Residential house prices
Final Report Abstract
The purpose of this application has been to contribute to our understanding of the residential housing market with two projects. The first project, “Betting on Homes,” starts with the observation that residential homes offer multiple primary goals for the respective investors, such as a consumption motive, short-term speculation, and long-term-oriented rental income. We show that the resulting heterogeneity among different investor types, owner-occupiers, private investors, and short- and long-term institutional investors, is also reflected in substantial disparities in the resulting capital gains. Based on more than 21 million repeat sales transactions from the US housing market, we link the outperformance of investors over owner-occupiers to heterogeneous exposure to a risk measure that captures the local dispersion of recently realized returns. In contrast to this investor-specific exposure, neither timing of purchase and sale nor the location choice can explain the systematic investor outperformance. We further analyze short-term institutional investors, the best-performing and most distinctive group among the ones considered. With an Instrumental Variable (IV) strategy, we show that those investors are particularly active in distressed markets, for which we observe increased future upside variation of returns that likely constitute a risk premium. In the paper “How Do Assessed Values Affect the Transaction Prices of Homes?”, we analyze the asset pricing and societal consequences of property tax systems that rely on assessed values, that is, governments’ fair market value estimates of individual homes. We argue that unmet expectations about updated values in the course of reassessments have two counteracting effects. First, unexpectedly higher assessments imply an increased tax burden, which should negatively affect the underlying homes’ transaction price (tax channel). Second, reference pricing should have a positive effect (anchoring channel). To causally identify the prevailing channel, we design a quasi-experiment applicable to a unique New York State dataset. The results show that the tax channel prevails. Unexpectedly higher assessments lead to robust and economically meaningful transaction price discounts. This finding uncovers an amplification of taxation-induced inequity, as owners of overassessed homes must pay higher taxes and sell their homes at a significantly lower price. In the paper “Fractional Homeownership and its Impact on Life Cycle Portfolio Choice”, we study the impact of access to fractional homeownership on individuals’ optimal consumption, savings, and housing decisions using a quantitative life cycle model. Fractional homeownership means that two parties—an individual and an institutional investor—share full ownership of a property. The individual lives in the property full-time and makes periodic rent payments to the institutional investor who sees the property solely as an investment vehicle. The rent payments depend on the value of the home and the fractional ownership structure that can be time-varying. We find that access to fractional homeownership is particularly attractive to young and old individuals. Further, it leads to earlier housing market entry, later housing market exit, decreases individuals’ loan-to-value ratios and reduces their moving activity at old age; all in comparison to a setting in which the individuals’ rent-versus-own decisions are binary.
Publications
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Betting on Homes. SSRN Electronic Journal.
Fischer, Marcel; Füss, Roland; Ruf, Daniel & Stehle, Simon
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How Do Assessed Values Affect the Transaction Prices of Homes?. SSRN Electronic Journal.
Stehle, Simon
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Fractional Homeownership and its Impact on Life Cycle Portfolio Choice. SSRN Electronic Journal.
Koch, Marlene
