices for houses located outside the 400‐m boundary after the cessation agreement has been announced. The removal of train noise externalities increases housing prices in the affected area by 13.7% on average in the postcessation period of the KTM railway services. Realized economic benefits associated with the railway services cessation were estimated at S$0.36 billion based on houses sold in the post cessation period of the KTM railway services.

  November 04, 2015   doi: 10.1111/1540-6229.12123   open full text
• Do Laws Influence the Cost of Real Estate Brokerage Services? A State Fixed Effects Approach.
  Anupam Nanda, John M. Clapp, Katherine A. Pancak.
  Real Estate Economics. November 02, 2015
  A FTC‐DOJ study argues that state laws and regulations may inhibit the unbundling of real estate brokerage services in response to new technology. Our data show that 18 states have changed laws in ways that promote unbundling since 2000. We model brokerage costs as measured by number of agents in a state‐level annual panel vector autoregressive framework, a novel way of analyzing wasteful competition. Our findings support a positive relationship between brokerage costs and lagged house price and transactions. We find that change in full‐service brokers responds negatively (by well over two percentage points per year) to legal changes facilitating unbundling.

  November 02, 2015   doi: 10.1111/1540-6229.12124   open full text
• Investor Confidence as a Determinant of China's Urban Housing Market Dynamics.
  Siqi Zheng, Weizeng Sun, Matthew E. Kahn.
  Real Estate Economics. October 14, 2015
  China's urban housing market dynamics suggest that evolving investor confidence may be a relevant demand shifter. Such investors are continually updating their beliefs about the state of the macroeconomy and the policy uncertainty related to national and local housing policies. We build a 35 Chinese city real estate confidence index that varies over time and across cities. This index predicts subsequent house price appreciation and new housing sales. We document evidence of heterogeneous effects of investor confidence depending on a city's demographics and the city's elasticity of housing supply. Our results based on a new household‐level expectations survey bolster the case that investor expectations are an important determinant of real estate price dynamics.

  October 14, 2015   doi: 10.1111/1540-6229.12119   open full text
• Mortgage Loan Characteristics, Unobserved Heterogeneity and the Performance of United Kingdom Securitized Subprime Loans.
  Gauthier Lanot, David Leece.
  Real Estate Economics. October 09, 2015
  We estimate a competing risk model of mortgage terminations on samples of U.K. securitized subprime mortgages. Given the role of these loans in the recent financial crisis it is important to understand their performance and supposed idiosyncratic behavior. We use a flexible modelling of unobserved heterogeneity over several dimensions, controlling for selection issues involving initial mortgage choices and dynamic selection over time. We estimate the characteristics of the unobserved heterogeneity and determine the correlation between the unobserved components of default and prepayment. The paper demonstrates the need to estimate initial household choices and the durations to default or prepayment jointly.

  October 09, 2015   doi: 10.1111/1540-6229.12113   open full text
• A Spatiotemporal Solution for the Simultaneous Sale Price and Time‐on‐the‐Market Problem.
  Jean Dubé, Diègo Legros.
  Real Estate Economics. October 09, 2015
  There exists an important methodological challenge when dealing with sale price and time‐on‐the‐market variables because both variables are simultaneously determined and related to the motivation of the sellers and buyers. Exploiting the fact that transactions occur over space and time, we propose a two‐stage approach based on instrumental variables (IV) built from information collected from previous transactions. The unidirectional temporal property and the fact that other transactions are exogenous from the perspective of a single buyer or seller are exploited to evaluate the effect of the sale price on time‐on‐the‐market, and the effect of time‐on‐the‐market on the sale price. Based on 29,471 transactions occurring in the suburban neighborhood of Montréal (1992‐2000), the results suggest that, everything else being equal, houses staying longer on the market provide negative information to the market, which results in a lower final sale price, while the final sale price is negatively related to time‐on‐the‐market, indicating that houses of better quality (better amenities) stay less time on the market.

  October 09, 2015   doi: 10.1111/1540-6229.12121   open full text
• The Impact of the Home Valuation Code of Conduct on Appraisal and Mortgage Outcomes.
  Lei Ding, Leonard Nakamura.
  Real Estate Economics. September 17, 2015
  The accuracy of appraisals came into scrutiny during the housing crisis, and a set of policies and regulations was adopted to address the conflict‐of‐interest issues in the appraisal practices. In response to an investigation by the New York State Attorney General's office, the Home Valuation Code of Conduct (HVCC) was agreed to by Fannie Mae, Freddie Mac and the Federal Housing Finance Agency. Using unique data sets that contain both approved and nonapproved mortgage applications, this study provides an empirical examination of the impact of the HVCC on appraisal and mortgage outcomes. The results suggest that the HVCC has led to a reduction in the probability of inflated valuations, although valuations remained on average inflated, and induced a significant increase in the incidence of low appraisals. The well‐intentioned HVCC rule made it more difficult to obtain mortgages to purchase homes during the housing price crash, possibly exacerbating the fall in prices.

  September 17, 2015   doi: 10.1111/1540-6229.12120   open full text
• How Do Land Auction Formats Influence the Market Structure and Aggregate Surplus of Real Estate Development?
  Zhi Dong, Tien Foo Sing.
  Real Estate Economics. September 17, 2015
  This article proposes a duopoly dynamic game theoretic model to investigate the market structure and aggregate surplus of real estate development when land is sold in a sealed‐bid first price auction vis‐à‐vis an open English auction. It relaxes the assumption of symmetric bidders. The land values have common value and private value components. We find that the sealed‐bid first price auction introduces competition in the real estate development market. The open English auction leads a monopoly market. State agencies are recommended to increase the aggregate surplus of real estate development by publishing past bidding information under the sealed‐bid first price auction and reducing information asymmetry between bidders.

  September 17, 2015   doi: 10.1111/1540-6229.12117   open full text
• Do Conspicuous Consumers Pay Higher Housing Premiums? Spatial and Temporal Variation in the United States.
  Kwan Ok Lee, Masaki Mori.
  Real Estate Economics. September 17, 2015
  This study is the first to examine the relationship between conspicuous demand and housing price dynamics. We hypothesize that conspicuous consumers would want high‐end homes to signal their wealth and this housing consumption behavior would induce greater deviations from fundamental house prices. We test this by using a unique dataset that matches the consumers’ appetite for nonhousing luxury goods from Google Insights for Search to housing premiums that they pay for high‐end houses in U.S. Metropolitan Statistical Areas (MSAs) during 2004–2011. The estimation results demonstrate that controlling for a wide range of MSA demographic and economic characteristics, conspicuous demand has a significant, positive relationship with housing premiums. This relationship varies spatially and temporally. Conspicuous demand has a stronger relationship with a price increase in high‐end homes in MSAs with a steady, higher housing premium than in MSAs with a volatile, lower premium during the boom period. In MSAs with a steady, higher housing premium, the relationship remains significant even during the bust period, potentially contributing to maintaining higher housing premiums.

  September 17, 2015   doi: 10.1111/1540-6229.12115   open full text
• Do Homeowners Mark to Market? A Comparison of Self‐Reported and Estimated Market Home Values During the Housing Boom and Bust.
  Sewin Chan, Samuel Dastrup, Ingrid Gould Ellen.
  Real Estate Economics. September 15, 2015
  This article examines homeowners’ self‐reported values in the American Housing Survey and the Health and Retirement Study from the start of the recent housing price run‐ups through recent price declines. We compare ZIP‐Code‐level market‐based estimates of housing prices to those derived from homeowners’ self‐reported values. We show that there are systematic differences which vary with market conditions and the amount of equity owners hold in their homes. When prices have fallen, homeowners systematically state that their homes are worth more than market estimates suggest, and homeowners with little or no equity in their homes state values above the market estimates to a greater degree. Over time, homeowners appear to adjust their assessments to be more in line with past market trends, but only slowly. Our results suggest that underwater borrowers are likely to understate their losses and either may not be aware that their mortgages are underwater or underestimate the degree to which they are.

  September 15, 2015   doi: 10.1111/1540-6229.12103   open full text
• Is Timing Everything? Race, Homeownership and Net Worth in the Tumultuous 2000s.
  Sandra J. Newman, C. Scott Holupka.
  Real Estate Economics. September 13, 2015
  We use the Panel Study of Income Dynamics to estimate how net worth was affected among low‐ and moderate‐income households who became first‐time homebuyers at different points during the volatile 2000s. We address selection using propensity score matching and estimating difference‐in‐difference models, and use quantile regressions to account for the skew in net worth outcomes. Results highlight the significance of race in the relationship between first‐time home buying and net worth during the decade. Although timing was critical to the short‐term trajectory of net worth for whites, total net worth declines for black first‐time homebuyers regardless of economic climate. The most dramatic differences between black and white new homebuyers is their neighborhood locations, with blacks purchasing in predominantly black neighborhoods with lower housing prices and price appreciation, and lower and declining rates of homeownership.

  September 13, 2015   doi: 10.1111/1540-6229.12118   open full text
• Corporate Real Estate Ownership and Productivity Uncertainty.
  Daxuan Zhao, Tien Foo Sing.
  Real Estate Economics. September 09, 2015
  This article empirically tests the relationship between corporate real estate (CRE) holdings and productivity risks of firms. Using a large sample of public listed U.S. firms for the period from 1984 to 2011, we show that CRE ownership is significantly and negatively correlated with productivity risks of firms. Firms with high‐productivity risk own less CRE assets. When testing dynamic changes to CRE holdings, we estimate a significant and positive elasticity of CRE investments of 5.2% in response to cash flow shocks. If the adjustment cost is high, high‐risk firms are expected to hold less CRE assets, so that they could reduce potential losses associated with CRE holdings when negative productive shocks occur.

  September 09, 2015   doi: 10.1111/1540-6229.12112   open full text
• The Risk and Return of Commercial Real Estate: A Property Level Analysis.
  Liang Peng.
  Real Estate Economics. September 09, 2015
  I compare the performance of the index‐based time series approach and the cross‐sectional approach in estimating factor loadings of nontraded assets, and show that the latter likely provides less biased and more efficient estimates. I then use the cross‐sectional approach to estimate the loadings of privately owned commercial real estate on the Fama and French (1993) factors, the Pastor and Stambaugh (2003) liquidity factor, and two bond market factors, using a sample of 14,115 properties in the 1977–2012 period. I find statistically significant loadings, of which the signs seem consistent across property types, but the magnitude varies. Using the time series approach on the same data, I find insignificant loadings on virtually all factors. To investigate the sources of the weak results from the time series approach, I conduct a Monte Carlo simulation in which both approaches are correctly specified and indices can be estimated perfectly. Simulation results suggest that the cross‐sectional approach provides more accurate estimates under reasonable market conditions.

  September 09, 2015   doi: 10.1111/1540-6229.12111   open full text
• –Nonrecourse Mortgage and Housing Price Boom, Bust, and Rebound.
  Te Bao, Li Ding.
  Real Estate Economics. September 09, 2015
  This paper investigates the impact of –nonrecourse vs. recourse mortgages on housing price dynamics in major U.S. metropolitan statistical areas for the period from 2000 to 2013. We find evidence that –nonrecourse states experience faster price growth during the boom period (2000–2006), a sharper price drop during the bust period (2006–2009) and faster price recovery in the rebound period after a crisis (2009–2013). Moreover, the volatility of housing prices is higher in nonrecourse states than in recourse states, particularly during the rebound period.

  September 09, 2015   doi: 10.1111/1540-6229.12116   open full text
• The Borrower's Perceived Risk in Mortgage Choice.
  Dongshin Kim, Alan J. Ziobrowski.
  Real Estate Economics. September 09, 2015
  We investigate how borrowers perceive the risk in the adjustable rate mortgage (ARM) versus fixed rate mortgage (FRM) choice. We develop a mortgage choice model where the coefficient on the long‐term bond risk premium is conditional on the borrower's perceived risk. We show that the perceived risk fluctuates over time according to the short‐term interest rate level and housing market conditions. We find that when the short‐term rate level is high (low), the borrowers perceive low (high) risk of a short‐term rate rise, thus opting for ARMs (FRMs). Also, during a down housing market they become more risk‐averse perceiving higher risk in choosing ARMs. The perceived risk level alters the borrowers’ sensitivity to the long‐term bond risk premium.

  September 09, 2015   doi: 10.1111/1540-6229.12114   open full text
• The Cap Rate Spread: A New Metric for Commercial Underwriting.
  Philip A. Seagraves, Jonathan A. Wiley.
  Real Estate Economics. August 30, 2015
  This study introduces the cap rate spread as a novel metric for underwriting commercial mortgages. Cap rate spread is the difference between the cap rate and the fixed coupon rate. The spread predicts performance risk in a sample of 24,951 commercial mortgage‐backed securities loans during 1993–2011. We demonstrate that the cap rate spread includes crucial information about performance risk. The results arise from the role of the cap rate spread in generating positive or negative leveraged returns to equity in situations where additional equity is required. Incorporating simplistic cap rate spread requirements in commercial underwriting is expected to reduce loan performance risk.

  August 30, 2015   doi: 10.1111/1540-6229.12100   open full text
• Servicers and Mortgage‐Backed Securities Default: Theory and Evidence.
  Brent W. Ambrose, Anthony B. Sanders, Abdullah Yavas.
  Real Estate Economics. August 26, 2015
  We study conflicting incentives of the master and special servicers in handling troubled loans in a Commercial Mortgage‐Backed Securities deal and how the frictions between the interests of the two servicers might be diminished if the master and special servicing rights are held by the same firm. We show that concentrating both servicing rights in one firm reduces the likelihood that a defaulted loan terminates in foreclosure.

  August 26, 2015   doi: 10.1111/1540-6229.12099   open full text
• The Disciplining Effect of Concern for Referrals: Evidence from Real Estate Agents.
  Lan Shi, Christina Tapia.
  Real Estate Economics. August 18, 2015
  Real estate agents rely on clients for referrals to generate future business; this article examines whether concern for referrals disciplines agents. We compare results for sellers who move to another area (and are less likely to provide referrals) with results for sellers who remain in the area (and are more likely to provide referrals). We find that moving‐away sellers’ houses have a higher sale rate, sell faster and sell for less (even after controlling for moving‐away sellers’ greater impatience). We also provide evidence that the disciplining effect of concern for referrals is stronger for agents who place a greater value on reputation. Finally, among sellers who are better at evaluating and monitoring agents, we see less of the high sell rate, low sale‐price effect.

  August 18, 2015   doi: 10.1111/1540-6229.12102   open full text
• Commercial Real Estate Rental Index: A Dynamic Panel Data Model Estimation.
  Xudong An, Yongheng Deng, Jeffrey D. Fisher, Maggie Rong Hu.
  Real Estate Economics. August 18, 2015
  Using the actual quarterly rental income generated in the years between 2001 and 2010 by over 9,000 NCREIF commercial properties, we construct a commercial real estate rental index and estimate the time series properties (e.g., mean‐reversion speed and volatility) of market‐wide rental growth using a dynamic panel data model. The dynamic panel data model has several advantages over a standard hedonic regression. In addition, we incorporate age effects into our panel data model, and by doing so we correct the age bias in the repeated sales method and in the simple average method. Our estimates show that rental growth is cyclical but it generally lags behind broader economic growth. Surprisingly, the long‐term average rental growth is significantly lower than what is usually perceived, and the volatility of rental growth can be significantly under estimated when the conventional methods are adopted. We also find significant cross‐property type and cross‐region variations in the rental adjustment process. In contrast to the existing literature, we find a strong negative relation between rental growth and cap rate, and that this relation is significantly stronger than that between NOI growth and cap rate. Finally, we establish an empirical relation between price return and rental growth in the commercial real estate market.

  August 18, 2015   doi: 10.1111/1540-6229.12101   open full text
• Down Payment Saving in the United States: Evidence from the Panel Study of Income Dynamics.
  A. Talha Yalta.
  Real Estate Economics. July 26, 2015
  We present a model of household saving toward a mortgage loan under an exogenous down payment requirement and preference for owning over renting. Our model explains a set of empirical observations such as the dual effect in the form of some households, in response to higher down payments, becoming discouraged savers while those who do not abandon purchasing plans save more. We also employ instrumental variable‐based methods to investigate the down payment saving behavior of first‐time home buyers in the United States. The empirical results based on Panel Study of Income Dynamics (PSID) data support the inelastic down payment elasticity of saving implied by our model.

  July 26, 2015   doi: 10.1111/1540-6229.12096   open full text
• House Prices and Rents: Microevidence from a Matched Data Set in Central London.
  Philippe Bracke.
  Real Estate Economics. June 02, 2014
  I analyze a real estate agency's proprietary dataset containing tens of thousands of housing sale and rental transactions in Central London during the 2006–2012 period. I isolate 1,922 properties that were both sold and rented out within six months and measure their rent‐price ratios. I find that rent‐price ratios are lower for bigger and more central units. These stylized facts are consistent with the user cost formula and reflect differences in maintenance costs, vacancy rates, growth expectations and risk premia.

  June 02, 2014   doi: 10.1111/1540-6229.12062   open full text
• Auction versus Negotiated Sale: Evidence from Real Estate Sales.
  Yuen Leng Chow, Isa E. Hafalir, Abdullah Yavas.
  Real Estate Economics. June 02, 2014
  We offer a theoretical and empirical comparison of auctions and negotiated sales. We first build a simple model to show that auctions generate a higher relative price than negotiated sales when demand for the asset is strong, when the asset is more homogeneous and when the asset attracts buyers with higher valuations. Using data from property sales in Singapore, we find support for our theoretical predictions. In addition, we find that auctions do not necessarily generate a higher price premium for foreclosed properties than for nonforeclosed properties.

  June 02, 2014   doi: 10.1111/1540-6229.12056   open full text
• Estimating the Excess Returns to Housing at a Disaggregated Level: An Application to Sydney 2003–2011.
  Daniel Melser, Adrian D. Lee.
  Real Estate Economics. June 02, 2014
  The returns to housing are particularly important because this asset class makes up such a large fraction of household wealth. Yet they are not straightforward to calculate given both the heterogeneity in homes and the fact they sell only infrequently. We outline a methodology for constructing the excess returns to housing at a disaggregated level, essentially that of the individual home. Our approach explicitly takes account of the inherent risk in homeownership with regard to the capital gain or loss component of housing returns. This approach is applied to a rich data set for Sydney, Australia, from 2003Q1 to 2011Q2. Our findings indicate that the returns to housing are on average quite weak though they exhibit significant diversity across dwelling types and regions. Excess returns are also strongly influenced by assumptions regarding the level of risk aversion.

  June 02, 2014   doi: 10.1111/1540-6229.12057   open full text
• The Leveraged City.
  Seung Dong You.
  Real Estate Economics. June 02, 2014
  This study analyzes the effects of leverage on real estate developments. In urban growth models, a real estate developer converts land from agricultural to urban use. At the time at which such a land conversion occurs, a developer who maximizes the equity value obtains a defaultable construction loan at fair market value. By presenting a more general form of the irreversibility premium of Capozza and Helsley, I show that, with more leverage, uncertainty is less of a deterrent to the land conversion. Under uncertainty, a leveraged developer exercises the land conversion option earlier than an unleveraged developer would. Leverage expands equilibrium city size.

  June 02, 2014   doi: 10.1111/1540-6229.12058   open full text
• A Comparative Anatomy of Residential REITs and Private Real Estate Markets: Returns, Risks and Distributional Characteristics.
  John Cotter, Richard Roll.
  Real Estate Economics. June 02, 2014
  Real Estate Investment Trusts (REITs) are the only truly liquid assets related to residential real estate investments. We study the behavior of U.S. Residential REITs over the past three decades and document their return characteristics. REITs have somewhat less market risk than equity; their betas against a broad market index average about 0.58. Decomposing their covariances into principal components reveals several strong factors. Residential REIT characteristics differ to some extent from those of the S&P/Case‐Shiller (SCS) private real estate markets. This is partly attributable to methods of index construction. Our examination of REITs suggests that investment in residential real estate is far more risky than what might be inferred from the widely followed SCS series. Although the SCS and REITs indicate little support for being able to predict each other, there is strong evidence of self‐predictability for the series.

  June 02, 2014   doi: 10.1111/1540-6229.12059   open full text
• The Sources of Risk Spillovers among U.S. REITs: Financial Characteristics and Regional Proximity.
  Zeno Adams, Roland Füss, Felix Schindler.
  Real Estate Economics. June 02, 2014
  In this article, we estimate the risk spillovers among 74 U.S. Real Estate Investment Trusts (REITs) using the state‐dependent sensitivity value‐at‐risk approach. This methodology allows for the quantification of the spillover size as a function of a company's financial condition. We show that the size of risk spillovers is more than twice as large when REITs are in financial distress and find evidence for the impact of geographical proximity. Our results provide new insights concerning the relevance of geographical diversification for REITs and have important implications for the investment and risk management decisions of real estate investors, mortgage lenders, home suppliers and policy makers.

  June 02, 2014   doi: 10.1111/1540-6229.12060   open full text
• The Impact of Leveraged and Inverse ETFs on Underlying Real Estate Returns.
  Qing Bai, Shaun A. Bond, Brian Hatch.
  Real Estate Economics. June 02, 2014
  Leveraged and inverse ETFs (LETFs) were introduced in 2006. By 2008 there was concern that the requirement of LETFs to rebalance near the close might have a significant impact on the prices of the stocks in the underlying indexes. We examine the impact of trading activity induced by six real estate‐related LETFs on the late‐day price dynamics of 63 real estate sector stocks. Through a comparison of sample and control stocks and through a regression model of LETF rebalancing, we find that these LETFs significantly impact the prices of component stocks, increase their volatility and contribute to price momentum.

  June 02, 2014   doi: 10.1111/1540-6229.12061   open full text
• Demand Uncertainty, Development Timing and Leasehold Land Valuation: Empirical Testing of Real Options in Residential Real Estate Development.
  Huimin Yao, Frederik Pretorius.
  Real Estate Economics. June 02, 2014
  This article develops and tests a long‐dated American call option pricing model for valuing development land under leasehold. We analyze and test option values in ten detailed Hong Kong cases involving purchase, holding, converting and developing land. We also test for optimal exercise of long‐dated American calls using processes based on the optimal trigger ratio feature of the perpetual American call option model. Generally, the empirical results confirm presence of a positive and nontrivial option premium (mean +5.274%) in the cases, and that developers appear to delay exercise to the point predicted by the real options model.

  June 02, 2014   doi: 10.1111/1540-6229.12052   open full text
• The Impact of the Taxpayer Relief Act of 1997 on Housing Turnover in the U.S. Single‐Family Residential Market.
  Andrea J. Heuson, Gary Painter.
  Real Estate Economics. June 02, 2014
  The Taxpayer Relief Act of 1997 (TRA97) replaced a one‐time, post‐age‐55 capital gain exclusion with a larger gain exclusion amount that could be protected every two years without requiring that the taxpayer trades up in housing. This action had the potential to impact housing transactions for every existing homeowner, regardless of age, as well as future purchasers of housing. We analyze household‐level data to determine if the repeated ability to exclude periodic recognized capital gains on housing from taxation shortened housing tenure significantly after TRA97 became effective. We next consider whether the decline was heterogeneous across age groups, across trading up and trading down and across geography. Given that the impact of TRA97 appears at first glance to be most profound for taxpayers close to 55 years of age, a somewhat surprising result of our research is that significant decreases in tenure are pervasive, appearing in all age ranges and in samples of homeowners who trade up and who trade down. Finally, we provide additional evidence at the aggregate level that TRA97 led to measurable changes in the price elasticity of housing turnover in the four geographic regions defined by the U.S. Census Bureau (Northeast, Midwest, South and West) and in states that are home to large metropolitan housing markets.

  June 02, 2014   doi: 10.1111/1540-6229.12053   open full text
• CEO Overconfidence, REIT Investment Activity and Performance.
  Piet Eichholtz, Erkan Yönder.
  Real Estate Economics. June 02, 2014
  This is the first article to study the effects of overconfidence on trading activity and performance in real estate. The article looks at Real Estate Investment Trusts (REITs), as their investments and divestments can be identified with precision. We look at the effect of CEO overconfidence on investment activity and separately investigate property acquisitions and dispositions. We find that REITs with overconfident CEOs tend to invest more; these REITs acquire more assets and are less likely to sell assets than their counterparts if they have enough discretionary cash. Valuable private information is not the main driver for CEOs to be net buyers of company shares: the shares of their companies perform relatively weakly. In addition, we find that overconfident managers have lower property investment performance measured by net operating income and gain on sale of real estate.

  June 02, 2014   doi: 10.1111/1540-6229.12054   open full text
• REIT and Commercial Real Estate Returns: A Postmortem of the Financial Crisis.
  Libo Sun, Sheridan D. Titman, Garry J. Twite.
  Real Estate Economics. June 02, 2014
  In the years surrounding the financial crisis, the share prices of equity Real Estate Investment Trusts (REITs) were much more volatile than the underlying commercial real estate prices. To better understand this phenomenon we examine the cross‐sectional dispersion of REIT returns during this time period with a particular focus on the influence of their capital structures. By looking at both the debt ratio and the maturity structure of the debt, we separate the pure leverage effect from the effect of financial distress. Consistent with leverage and financial distress costs amplifying the price decline, we find that the share prices of REITs with higher debt‐to‐asset ratios and shorter maturity debt fell more during the 2007 to early‐2009 crisis period. Although REIT prices rebounded with the bounce back in commercial real estate prices, financial distress costs had a permanent effect on REIT values. In particular, we find that REITs with more debt due during the crisis period tended to sell more property and issue more equity in 2009, when prices were depressed.

  June 02, 2014   doi: 10.1111/1540-6229.12055   open full text
• Mortgage Brokers, Origination Fees, Price Transparency and Competition.
  Brent W. Ambrose, James N. Conklin.
  Real Estate Economics. March 07, 2014
  This article examines the dynamics between mortgage broker competition, origination fees and price transparency. A reverse first‐price sealed‐bid auction model is used to motivate broker pricing behavior. Confirming the model predictions, our empirical analysis shows that increased mortgage brokerage competition at the Metropolitan Statistical Area level leads to lower fees. The findings are robust to different measures of fees as well as different measures of competition. We also provide evidence that broker competition reduces mortgage origination fees on retail (nonbrokered) loans as well. In addition, our results indicate that pricing complexity is an important determinant of fees, and increased broker competition is associated with a higher probability of a loan being priced with transparency. Our results suggest that mortgage brokers increase competition and lower fees in the mortgage market.

  March 07, 2014   doi: 10.1111/1540-6229.12039   open full text
• Securitization, Risk‐Taking and the Option to Change Strategy.
  Rose Neng Lai, Robert Order.
  Real Estate Economics. March 07, 2014
  This article models the riskiness of structured securitization deals. The deals are put together by “banks,” which can exercise strategic options over the risk put into the deals. The banks face a trade‐off between the benefits of risk‐taking now and future franchise benefits if the deal pays off. The key insight is a convex relationship between the value of the bank's equity position and the risk in the deal. Although there is a continuum of possible risk, banks choose either the highest or lowest levels of risk open to them. Changes in strategy are discontinuous and unpredictable; a history of low risk‐taking may be a prelude to increased risk‐taking later. Competition, to the extent of reducing franchise value, can lead to more risk‐taking, as can more information in the market. The model provides insights into the risk‐taking that led up to the Great Recession and to institutions that are “Too Big to Fail.”

  March 07, 2014   doi: 10.1111/1540-6229.12040   open full text
• Percentage Rents with Agency.
  Joseph Williams.
  Real Estate Economics. March 07, 2014
  Retail leases often include a constant percentage rent above a breakpoint. Most breakpoints are restricted to a natural breakpoint, calculated as base rent divided by percentage rent. Frequently, breakpoints are much greater than sales when leases are signed. Both within and across categories of retail, percentage rents vary widely. On average percentage rents are lowest for large stores, like anchors, and highest for small stores with high operating margins. Retail leases with these and other common characteristics are shown to support second‐best investments by landlords in their stores both inside and outside shopping centers. The second‐best schedule of breakpoints and percentage rents is calculated explicitly.

  March 07, 2014   doi: 10.1111/1540-6229.12038   open full text
• Government Policies, Residential Mortgage Defaults and the Boom and Bust Cycle of Housing Prices.
  Marius Ascheberg, Robert A. Jarrow, Holger Kraft, Yildiray Yildirim.
  Real Estate Economics. March 07, 2014
  We develop a micro‐based macromodel for residential home prices in an economy where defaults on residential mortgages negatively affect housing prices. Our model enables us to study the impact of subprime defaults on prime borrowers and the impact of various government policies on the housing market boom and bust cycle. In this regard, our key conclusions are that (i) there is a contagion effect from subprime defaults to prime defaults due to the negative impact of subprime defaults and (ii) monetary policy is the most effective tool for decreasing mortgage defaults and increasing aggregate home prices in contrast to alternative government fiscal policies designed to loosen mortgage credit.

  March 07, 2014   doi: 10.1111/1540-6229.12041   open full text
• First‐Price Sealed‐Bid Tender versus English Open Auction: Evidence from Land Auctions.
  Yuen Leng Chow, Joseph T.L. Ooi.
  Real Estate Economics. December 26, 2013
  This article compares whether the first‐price sealed‐bid tender or the ascending English open auction generates higher revenue for the seller. Using a unique set of data for land sales and accounting for the presence of an endogenous discrete mechanism choice variable, our results show that the first‐price sealed‐bid tender generates a lower land price, in the range of 1.2–9.6%, than the English open auction. Our results validate the theoretical prediction that open auctions result in higher prices because bidders can infer other bidders’ information by observing their bids in the common value auction paradigm.

  December 26, 2013   doi: 10.1111/1540-6229.12035   open full text
• Debt Capacity of Real Estate Collateral.
  Erasmo Giambona, Joseph Golec, Armin Schwienbacher.
  Real Estate Economics. December 26, 2013
  We study whether real estate assets have a greater positive influence on firm leverage than other tangible assets. Using a large sample of COMPUSTAT firms, we find a significant positive relation between tangibility and leverage in general, and the relation is strongest for real estate collateral. Furthermore, we find that the relation holds only for credit‐constrained firms, i.e., those likely to highly value the additional borrowing capacity of real estate. Our results imply that knowing the composition of a firm's tangible assets is important in understanding its leverage. Our findings could help explain why real estate investment trusts are relatively highly leveraged, even though debt offers them no tax benefit.

  December 26, 2013   doi: 10.1111/1540-6229.12034   open full text
• Gross Lease Premiums.
  Jonathan A. Wiley.
  Real Estate Economics. December 26, 2013
  The premium for the gross lease relative to the net lease is estimated using a large sample of leasing data for office properties in seven U.S. markets during 2011. After matching gross leases with net leases on propensity scores, analysis for the matched sample of 9,860 lease observations reports the gross lease premium estimated at 12.9%. The relative premium of a gross lease responds to property‐specific characteristics, including tenant size, property size and property class, and is increasing with operating expense expectations. Gross lease premiums are increased in low‐vacancy markets. The findings support theoretical predictions from the existing literature.

  December 26, 2013   doi: 10.1111/1540-6229.12036   open full text
• Investor Sentiment, Limits to Arbitrage and Private Market Returns.
  David C. Ling, Andy Naranjo, Benjamin Scheick.
  Real Estate Economics. December 26, 2013
  This article examines the relation between investor sentiment and returns in private markets. Relative to more liquid public markets, private investment markets exhibit significant limits to arbitrage that restrict an investor's ability to counteract mispricing. Using vector autoregressive models, we find a positive and economically significant relation between investor sentiment and subsequent private market returns. We provide further long‐horizon regression evidence suggesting that private commercial real estate markets are susceptible to prolonged periods of sentiment‐induced mispricing as the inability to short‐sell in periods of overvaluation and restricted access to credit in periods of undervaluation prevents arbitrageurs from entering the market.

  December 26, 2013   doi: 10.1111/1540-6229.12037   open full text
• Are Adjustable‐Rate Mortgage Borrowers Borrowing Constrained?
  Kathleen W. Johnson, Geng Li.
  Real Estate Economics. October 31, 2013
  Past research argues that changes in adjustable‐rate mortgage (ARM) payments may lead households to cut back on consumption. These outcomes are more likely if ARM borrowers are borrowing constrained, and we show in this article that ARM borrowers exhibit attitudes toward borrowing and behavior that are consistent with being borrowing constrained. Although the demographic and financial characteristics of ARM and fixed‐rate mortgage (FRM) borrowers are somewhat similar, ARM borrowers differ from FRM borrowers in their uses of credit and attitudes toward it. In addition, we find the consumption growth of households with an ARM is more sensitive to past income than the consumption growth of other households, suggesting the ARM borrowers may be subject to borrowing constraints that hinder their ability to smooth consumption.

  October 31, 2013   doi: 10.1111/1540-6229.12033   open full text
• Markov Switching Dynamics in REIT Returns: Univariate and Multivariate Evidence on Forecasting Performance.
  Brad Case, Massimo Guidolin, Yildiray Yildirim.
  Real Estate Economics. October 31, 2013
  We document the presence of Markov switching regimes in expected returns, variances and the implied reward‐to‐risk ratio of real estate investment trust (REIT) returns and compare them to properties of stocks and bonds. Our evidence suggests that regime switching techniques are more successful over the period 1972–2008 than other time‐series models are. When the analysis is extended to a multivariate setting in which REIT, stock and bond returns are modeled jointly, we find that the data call for the specification of four separate regimes. These result from the absence of synchronicity among the regimes that characterize univariate REIT, stock and bond returns.

  October 31, 2013   doi: 10.1111/1540-6229.12025   open full text
• The Dynamics of Appraisal Smoothing.
  Youngha Cho, Soosung Hwang, Yong‐ki Lee.
  Real Estate Economics. August 30, 2013
  We investigate the dynamics of appraisal smoothing in the National Council of Real Estate Investment Fiduciaries (NCREIF) index return using time‐varying asset pricing models. We find that smoothing is on average close to zero but varies substantially over time. From the inception of the NCREIF index in 1978 until the mid‐1990s, there was little evidence of smoothing. Smoothing has increased significantly since the mid‐1990s to the end of 2010. Smoothing increases when property prices or uncertainty increases. However, it decreases when sentiment in the property market is high or during recession periods. The substantial variation in the level of smoothing indicates that the volatility of unsmoothed appraisal‐based property returns would be significantly over‐ or under‐estimated for different periods if unsmoothed with a long‐run average smoothing.

  August 30, 2013   doi: 10.1111/1540-6229.12027   open full text
• The Influence of Fannie and Freddie on Mortgage Loan Terms.
  Alex Kaufman.
  Real Estate Economics. August 30, 2013
  This article uses a novel instrumental variables approach to quantify the effect that government‐sponsored enterprise (GSE) purchase eligibility had on equilibrium mortgage loan terms in the period from 2003 to 2007. The technique is designed to eliminate sources of bias that may have affected previous studies. GSE eligibility appears to have lowered interest rates by about ten basis points, encouraged fixed‐rate loans over ARMs and discouraged low documentation and brokered loans. There is no measurable effect on loan performance or on the prevalence of certain types of “exotic” mortgages. The overall picture suggests that GSE purchases had only a modest impact on loan terms during this period.

  August 30, 2013   doi: 10.1111/1540-6229.12030   open full text
• Housing Regulation, Externalities and Residential Property Prices.
  Henry J. Munneke, C.F. Sirmans, Barrett A. Slade, Geoffrey K. Turnbull.
  Real Estate Economics. August 30, 2013
  This article examines the effects of quantity restrictions on residential property prices in the presence of neighborhood externalities. A Brigham Young University policy limiting students’ location choices provides a natural experiment for studying the externality and quantity restriction effects on property values. A flexible hedonic model is used to control for nonstudent population spatial sorting by type. The estimates show significant positive quantity restriction and student agglomeration effects on student housing prices. There are also significant differences in the negative student externality across nonstudent neighborhoods, with the quantity restriction reinforcing (offsetting) the student price premium (discount) at the boundary.

  August 30, 2013   doi: 10.1111/1540-6229.12026   open full text
• Inflation Protection from Homeownership: Long‐Run Evidence, 1814–2008.
  Dirk Brounen, Piet Eichholtz, Stefan Staetmans, Marcel Theebe.
  Real Estate Economics. August 30, 2013
  This article examines the inflation hedging capacity of the private home. We employ unique long‐term data for inflation, house price dynamics and rents for Amsterdam dating back to 1814, allowing us to study total housing returns in different inflation regimes and for varying investment horizons. Our Amsterdam data show that homeownership's protection against actual and expected inflation increases with the investment horizon. This increase is especially strong for horizons up to 10 years. Inflation protection from housing is stronger when inflation is persistent, and the hedging capacities of housing regarding unexpected inflation are weak.

  August 30, 2013   doi: 10.1111/1540-6229.12023   open full text
• The Government‐Sponsored Enterprises and the Mortgage Crisis: The Role of the Affordable Housing Goals.
  Valentin Bolotnyy.
  Real Estate Economics. August 30, 2013
  I use regression discontinuity analysis to measure the effect of one of the Affordable Housing Goals, the Underserved Areas Goal (UAG), on the number of whole single‐family mortgages purchased by Fannie Mae and Freddie Mac (GSEs) in undeserved census tracts for 1996–2002. Focusing additionally on tracts that became UAG‐eligible in 2005–2006, I measure the effect of the UAG during peak years for the subprime market. The results suggest a small UAG effect and challenge the view that the goals caused the GSEs to supply substantially more credit to high‐risk borrowers than they otherwise would have supplied during the subprime boom.

  August 30, 2013   doi: 10.1111/1540-6229.12031   open full text
• Refinancing Trends among Lower Income and Minority Homeowners during the Housing Boom and Bust.
  Ryan M. Goodstein.
  Real Estate Economics. August 30, 2013
  This article examines trends in mortgage refinancing activity during the housing boom and bust, with a focus on homeowners in lower income and minority market (LIMM) areas. Unlike any other period in recent history, during the boom LIMM homeowners refinanced their mortgages more frequently than non‐LIMM homeowners. This occurred primarily among borrowers for whom the refinance option was not in‐the‐money, and it is likely attributable to the concurrent growth of subprime, cash‐out refinancing. Following the 2007 mortgage market collapse, however, LIMM homeowners were less likely to refinance. This can be explained in part by systematic differences in home equity levels across borrowers.

  August 30, 2013   doi: 10.1111/1540-6229.12032   open full text
• Why Do REIT Returns Poorly Reflect Property Returns? Unrealizable Appreciation Gains due to Trading Constraints as the Solution to the Short‐Term Disparity.
  Tobias Mühlhofer.
  Real Estate Economics. August 15, 2013
  This study addresses the short‐term disparity between REIT returns and direct property returns, and argues that this phenomenon is due to the trading constraints in the direct property market imposed on REITs (the dealer rule). This renders REITs unable to time markets in order to realize short‐term property appreciation profits, making REITs primarily a property income investment rather than a full property investment, and explains the observed disparity. Empirically, I find that REIT returns consistently reflect property income returns, but not property appreciation returns. This makes this study the first in the literature to find a consistent link between REIT returns and any portion of direct property returns at short time horizons, in the context of a linear factor model. I then set up a natural laboratory to test the trading‐constraints explanation by examining the appreciation dependence of different types of REITs, which should be differently affected by the trading constraints. I find that returns to UPREITs, which are less affected by the constraints, have a stronger appreciation dependence than returns to regular REITs. I also perform a size test and find that large REITs, which are less affected by the constraints, have a stronger appreciation dependence than small REITs. When testing the effects of UPREIT and size characteristics simultaneously, I find a consistent UPREIT effect. I further find that Real Estate Operating Companies (REOCs), which are not subject to trading constraints, show short‐term property appreciation dependence. These findings offer strong support for the trading‐restrictions explanation.

  August 15, 2013   doi: 10.1111/reec.12001   open full text
• The Gender Gap in Real Estate Sales: Negotiation Skill or Agent Selection?
  Philip Seagraves, Paul Gallimore.
  Real Estate Economics. July 19, 2013
  This study examines differences in net selling price for residential real estate across male and female agents. A sample of 2,020 home sales transactions from Fulton County, Georgia, are analyzed in a two‐stage least squares, geospatial autoregressive corrected, semi‐log hedonic model to test for gender and gender selection effects. Although agent gender seems to play a role in naïve models, its role becomes inconclusive as variables controlling for possible price and time on market expectations of the buyers and sellers are introduced to the models. Clear differences in real estate sales prices, time on market and agent incomes across genders are unlikely due to differences in negotiation performance between genders or the mix of genders in a two‐agent negotiation. The evidence suggests an interesting alternative to agent performance: that buyers and sellers with different reservation price and time on market expectations, such as those selling foreclosure homes, tend to select agents along gender lines.

  July 19, 2013   doi: 10.1111/reec.12006   open full text
• Elective Stock Dividends and REITs: Evidence from the Financial Crisis.
  Erik Devos, Andrew Spieler, Desmond Tsang.
  Real Estate Economics. July 19, 2013
  In response to the recent financial crisis, the U.S. Government introduced new rules which allow Real Estate Investment Trusts (REITs) to issue elective stock dividends (ESDs), i.e., noncash dividends, to satisfy their distribution requirements. The purported goal of these rules was to provide temporary relief to REITs facing cash flow problems. We investigate how the introduction of these rules affects dividend policy of REITs. Surprisingly, we document that only 17 REITs chose to issue elective stock dividends. We examine the characteristics of these REITs and find that their cash flows are similar to REITs that do not select these dividends. This suggests that cash flow problems are unlikely to be the primary determinant of the ESD issuance decision. Instead, our findings indicate the decision to pay ESDs is related to the level of loans that are close to maturity, REIT size, growth prospects and poor performance during the financial crisis. Furthermore, we find that the same factors determine the ratio, amount and frequency of stock dividends issued by these REITs. We also examine the response of shareholders to ESDs announcements and find positive abnormal returns surrounding these dividend announcements.

  July 19, 2013   doi: 10.1111/reec.12007   open full text
• Long‐Term Growth in Housing Prices and Stock Returns.
  Henock Louis, Amy X. Sun.
  Real Estate Economics. July 19, 2013
  A firm's long‐term stock returns are negatively related to past growth in housing prices in the state where the firm is located. The housing price effect is persistent and robust to controlling for the long‐term stock return reversal effect, changes in mortgage interest rates across the states, cyclicality in housing prices and overall local economic conditions. There is no evidence that extant asset pricing models can adequately explain the effect. The study discusses potential explanations for, and the implications of, the cross‐regional housing price effect.

  July 19, 2013   doi: 10.1111/reec.12008   open full text
• Evidence and Implications of Regime Shifts: Time‐Varying Effects of the United States and Japanese Economies on House Prices in Hawaii.
  John Krainer, James A. Wilcox.
  Real Estate Economics. July 19, 2013
  We show that local house prices may be driven almost entirely by the demands of one identifiable group for several years and then by demands of another group at other times. We present evidence that house prices in Hawaii were subject to such regime shifts. Prices responded to demands associated with U.S. incomes and wealth for most years from 1975 through 2008. For about a decade starting in the middle of the 1980s, after the Japanese yen appreciated dramatically and Japanese housing and stock market wealth soared, however, house prices in Hawaii responded to Japanese incomes and wealth. Estimated models with these regime shifts outperformed conventional, constant‐coefficient models. The regime‐shifting model helps explain why, when and by how much the volatility and the elasticities of house prices in Hawaii with respect to the incomes and wealth of the United States and Japan varied over time.

  July 19, 2013   doi: 10.1111/reec.12009   open full text
• REIT Asset Sales: Opportunistic Versus Liquidation.
  Jonathan A. Wiley.
  Real Estate Economics. July 19, 2013
  This study provides novel evidence that the outcome from REIT sales of office and apartment property is signaled in the transaction price managers accept relative to the fundamental value. The identification strategy recognizes opportunistic sales as sold at prices above fundamental value. Opportunistic sales are followed by positive abnormal returns, measured relative to the market and associated benchmark indices. Assets sold below fundamental value are liquidated by firms with low profitability, low cash and low investment opportunities. Discounted transactions experience zero abnormal returns. Returns following asset sales are influenced by accounting measures, the flow of funds and financial constraints.

  July 19, 2013   doi: 10.1111/reec.12010   open full text
• The Foreclosure–House Price Nexus: A Panel VAR Model for U.S. States, 1981–2009.
  Charles W. Calomiris, Stanley D. Longhofer, William R. Miles.
  Real Estate Economics. July 19, 2013
  Despite housing's economic importance, little has been written on how foreclosures and home prices interact in a framework that includes macroeconomic and housing variables such as employment, permits or sales. Panel VAR results for quarterly state‐level data indicate that price–foreclosure linkages run both ways. Foreclosures negatively impact home prices. The negative impact of prices on foreclosures, however, is much larger. These results suggest the low‐frequency association observed between foreclosures and prices is mostly driven by the endogenous adjustment of foreclosures to prices via the strategic choices of homeowners and lenders, rather than through the effects of foreclosures on home prices.

  July 19, 2013   doi: 10.1111/reec.12011   open full text
• A Closer Look at the U.S. Housing Market: Modeling Relationships among Regions.
  Nafeesa Yunus, Peggy E. Swanson.
  Real Estate Economics. July 19, 2013
  This article investigates the dynamic interactions among nine U.S. regional housing markets by estimating the multivariate cointegration model using both autoregressive (AR) and moving average (MA) representations over the period from 1975 to 2010. Long‐run results indicate that the extent of convergence among the regional housing markets substantially increased over time and more so after the housing bubble burst in the latter part of 2006. Common stochastic trend analysis reveals that the housing regions of New England, Mid‐Atlantic and the Pacific were the primary regional drivers that led the regions toward long‐run equilibrium during the 1975 to 2006 subperiod. Further analysis indicates that the relationships among the regions cannot be attributed to trends in two important macroeconomic fundamentals: regional per capita income and regional GDP. Finally, short‐run analysis reveals substantial lead lag relationships among all the markets.

  July 19, 2013   doi: 10.1111/reec.12012   open full text
• Robust Repeat Sales Indexes.
  Steven C. Bourassa, Eva Cantoni, Martin Hoesli.
  Real Estate Economics. July 19, 2013
  Using single‐family sales data for Louisville, Kentucky, we show the benefits of applying robust methods to down‐weight problematic transactions in a repeat sales context. Robust estimators reduce the influence of outliers in repeat sales price changes that are due to data entry errors, quality changes or nonmarket transactions. In addition to comparing conventional and robust indexes, we also use simulated data, where the correct index is known, to show that robust methods control for the impacts of contaminated data. Finally, we demonstrate that robust methods reduce the magnitude and volatility of index revisions.

  July 19, 2013   doi: 10.1111/reec.12013   open full text
• Unobservable Risks in Mortgage Contract Choice.
  Bo Liu, Tien Foo Sing.
  Real Estate Economics. July 19, 2013
  This study proposes a lifetime utility maximization model where borrowers choose optimal mortgage bundles including mortgage type, loan‐to‐value and loan size to maximize their allocation of limited budgets between housing and nonhousing consumptions. The model predicts that the mortgage bundle choices by borrowers of different income and risk attributes explain significant variations in the ex post default risks of the borrowers. The empirical tests using sampled mortgages pooled in nonagency residential mortgage backed securities support the hypothesis that the optimal choice of mortgage bundles reveals hidden risk factors of borrowers, which, if ignored, could lead to misjudgment of ex post default of borrowers.

  July 19, 2013   doi: 10.1111/reec.12014   open full text
• Bidding Wars for Houses.
  Lu Han, William C. Strange.
  Real Estate Economics. July 19, 2013
  This article analyzes the time series and cross‐sectional patterns of bidding wars for houses. Bidding wars were once rare, a fairly constant 3–4% of transactions. This led to treating list price as a ceiling in empirical and theoretical research on housing. The bidding war share roughly tripled between 1995 and 2005, rising to more than 30% in some markets. The share fell during the subsequent bust, but it remains approximately twice as high as previously. The article shows bidding war incidence to be greater during macroeconomic and housing booms. The article also considers other potential contributing factors, including buyer irrationality, the use of the Internet in home purchases and land use regulation.

  July 19, 2013   doi: 10.1111/reec.12015   open full text
• The Impact of Second Loans on Subprime Mortgage Defaults.
  Michael D. Eriksen, James B. Kau, Donald C. Keenan.
  Real Estate Economics. July 19, 2013
  An estimated 12.6% of primary mortgage loans were simultaneously originated with a second loan from 2004 until 2008, although relatively little is known about how the presence of such subordinate loans affects the default decisions of borrowers. We use a novel data series of loan servicing records from 2002 until 2010 to identify such borrowers and find evidence that the default behavior of these borrowers significantly differs from borrowers without second loans. Estimating a discrete‐time proportional odds hazard model, we find borrowers with a second loan were 62.7% more likely to default each month on their primary loan when conditioning alone on the attributes of the primary loan. However, borrowers of second loans were 58.3% less likely to default on their primary loan as compared to single‐loan borrowers with equivalent current combined attributes (i.e., loan‐to‐value, balance and interest rate). We hypothesize and provide empirical evidence that this occurs because borrowers with second loans have the option to sequentially default on each loan since subordinate lenders will not pursue foreclosure if borrowers have insufficient equity. Lenders of defaulted subordinate debt may revisit their decision to foreclose in the future after housing markets start to recover, thus prompting a new round of foreclosures.

  July 19, 2013   doi: 10.1111/reec.12016   open full text
• Pricing Relocation–Redevelopment Projects for City Expansion: The Case in China.
  Jiajin Chen, Rose N. Lai.
  Real Estate Economics. July 19, 2013
  A solution to city expansion under limited land availability is relocation of existing habitants, demolition of existing buildings and redevelopment of new buildings. In the case of Chinese cities, however, such strategies have become a channel for municipalities to increase their revenue from sale of land and productivity from increased development, at the expense of low compensation to former occupants and vacant housing after development. We utilize a sequential real options pricing approach to find conditions when relocation/demolition and redevelopment in a finite time horizon are optimal and also to show what factors the governments can influence to delay or speed up redevelopment.

  July 19, 2013   doi: 10.1111/reec.12017   open full text
• Housing Tenure Transitions of Older Households: What is the Role of Child Proximity?
  Kwan Ok Lee, Gary Painter.
  Real Estate Economics. July 19, 2013
  This study examines the role of proximity of children to their parents and recent moves of children within a proximate distance in housing tenure transitions of older households. This study is the first to investigate the interplay between health status of older households, moves of their children and a household's decision to make housing tenure transitions. In doing so, we rely on longitudinal household data from the Panel Study of Income Dynamics with residential location information at the census tract level. The results demonstrate that after controlling for the financial and demographic characteristics of children, living near children reduces the likelihood of making a housing tenure transition for older households, but that the impact of distance is not monotonic with respect to the degree of geographic distances. The results also demonstrate that if a child enters or moves closer to her or his parents’ home, it increases the probability that older households exit homeownership. Finally, we find no evidence that children's moves mitigate the likelihood that their older parents whose health deteriorates become renters.

  July 19, 2013   doi: 10.1111/reec.12018   open full text
• Optimal Selling Mechanism, Auction Discounts and Time on Market.
  Quan Gan.
  Real Estate Economics. June 07, 2013
  This article examines the optimal selling mechanism problem in real estate market using mean‐variance analysis and downside risk analysis. When sellers can choose between accepting the first offer above a reservation price or auctions (waiting an optimal and fixed time), sellers having higher risk aversion choose auctions and wait a fixed time while sellers having lower risk aversion choose an optimal reservation price and wait a random time. Positive auction discounts are compensated by reduced risks, and there exists a connection between liquidity risk and conditional auction discount. More (Fewer) sellers will choose to sell their houses through auctions in a hot (cold) market or when holding cost increases (decreases). When sellers choose auctions, sellers having higher risk aversion who have lower holding cost wait longer and obtain higher sale price. Loss‐averse sellers unanimously choose the mechanism of setting an optimal reservation price.

  June 07, 2013   doi: 10.1111/reec.12002   open full text
• To Sell or Not to Sell: Measuring the Heat of the Housing Market.
  Paul E. Carrillo.
  Real Estate Economics. June 07, 2013
  Combining list‐price, sale‐price and time‐on‐the‐market data, we estimate an index that summarizes housing market conditions and that has a direct economic interpretation. The index measures seller's bargaining power in a structural search model of home seller behavior. Structural estimation uncovers an analytical relationship between reduced form coefficients of hedonic and marketing‐time equations and structural parameters. Thus, the index can be estimated using individual‐level or aggregate data. Using housing transactions data from the Washington, D.C., area, we show that index trends coincide with the up and downturns in home appreciation rates and with popular perceptions about the “heat” of the market.

  June 07, 2013   doi: 10.1111/reec.12003   open full text
• Short Sales and Fundamental Value: Explaining the REIT Premium to NAV.
  Dirk Brounen, David C. Ling, Melissa Porras Prado.
  Real Estate Economics. June 07, 2013
  This study explores the role of short sale constraints in explaining the variation in premiums to Net Asset Value (NAV) in REIT pricing. We use proprietary information on short sales between June 2006 and September 2008 to examine how short sales and short sale constraints affect the variation in monthly REIT NAV premiums using panel vector autoregression models. We find that variation in short sale activity across individual REITs can account for at least one‐third of the variation in NAV premiums. Short sale constraints tend to be binding when there is strong demand and limited supply of shares to short. Excess demand leads to overvaluation and the correction of the overvaluation explains the under‐performance of premium REITs.

  June 07, 2013   doi: 10.1111/reec.12004   open full text
• Risk Segmentation of American Homes: Evidence from Denver.
  Liang Peng, Thomas Thibodeau.
  Real Estate Economics. June 07, 2013
  This article empirically examines the segmentation of house price risk across 99 ZIP‐code‐delineated neighborhoods in metropolitan Denver. The house price risk in each neighborhood is measured with the temporal variation of quarterly appreciation rates of the neighborhood house price index over the 2002–2007 period. Cross‐sectional regressions of neighborhood house price risk on the median household income and the percentage of population in poverty from the 2000 census data for the same neighborhoods provide strong evidence that the house price risk is significantly higher in low‐income/poor neighborhoods. Subperiod analyses further indicate that the risk segmentation exists in both a booming period (pre 2005:2) and a busting period (post 2005:3). The results indicate that homeownership can be a much riskier investment for low‐income/poor households.

  June 07, 2013   doi: 10.1111/reec.12005   open full text
• Why Do Sellers Hold Out in the Housing Market? An Option‐Based Explanation.
  Wenlan Qian.
  Real Estate Economics. November 01, 2012
  In the residential housing market, home owners are reluctant to sell in a declining market. We build a model which focuses on the embedded call option associated with home ownership that allows owners to delay the (irreversible) sale. When prices are low, the (opportunity) cost of a sale, i.e., a higher implied gain from a future sale, likely exceeds its immediate trade benefit and an owner is better off waiting for market conditions to improve. The model also highlights the importance of supply conditions: a more constrained supply is associated with a longer delay. Using state‐level residential housing data, we find evidence consistent with the model. Transaction volume is increasing (decreasing) in the rental growth rate (volatility) in the cross section; their effects are amplified in areas with low supply elasticities, and in times with low market prices. Overall, this paper provides a rational explanation for delayed trading decisions in the housing market.

  November 01, 2012   doi: 10.1111/j.1540-6229.2012.00345.x   open full text
• Real Estate Prices During the Roaring Twenties and the Great Depression.
  Tom Nicholas, Anna Scherbina.
  Real Estate Economics. November 01, 2012
  Using new data on market‐based transactions we construct real estate price indexes for Manhattan between 1920 and 1939. During the 1920s prices reached their highest level in the third quarter of 1929 before falling by 67% at the end of 1932 and hovering around that value for most of the Great Depression. The value of high‐end properties strongly co‐moved with the stock market between 1929 and 1932. A typical property bought in 1920 would have retained only 56% of its initial value in nominal terms two decades later. An investment in the stock market index (including dividends) would have outperformed an investment in a typical property (including net rental income) by a factor of 5.2 over our time period.

  November 01, 2012   doi: 10.1111/j.1540-6229.2012.00346.x   open full text
• State Intervention in Local Land Use Decision Making: The Case of Massachusetts.
  Lynn M. Fisher.
  Real Estate Economics. September 02, 2012
  The permitting process for residential development in the United States is largely administered by local governments. This article empirically assesses the responsiveness of local decision makers to a state‐mandated permitting process that may require them to ignore or override locally adopted land use regulations. I develop a screening model to formalize expectations about permitting outcomes between developers, who hold private information about their projects, and local Zoning Boards of Appeal under the rules of the Massachusetts law known as Chapter 40B. I then analyze a novel data set of 40B permit applications made during the period 1999–2005. I examine summary statistics and estimate a bivariate probit model with selection in order to jointly evaluate the determinants of local permit approvals and developer acceptances of permits. I find that, in general, local institutions comply with the state‐mandated permitting process and that permits granted to developers typically result in housing production. I also find that information asymmetries and community characteristics influence the success of the permitting process in a manner consistent with this study's screening model.

  September 02, 2012   doi: 10.1111/j.1540-6229.2012.00340.x   open full text
• The Impact of Housing Vouchers on Mobility and Neighborhood Attributes.
  Michael D. Eriksen, Amanda Ross.
  Real Estate Economics. September 02, 2012
  This article examines the effect of receiving a housing voucher on the mobility and neighborhood attributes of low‐income households. Housing policy has shifted toward vouchers in lieu of public housing projects to allow households to move away from high‐poverty areas. We use administrative records collected from an experiment to examine this issue. We find that households moved immediately after receiving the subsidy but did not relocate to lower poverty neighborhoods until several quarters later. Our findings suggest that recipients initially lease in nearby units to secure the subsidy, while continuing to search for housing in lower poverty neighborhoods.

  September 02, 2012   doi: 10.1111/j.1540-6229.2012.00342.x   open full text
• The Postforeclosure Experience of U.S. Households.
  Raven Molloy, Hui Shan.
  Real Estate Economics. September 02, 2012
  Despite the recent flood of foreclosures on residential mortgages, little is known about what happens to borrowers’ households after their mortgages have been foreclosed. We study the postforeclosure experience of U.S. households using a unique data set based on the credit reports of a large panel of individuals from 1999 to 2010. Although foreclosure considerably raises the probability of moving, the majority of postforeclosure migrants do not end up in substantially less desirable neighborhoods or more crowded living conditions. These results suggest that, on average, foreclosure does not impose an economic burden large enough to severely reduce housing consumption.

  September 02, 2012   doi: 10.1111/j.1540-6229.2012.00344.x   open full text