Deriving the Rent Versus Buy Decision in the Absence of Expected Home Price Appreciation or Risk Premia
12 Pages Posted: 28 Aug 2012
Date Written: June 1, 2011
The paper extends the work of Poterba (1984, 1991) and Voicu and Seiler (2011) by mathematically deriving the optimum rent versus buy decision without any information relating to expected home price appreciation or risk premia. Using Chicago Mercantile Exchange housing futures contracts, this study empirically demonstrates that renting was financially preferred to owning over the sample period. These findings are consistent with recent work by Beracha and Johnson (2011) even though an entirely different approach is taken.
Keywords: Rent versus Buy, Housing Derivatives, CME Futures
JEL Classification: G11, G13, R29
Suggested Citation: Suggested Citation