Fundamentals or Trends? A Long-Term Perspective on House Prices

28 Pages Posted: 5 Jul 2013 Last revised: 1 Feb 2016

See all articles by Piet M. A. Eichholtz

Piet M. A. Eichholtz

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

Ronald Huisman

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Remco C. J. Zwinkels

Vrije Universiteit Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Date Written: July 4, 2013

Abstract

This paper contributes to the discussion whether changes in house prices can be explained by fundamental factors or trends. Using a long-term time series covering 350 years of house prices along the Herengracht in Amsterdam, we examine whether a fundamental factor or a trend explains house prices and whether their explanatory power is time varying. We find that agents in the housing market switch in their formation of expectations about future changes in house prices between fundamental and momentum strategies. Specifically, we show that agents base their expectations more on fundamentals during economic slowdowns and more on recent trends or momentum during economic booms.

Suggested Citation

Eichholtz, Piet M. A. and Huisman, Ronald and Zwinkels, Remco C.J., Fundamentals or Trends? A Long-Term Perspective on House Prices (July 4, 2013). Applied Economics, Vol. 47, No. 10, 2015. Available at SSRN: https://ssrn.com/abstract=2289898 or http://dx.doi.org/10.2139/ssrn.2289898

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)

Ronald Huisman

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Remco C.J. Zwinkels (Contact Author)

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, NL-1081HV
Netherlands
+31 20 59 85220 (Phone)

HOME PAGE: http://research.vu.nl/en/persons/remco-zwinkels

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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