The search and matching process in the housing market

2019 ◽  
Vol 12 (3) ◽  
pp. 392-404
Author(s):  
Gaetano Lisi
Keyword(s):  
Housing Market ◽  
House Prices ◽  
Policy Reforms ◽  
Search And Matching ◽  
Sale Price ◽  
Content Type ◽  
Price Function ◽  
Positive Effects ◽  
Dual Relation ◽  
Rental Markets

Purpose This paper aims to study the relationship between the rental and selling prices, a very important topic that forms the fundamentals of real estate markets. Design/methodology/approach This theoretical paper makes use of a search and matching model of the housing market. The search and matching models are the benchmark models of the “matching” markets, such as the labour market and the housing market, where trade is a decentralised, uncoordinated and time-consuming economic activity. Findings Unlike the previous related literature, where this relation is usually analysed in the context of the present value equation, this paper shows the existence of a “dual” relation between rental and selling prices as follows: one in the homeownership market and another one in the rental market. This “dual” relation connects the rental and homeownership markets and allows to get equilibrium in both markets with positive house prices. Research limitations/implications Several topics could be deepened for making the paper richer and more interesting, although at the cost of much more mathematics. First of all, the introduction of specific functional forms for both the rent function and the sale price function, so as to calculate both the elasticity of rent with respect to sale price and the elasticity of sale price with respect to rent. In this way, it would be possible to understand how each market (rental and homeownership) reacts to shock and policies that affect the other market. Practical implications In general, this framework could help policymakers to design housing policy reforms that take into consideration the effects on both markets. Indeed, some policies could have positive effects on rental markets but perverse effects on homeownership markets and vice versa. Originality/value None of the existing and related works of research have considered how to take advantage of the search and matching approach to derive both a “rent function” and a “sale price function” that connect closely the rental and homeownership markets.

Are regional house prices stationary in Iran? New evidence using Fourier quantile unit root test

2019 ◽  
Vol 12 (5) ◽  
pp. 849-864
Author(s):  
Arash Hadizadeh
Keyword(s):  
Interest Rates ◽  
Housing Market ◽  
Unit Root ◽  
House Prices ◽  
Housing Prices ◽  
Unit Root Test ◽  
Generalized Least Squares ◽  
Main Concern ◽  
Content Type ◽  
Positive Effects

Purpose In the Iranian economy, investing in the housing market has been very important and beneficial for investors and households, because of inflationary environment, low real interest rates, underdeveloped financial and tax systems and economic sanctions. Hence, prediction of house prices is the main concern of housing market agents in the economy. The purpose of this paper is to test the stationary properties of Iran's provinces to improve the prediction of future housing prices. Design/methodology/approach In this paper, the authors have tested the stationary properties of 20 Iran’s province centers over the period from 1993 to 2017 using a novel Fourier quantile unit root test and conventional ordinary/generalized least squares (O/GLS) linear unit root/stationary tests. Findings According to conventional O/GLS linear unit root/stationary tests, most of the house prices series exhibit random walk behavior, whereas by applying the Fourier quantile unit root test, the null hypothesis of unit root is rejected for 15 out of 20 series. Other results indicated that house prices of cities responded differently to positive and negative shocks. Originality/value Previous studies only addressed conventional OLS or GLS linear unit root or stationary tests, but novel Fourier quantile unit root test was not used. New results were obtained based on this unit root test, that, as a priori knowledge, will help benefiting from the positive effects, or avoiding being victimized by the negative effects.

Rent or buy, what are the odds? Analysing the price-to-rent ratio for housing types within the Northern Ireland housing market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Daniel Lo ◽  
Michael James McCord ◽  
John McCord ◽  
Peadar Thomas Davis ◽  
Martin Haran
Keyword(s):  
Housing Market ◽  
House Prices ◽  
House Price ◽  
Main Property ◽  
Property Market ◽  
Important Indicator ◽  
Content Type ◽  
Rental Market ◽  
Price Series ◽  
The Relationship

Purpose The price-to-rent ratio is often regarded as an important indicator for measuring housing market imbalance and inefficiency. A central question is the extent to which house prices and rents form part of the same market and thus whether they respond similarly to parallel stimulus. If they are close proxies dynamically, then this provides valuable market intelligence, particularly where causal relationships are evident. Therefore, this paper aims to examine the relationship between market and rental pricing to uncover the price switching dynamics of residential real estate property types and whether the deviation between market rents and prices are integrated over both the long- and short-term. Design/methodology/approach This paper uses cointegration, Wald exogeneity tests and Granger causality models to determine the existence, if any, of cointegration and lead-lag relationships between prices and rents within the Belfast property market, as well as the price-to-rent ratios amongst its five main property sub-markets over the time period M4, 2014 to M12 2018. Findings The findings provide some novel insights in relation to the pricing dynamics within Belfast. Housing and rental prices are cointegrated suggesting that they tend to move in tandem in the long run. It is further evident that in the short-run, the price series Granger-causes that of rents inferring that sales price information unidirectionally diffuse to the rental market. Further, the findings on price-to-rent ratios reveal that the detached sector appears to Granger-cause those of other property types except apartments in both the short- and long-term, suggesting possible spill-over of pricing signals from the top-end to the lower strata of the market. Originality/value The importance of understanding the relationship between house prices and rental market performance has gathered momentum. Although the house price-rent ratio is widely used as an indicator of over and undervaluation in the housing market, surprisingly little is known about the theoretical relationship between the price-rent ratio across property types and their respective inter-relationships.

scholarly journals Is there a bubble in the Swedish housing market?

2019 ◽  
Vol 12 (1) ◽  
pp. 32-61 ◽  
Author(s):  
Maher Asal
Keyword(s):  
Interest Rates ◽  
Housing Market ◽  
House Prices ◽  
Test Procedure ◽  
Unit Root Test ◽  
Housing Price ◽  
User Cost ◽  
Return To Equilibrium ◽  
Content Type ◽  
Factors Affecting

Purpose This paper aims to investigate the presence of a housing bubble using Swedish data from 1986Q1-2016Q4 by using various methods. Design/methodology/approach First, the authors use affordability indicators and asset-pricing approaches, including the price-to-income ratio, price-to-rent ratio and user cost, supplemented by a qualitative discussion of other factors affecting house prices. Second, the authors use cointegration techniques to compute the fundamental (or long-run) price, which is then compared with the actual price to test the degree of Sweden’s housing price bubble during the studied period. Third, they apply the univariate right-tailed unit root test procedure to capture bursting bubbles and to date-stamp bubbles. Findings The authors find evidence for rational housing bubbles with explosive behavioral components beginning in 2004. These bubbles do not continuously diverge but instead periodically revert to their fundamental value. However, the deviation is persistent, and without any policy correction, it takes decades for real house prices to return to equilibrium. Originality/value The policy implication is that monetary policy designed to contain mortgage demand and thereby prevent burst episodes in the housing market must address external imbalances, as revealed in real exchange rate undervaluation. It is unlikely that current policies will stop the rise of house prices, as the growth of mortgage credit, improvement in Sweden’s international competitiveness and the path of interest rates are much more important factors.

scholarly journals Untangling the nonlinear “knots” of UK’s housing prices

2019 ◽  
Vol 46 (5) ◽  
pp. 1083-1103
Author(s):  
Constantinos Alexiou ◽  
Sofoklis Vogiazas
Keyword(s):  
Housing Market ◽  
House Prices ◽  
Housing Prices ◽  
Positive Association ◽  
Research Area ◽  
Content Type ◽  
Nonlinear Ardl ◽  
Long Run ◽  
Short Run ◽  
The Uk

Purpose Housing prices in the UK offer an inspiring, yet a complex and under-explored research area. The purpose of this paper is to investigate the critical factors that affect UK’s housing prices. Design/methodology/approach The authors utilize the recently developed nonlinear ARDL approach of Shin et al. (2014) over the period 1969–2016. Findings The authors find that both the long-run and short-run impact of the price-to-rent (PTR) ratio and credit-to-GDP ratio on house prices (HP) is asymmetric whilst ambiguous results are established for mortgage rates, industrial production and equities. Apart from the novel framework of analysis, this study also establishes a positive association between HP and the PTR ratio which suggests a speculative behaviour and could imply the formation of a housing bubble. Originality/value It is the first study for the UK housing market that explores the underlying fundamental relationships by looking at nonlinearities hence, allowing HP to be tied by asymmetric relationships in the long as well as in the short run. Modelling the inherent nonlinearities enhances significantly the understanding of UK housing market which can prove useful for policymaking and forecasting purposes.

Property valuation: the hedonic pricing model: the application of search-and-matching models

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Gaetano Lisi
Keyword(s):  
Hedonic Pricing ◽  
Matching Theory ◽  
Hedonic Price ◽  
Search And Matching ◽  
Pricing Models ◽  
Content Type ◽  
Price Function ◽  
Hedonic Price Function ◽  
Search And Matching Models ◽  
Matching Models

PurposeThe aim of this education briefing is to comment upon how basic hedonic pricing models for the valuation of property can be expanded and developed. In this case, the briefing illustrates the use of the new economic approach to the analysis of housing markets, namely the search-and-matching models.Design/methodology/approachThis education briefing discusses the connection of two important economic theories: the hedonic price theory and the search-and-matching theory.FindingsThis education briefing gives an example of a (non-linear) form of the hedonic price function.Practical implicationsIn cases of mass appraisals, hedonic pricing models can provide a broad indication of value across submarkets and this education briefing demonstrates a theoretical model that can be used to provide a theoretical groundwork for the use of a concave hedonic price function in empirical estimates.Originality/valueThis education briefing shows how basic hedonic pricing models can be enhanced by a search-and-matching approach to determine property values.

The fall in Israeli house prices may not last

2018 ◽  
Keyword(s):  
Housing Market ◽  
House Prices ◽  
Content Type ◽  
Home Prices ◽  
Property Developers

Significance Furthermore, in the year to April, sales fell by 19.2% year-on-year. After a decade of sharp rises, home prices have been declining since September 2017. Impacts A cooling housing market will hurt the profits of banks and property developers. Kahlon and his Kulanu party should benefit politically from the lower home prices in the next elections. The risk of an out-of-control decline in house prices, which would endanger the wider economy, is small.

Forward-looking financial risk management and the housing market in the United Kingdom: is there a role for sentiment indicators?

2020 ◽  
Vol 21 (5) ◽  
pp. 659-678
Author(s):  
Frederik Kunze ◽  
Tobias Basse ◽  
Miguel Rodriguez Gonzalez ◽  
Günter Vornholz
Keyword(s):  
Time Series ◽  
Housing Market ◽  
House Prices ◽  
Market Survey ◽  
Content Type ◽  
Time Series Econometrics ◽  
Property Prices ◽  
The Uk ◽  
Toda And Yamamoto ◽  
Forward Looking

Purpose In the current low-interest market environment, more and more asset managers have started to consider to invest in property markets. To implement adequate and forward-looking risk management procedures, this market should be analyzed in more detail. Therefore, this study aims to examine the housing market data from the UK. More specifically, sentiment data and house prices are examined, using techniques of time-series econometrics suggested by Toda and Yamamoto (1995). The monthly data used in this study is the RICS Housing Market Survey and the Nationwide House Price Index – covering the period from January 2000 to December 2018. Furthermore, the authors also analyze the stability of the implemented Granger causality tests. In sum, the authors found clear empirical evidence for unidirectional Granger causality from sentiment indicator to the house prices index. Consequently, the sentiment indicator can help to forecast property prices in the UK. Design/methodology/approach By investigating sentiment data for house prices using techniques of time-series econometrics (more specifically the procedure suggested by Toda and Yamamoto, 1995), the research question whether sentiment indicators can be helpful to predict property prices in the UK is analyzed empirically. Findings The empirical results show that the RICS Housing Market Survey can help to predict the house prices in the UK. Practical implications Given these findings, the information provided by property market sentiment indicators certainly should be used in a forward-looking early warning system for house prices in the UK. Originality/value To authors’ knowledge, this is the first paper that uses the procedure suggested by Toda and Yamaoto to search for suitable early warning indicators for investors in UK real estate assets.

New Zealand housing market may take a dive

2015 ◽  
Keyword(s):  
At Risk ◽  
New Zealand ◽  
Housing Market ◽  
House Prices ◽  
Property Values ◽  
Gdp Growth ◽  
High Property ◽  
Content Type

Subject The likelihood of a housing market crash in New Zealand. Significance On March 1, average house prices in Auckland, New Zealand's largest city, reached an all-time high of 764,424 New Zealand dollars (564,420 dollars) -- an increase of 1.9% from January 2015. There are considerable fears that the New Zealand housing market, as with its Australian counterpart, could be in a bubble at risk of bursting. Impacts High property values will detract from New Zealand's appeal as a destination for entrepreneurs. Further 'currency wars' may drive investment in the relative safe holdings of New Zealand property. Expectations of a rate hike in Q4 may be too relaxed if property values continue to rise. Forecast GDP growth of 3.0% in 2015 will be revised downward if China faces a greater slowdown than at present.

Brexit may take some heat out of the UK housing market

2018 ◽  
Keyword(s):  
Housing Market ◽  
Foreign Investment ◽  
Social Housing ◽  
House Prices ◽  
Public Investment ◽  
Income Growth ◽  
Content Type ◽  
The Government ◽  
The Uk ◽  
Green Belts

Subject The UK housing market. Significance The UK Department for Housing, Communities and Local Government set out its objectives on May 23 to deliver a net 300,000 dwellings per year in England by end-2022. This attempt to dampen house prices may have a small effect, but underlying fundamentals will be much more important. Moreover, house prices are only one side of the 'affordability coin' and constraints on income growth are just as relevant. Impacts Increasingly unaffordable housing in the South East outside of London could cost the Conservatives support among their core voters. Labour is likely to push for greater public investment in social housing and more autonomy for local councils to finance such investment. Restrictions on buy-to-let mortgages and foreign investment in real estate could gain greater traction in public debate. Planning restrictions are likely to be loosened as the government pursues its annual target and parts of 'green belts' could be lost.

Time-frequency linkages of international housing markets and macroeconomic drivers

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hardik Marfatia
Keyword(s):  
Housing Market ◽  
Time Domain ◽  
House Prices ◽  
Housing Markets ◽  
Income Growth ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Time Frequency ◽  
Direction Of Causation ◽  
Over Time

Purpose The studies on international housing markets have not modeled frequency domain and focused only on the time domain. The purpose of the present research is to fill this gap by using the state-of-the-art econometric technique of wavelets to understand how differences in the horizon of analysis across time impact international housing markets’ relationship with some of the key macroeconomic variables. The purpose is to also analyze the direction of causation in the relationships. Design/methodology/approach The author uses the novel time–frequency analysis of international housing markets’ linkages to the macroeconomic drivers. Unlike conventional approaches that do not distinguish between time and frequency domain, the author uses wavelets to study house prices’ relationship with its drivers in the time–frequency space. The novelty of the approach also allows gaining insights into the debates that deal with the direction of causation between house price changes and macroeconomic variables. Findings Results show that the relationship between house prices and key macroeconomic indicators varies significantly across countries, time, frequencies and the direction of causation. House prices are most related to interest rates at the higher frequencies (short-run) and per capita income growth at the lower frequencies (long-run). The role of industrial production and income growth has switched over time at lower frequencies, particularly, in Finland, France, Sweden and Japan. The stock market’s nexus with the housing market is significant mainly at high to medium frequencies around the recent financial crisis. Research limitations/implications The present research implies that in contrast to the existing approaches that are limited to the only time domain, the frequency considerations are equally, if not more, important. Practical implications Results show that interested researchers and analysts of international housing markets need to account for the both horizon and time under consideration. Because the factors that drive high-frequency movements in housing market are very different from low-frequency movements. Furthermore, these roles vary over time. Social implications The insights from the present study suggest policymakers interested in bringing social change in the housing markets need to account for the time–frequency dynamics found in this study. Originality/value The paper is novel on at least two dimensions. First, to the best of the author’s knowledge, this study is the first to propose the use of a time–frequency approach in modeling international housing market dynamics. Second, unlike present studies, it is the first to uncover the direction of causation between house prices and economic variables for each frequency at every point of time.

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