The Dependency of Rent-to-Price Ratio on Appreciation Expectations: An Empirical Approach |
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Authors: | Mustafa Hattapoglu Indrit Hoxha |
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Institution: | 2. Bursa Orhangazi University, Mimar Sinan Mah. Ankara Yolu üzeri, No : 440 Y?ld?r?m, Bursa, Turkey 1. Pennsylvania State University Harrisburg, School of Business Administration, 777 W. Harrisburg Pike, Middletown, PA, 17054, USA
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Abstract: | Using two unique datasets from different neighborhoods in Houston, TX, which provide us data for houses with similar structure (or even same house), we test the standard model of housing values to determine how the formation of households’ expectations regarding price appreciations affects housing market prices. Using these datasets we are able to address previously encountered problems in the literature such as the lack of adjustment for quality differences, the connection between prices and rents for the different type of housing, and the spatial distribution of housing. We test whether consumer behavior leads to potentially unstable market conditions with price bubbles. Our results suggest that appreciation expectations are based on past price appreciation but at the same time they depend on the fundamental factors such as, locational and structural. These findings show a hybrid consumer behavior of rational and adaptive expectations. Finally, we show how these expectations could sometimes lead to unstable price levels. |
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