House Prices and Fundamentals: 355 Years of Evidence

24 Pages Posted: 28 Jul 2009 Last revised: 19 Feb 2013

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

Piet M. A. Eichholtz

University of Maastricht - Limburg Institute of Financial Economics (LIFE)

Thies Lindenthal

Massachusetts Institute of Technology (MIT) - Center for Real Estate

Date Written: January 26, 2012

Abstract

This paper examines the long run relation between prices and rents for houses in Amsterdam from 1650 through 2005. We first demonstrate that these series are cointegrated, a necessary condition for studying movements of the rent-price ratio. We then estimate the deviation of house prices from fundamentals and find that these deviations can be persistent and long-lasting. Lastly, we look at the feedback mechanisms between housing market fundamentals and prices, and find that market correction of the mispricing occurs mainly through prices not rents. This correction back to equilibrium, however, can take decades.

Keywords: house prices, rents, fundamentals, bubbles

Suggested Citation

Ambrose, Brent W. and Eichholtz, Piet M. A. and Lindenthal, Thies, House Prices and Fundamentals: 355 Years of Evidence (January 26, 2012). Available at SSRN: https://ssrn.com/abstract=1439735 or http://dx.doi.org/10.2139/ssrn.1439735

Brent W. Ambrose

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

Piet M. A. Eichholtz

University of Maastricht - Limburg Institute of Financial Economics (LIFE) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 3883648 (Phone)
+31 43 3258530 (Fax)

Thies Lindenthal (Contact Author)

Massachusetts Institute of Technology (MIT) - Center for Real Estate ( email )

United States

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