Modelling housing prices using a present value state space model

    Research output: Working paperDiscussion paper

    Abstract

    This paper introduces a State Space approach to explain the dynamics
    of rent growth, expected returns and Price-Rent ratio in housing markets.
    According to the present value model, movements in price to rent ratio
    should be matched by movements in expected returns and expected rent
    growth. The state space framework assume that both variables follow
    an autoregressive process of order one. The model is applied to the US
    and UK housing market, which yields series of the latent variables given
    the behaviour of the Price-Rent ratio. Resampling techniques and boot-
    strapped likelihood ratios show that expected returns tend to be highly
    persistent compared to rent growth. The Öltered expected returns is con-
    sidered in a simple predictability of excess returns model with high sta-
    tistical predictability evidenced for the UK. Overall, it is found that the
    present value model tends to have strong statistical predictability in the
    UK housing markets
    Original languageEnglish
    Place of PublicationDundee
    PublisherUniversity of Dundee, Department of Economic Studies
    Number of pages21
    Publication statusPublished - 2015

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee, Department of Economic Studies
    No.285
    ISSN (Print)1473-236x

    Fingerprint

    Modeling
    Housing prices
    Present value
    Rent
    State-space model
    Expected returns
    Housing market
    Predictability
    State space
    Likelihood ratio
    Excess returns
    Present value model
    Latent variables
    Autoregressive process
    Resampling

    Cite this

    Rambaccussing, D. (2015). Modelling housing prices using a present value state space model. (Dundee Discussion Papers in Economics; No. 285). Dundee: University of Dundee, Department of Economic Studies .
    Rambaccussing, Dooruj. / Modelling housing prices using a present value state space model. Dundee : University of Dundee, Department of Economic Studies , 2015. (Dundee Discussion Papers in Economics; 285).
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    author = "Dooruj Rambaccussing",
    year = "2015",
    language = "English",
    series = "Dundee Discussion Papers in Economics",
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    Rambaccussing, D 2015 'Modelling housing prices using a present value state space model' Dundee Discussion Papers in Economics, no. 285, University of Dundee, Department of Economic Studies , Dundee.

    Modelling housing prices using a present value state space model. / Rambaccussing, Dooruj.

    Dundee : University of Dundee, Department of Economic Studies , 2015. (Dundee Discussion Papers in Economics; No. 285).

    Research output: Working paperDiscussion paper

    TY - UNPB

    T1 - Modelling housing prices using a present value state space model

    AU - Rambaccussing, Dooruj

    PY - 2015

    Y1 - 2015

    N2 - This paper introduces a State Space approach to explain the dynamicsof rent growth, expected returns and Price-Rent ratio in housing markets.According to the present value model, movements in price to rent ratioshould be matched by movements in expected returns and expected rentgrowth. The state space framework assume that both variables followan autoregressive process of order one. The model is applied to the USand UK housing market, which yields series of the latent variables giventhe behaviour of the Price-Rent ratio. Resampling techniques and boot-strapped likelihood ratios show that expected returns tend to be highlypersistent compared to rent growth. The Öltered expected returns is con-sidered in a simple predictability of excess returns model with high sta-tistical predictability evidenced for the UK. Overall, it is found that thepresent value model tends to have strong statistical predictability in theUK housing markets

    AB - This paper introduces a State Space approach to explain the dynamicsof rent growth, expected returns and Price-Rent ratio in housing markets.According to the present value model, movements in price to rent ratioshould be matched by movements in expected returns and expected rentgrowth. The state space framework assume that both variables followan autoregressive process of order one. The model is applied to the USand UK housing market, which yields series of the latent variables giventhe behaviour of the Price-Rent ratio. Resampling techniques and boot-strapped likelihood ratios show that expected returns tend to be highlypersistent compared to rent growth. The Öltered expected returns is con-sidered in a simple predictability of excess returns model with high sta-tistical predictability evidenced for the UK. Overall, it is found that thepresent value model tends to have strong statistical predictability in theUK housing markets

    M3 - Discussion paper

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    PB - University of Dundee, Department of Economic Studies

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    ER -

    Rambaccussing D. Modelling housing prices using a present value state space model. Dundee: University of Dundee, Department of Economic Studies . 2015. (Dundee Discussion Papers in Economics; 285).