Appreciation Rates Research Articles

Identifying House Price Booms, Bubbles and Busts: A Disequilibrium Analysis from Chaos Theory

This research was motivated by the excesses of public policy since 2008 in an attempt to re-inflate the housing markets. Is it even possible or desirable to utilize such a vast amount of public resources to inflate a single sector such as housing that suffered from such a spectacular bubble and collapse? The consequences suggest that, as a way to bolster real household incomes and aggregate output, these policies have disappointed. In contrast, there is a fear that the monetary stimuli will lead to unsustainable housing price inflation, if not a bubble. I address these questions in the analysis from the standpoint of determining the stable equilibrium and sustainable house price appreciation rates consistent with the growth of median household income. The problem of identifying stable house price appreciation is to first identify the major proximate determinants of household demand for housing. A second is to show empirically the movement, deviation, and variation of these factors over time compared to housing prices. I use median household income as the major demand factor for houses and median single family house prices as an indicator of the price. A third is determining the stable equilibrium of the growth of these factors and the appreciation of housing prices consistent with them. And a fourth is the adjustment process when there are small deviations from steady-state equilibrium compared to when deviations are large. It is this last distinction where the chaos theory of self-organizing systems and irreversibility of the housing market system enters to explain how the adjustment process is chaotic in this case. I conclude that, as of the beginning of June 2016, the evidence is overwhelming that housing price appreciation is in a bubble that will likely lead to significant declines in house price appreciation if not in house prices. An important policy recommendation to mitigate these declines and hasten a house price recovery follows. The continuation of expansionary monetary policies will only delay house price adjustments and lead to more severe price declines.

Tracking the Pulse of a City – 3D Real Estate Price Heat Maps

This paper proposes the use of a semiparametric model based on a locally weighted approach that controls for dynamic agglomeration and diffusion effects in constructing localized housing price indices. Based on residential transaction records in Singapore, we create a three-dimensional interactive heat maps that allow for better measurement and visualization of spatial variations and heterogeneity in price appreciation. The heat map captures regional variations and temporal dispersions in price appreciation rates in the business cycle. Our methodology provides high-resolution information about price dynamics that could aid individual buyers, investors, and policy makers in making objective and informed decisions.

An Analysis on Influence of the Realty Rents Brought by Urban Railway System: A Case Study of Guangzhou MTR 2nd Line

This paper took 215 samples along the Guangzhou metro line 2 as an example to research the impact of urban rail system on realty rental prices. Method of hedonic price model was employed to calculate the range of subway influencing the surrounding reality rental. Three conclusions can be drawn up: 1) Metro has no influence on the samples of the central zone, while it contributes to surrounding realty rental prices increment of the peripheral area; 2) For the peripheral area, rental houses are influenced within 1.5 km. Realty rental prices have a significantly positive correlation with the distance of rental house away from the nearest subway station; 3) Average appreciation rate of monthly rents in the impact range reaches to 52.37%. Furthermore, residential monthly rents of house within 0.5 km, 0.5 - 1 km, and 1 - 1.5 km of subway stations are separately 56.9%, 49.2%, and 51% higher than monthly rents of houses located outside the affected area. Based on the result above, several points of tactic advice to generate higher return in rentals for investors and to rent a proper house for tenants have been put forward.

HEDGING OPTIONS IN A DOUBLY MARKOV-MODULATED FINANCIAL MARKET VIA STOCHASTIC FLOWS

The hedging of a European-style contingent claim is studied in a continuous-time doubly Markov-modulated financial market, where the interest rate of a bond is modulated by an observable, continuous-time, finite-state, Markov chain and the appreciation rate of a risky share is modulated by a continuous-time, finite-state, hidden Markov chain. The first chain describes the evolution of credit ratings of the bond over time while the second chain models the evolution of the hidden state of an underlying economy over time. Stochastic flows of diffeomorphisms are used to derive some hedge quantities, or Greeks, for the claim. A mixed filter-based and regime-switching Black–Scholes partial differential equation is obtained governing the price of the claim. It will be shown that the delta hedge ratio process obtained from stochastic flows is a risk-minimizing, admissible mean-self-financing portfolio process. Both the first-order and second-order Greeks will be considered.

Wealth accumulation in rotation forestry - Failure of the net present value optimization?

The rate of wealth accumulation is discussed, and an expression for a momentary rate of capital return is presented. An expected value of the wealth accumulation rate is produced. The return rates depend on any yield function. Three different yield functions are applied, two of them published in the literature, and a third one parametrized using a comprehensive growth model. A common economic objective function, as well as a third known objective function, are applied and compared with the clarified wealth accumulation rate. While direct optimization of wealth appreciation rate always yields best results, procedures gained by maximizing the internal rate of return are only slightly inferior. With external discounting interest rate, the maximization of net present value yields arbitrary results, the financial consequences being at worst devastating.

Black Homebuying after the Crisis: Appreciation Patterns in Fifteen Large Metropolitan Areas

Some have questioned the financial wisdom of homeownership and, especially, Black homeownership. This is understandable because the mortgage crisis dealt heavy blows to Black homeowners. One concern is that home values may not appreciate as much where Blacks purchase homes. We examine how Black homebuyers fared compared to White and Latino buyers in terms of home appreciation during the 2012 to 2017 recovery. We examine appreciation rates by race and ethnicity across 15 metros. We then estimate the relationship between appreciation and the race and ethnicity of the homebuyer, as well as characteristics of the neighborhood where the home is purchased. We find Blacks saw higher appreciation rates than Whites in high– and medium–appreciation metros, but not in low–appreciation metros. We also find that in medium– and high–appreciation metros, buyers in racially diverse neighborhoods tended to see higher levels of appreciation. Also in higher–appreciation metros, those buying in lower–income neighborhoods tended to see higher appreciation rates, while those in low–appreciation metros did not.

Inefficiency of Korean Apartment and Jeonse Market : Focused on Jeonse-to-price Ratio

According to a well-known arbitrage equation between house price and Jeonse (key money lump-sum deposit on a rental) price in Korea, when a house price is expected to rise or interest rate falls, the Jeonse-to-price ratio falls. However, in the actual housing market, when prices rise or interest rate falls, the ratio rises for a while. This study examined this process with TARCH and Markov switching analysis. The analysis shows that the growth and disappearance of expected excess returns could well explain the process of the ratio. In particular, the effect of changes in the expected apartment price appreciation rate and the mortgage rates on the ratio might differ in the low volatility and high volatility regimes of expected excess returns. Based on these results, if the housing market stabilizes, the expected excess returns accumulated in the apartment Jeonse market will gradually decrease. In addition, if the current ultra-low interest rates are resolved, the process will be strengthened. It would enhance the efficiency of the housing market, and the Jeonse market would look for relative stability.

Optimal investment problem with complete memory on an infinite time horizon

This paper deals with an optimal investment problem with complete memory over an infinite time horizon, where the appreciation rate of the risky asset depends on the historical information and the wealth process is governed by a stochastic delay differential equation. The investor’s objective is to maximize his expected discounted utility for the combination of the terminal wealth and the average performance by choosing optimal investment and consumption as controls. Under some suitable conditions, we provide the corresponding Hamilton-Jacobin-Bellman(HJB) equation, and derive the explicit expressions of the optimal investment and consumption for exponential utility function. The verification theorem is also established. Moreover, some numerical examples and sensitivity analysis are given to illustrate our results.

Impact of exchange rates on ASEAN's trade in the era of global value chains: An empirical assessment

ABSTRACTExchange rate risk remains a key concern for export-oriented economies in Southeast Asia. Traditionally, export performance is thought to be adversely affected by exchange rate appreciation and high exchange rate volatility. Nonetheless, in the context of global value chains where export production relies heavily on imported inputs, the trade effects of exchange rate may be weakened. Using the OECD-WTO Trade in Value-added (TiVA) database, this paper seeks to tease out the association between exchange rate movements, volatility and aggregate exports of goods and services among ASEAN economies. More importantly, it investigates whether integration into GVCs affects these relationships. Applying panel regression techniques to a sample of eight ASEAN countries over the period 1995–2011, we found that high share of foreign value added (FVA) embodied in exports almost completely offsets the negative effect of an appreciation in the real effective exchange rate (REER) on real gross exports. At the same time, high FVA share also dampens the negative association between exports and increased REER volatility.

Housing Consumption and Investment: Evidence from Shared Equity Mortgages

Academics have proposed hybrid products with equity features for the financing of housing. In spite of their risk-sharing benefits these products have not become mainstream. This paper studies an important exception, a UK government scheme which in the five years since its inception has provided almost £10 billion of equity financing. The analysis of the origination and prepayment behavior of households who have used the scheme highlights housing affordability constraints. A difference-in-difference analysis of an increase in the maximum government equity limit shows that households took advantage of the increase to buy more expensive properties, and not to reduce their mortgage debt and house price risk exposure. A counterfactual study of homebuyers who, instead of using the equity available, relied on high loan-to-value mortgages shows that their financing choices can be rationalized by an expected rate of house price appreciation of 7.7% per year. We draw general implications for how households approach their house purchase and financing decisions, taking advantage of the fact that the shared equity mortgages that we study allow the separation of the consumption and investment dimensions of housing.

The Cross-Section of Currency Appreciation Rates

We compute a cross-sectional variance decomposition for the average appreciation rate of foreign currencies. The cross-sectional dispersion in average nominal exchange rate growth is due to predictability of interest rate spreads among non-G10 currencies. However, among G10 currencies, we have an opposite pattern with cross-sectional return predictability playing the dominant role. The importance of the return channel among the G10 currencies is even stronger for real appreciation rates. By decomposing the cross-sectional return channel, pricing errors outweigh currency risk premia in terms of explaining nominal currency appreciation among G10 currencies. These results suggest important differences between G10 and other currencies.

Getting on and Moving Up the Property Ladder: Real Hedging in the U.S. Housing Market Before and After the Crisis

AbstractReal hedging is the practice of getting onto the property ladder in order to trade up to a larger home in the future. We define the value of the real hedge of home ownership as the difference between the risk premiums of renting and owning and explore how this value depends on local housing price dynamics and household characteristics. Controlling for the potential endogeneity of housing bubble bursts across different U.S metropolitan areas, we find a significantly higher correlation in the appreciation rates across the Standard & Poor's Case–Shiller tiered house price indices in the period after the housing crisis. We conclude that real hedging has become more attractive in the period after the crisis, particularly in markets exhibiting momentum and high volatility in returns.

Valuation of Noise Pollution and Abatement Policy: Evidence from the Minneapolis-St. Paul International Airport

Noise pollution has been shown to impact physical and mental health, and changes in air traffic over densely populated residential areas is an important contributor to this health risk. Albeit significant endogeneity concerns, hedonic models of house sale prices are typically used to quantify the losses that are capitalized into home values resulting from these adverse noise effects. We break new ground on this subject by disentangling the causal impacts of noise on house prices via a novel identification strategy that relies on changes in the exogenously determined noise abatement eligibility of Minneapolis homes. Combining a rich panel dataset of repeat sales with aircraft noise exposure of properties surrounding the Minneapolis-Saint Paul (MSP) International Airport, we identify the causal noise effects on home values that are abatement eligible from those that are ineligible based on two soundproofing initiatives between 1990 and 2014. We find robust evidence that aircraft noise persistently and significantly reduces the rate of appreciation of abatement ineligible homes by approximately two percentage points per decibel over three years prior to a property's sale, while the effect on eligible homes is fully mitigated. Based on our estimates, we approximate the average losses to owners of abatement ineligible homes around $25,000 per sale and find that the return on abatement investments could be as a high as 40% near MSP.

Has the Effect of Housing Wealth on Household Consumption Been Overestimated? New Evidences on Magnitude and Allocation

The effect of housing wealth on household consumption is puzzling as existing empirical results do not match with theoretical predictions. Existing theories – life cycle theory, permanent income hypothesis and user cost model – suggest that housing wealth impact should be small. However, most prior studies find that Marginal Propensity to Consume (MPC) out of housing wealth ranges between 0.04 to 0.09, indicating material impact of housing wealth on household consumption. Motivated by this discordance, this study uses the Panel Study of Income Dynamics to provide a step by step analysis to show how the housing wealth effect decreases as biases from unobserved variables are properly addressed. Once households’ unobserved preferences towards consumption and their future expected income are controlled for, our estimated MPC drops significantly. We also directly control for home equity extraction to disentangle the pure wealth effect channel and the collateral channel. Our findings show that a one percent increase in perceived housing wealth is associated with 0.01-0.02 percent increase in real, non-housing consumption after directly controlling for the collateral channel. Our estimated magnitude of housing wealth effect is much smaller than previous findings. Additionally, we find heterogeneity in MPCs across consumption categories – consumptions that are necessary in daily lives such as food and transportation do not respond to changes in perceived housing wealth while households increase their spending on clothes and recreation as housing wealth increases. We also employ an IV approach to disentangle permanent and transitory housing wealth shocks. Our results indicate that it is the deviation between perceived house price appreciation rate and the real house price appreciation rate in fundamental values that drives this small magnitude of MPC out of housing wealth in the short run (in cloth and recreation) and this housing wealth effect will move towards to zero in the long run as the perception converges with the fundamental values.

주택임대시장 균형조건을 이용한 주택매매가격 대비 전세가격 비율 결정요인 분석: 주택매매가격 변동성을 중심으로

Traditional approach to analyze the determinants of Chonsei deposit to housing sales price ratio is based on asset market equilibrium condition. However, this approach does not fully account for complexity involved in Korean rental housing market, where Chonsei, Monthly-rent-with-variable deposit, and pure monthly rental contracts coexist. In this paper, we utilize each rental type’s different rate of return structure and examine the determinants of Chonsei deposit to housing sales price ratio based on rental housing market equilibrium condition. We further incorporate housing price volatility into the analysis as a critical variable related to housing investment risks, which has been ignored in previous studies. Our empirical analysis using a sample of the apartment sales price and rent in Seoul confirm our theoretical predictions: Chonsei deposit to housing sales price ratio is positively linked to the rent-to-price ratio and housing price volatility, and the ratio is negatively affected by the expected housing price appreciation rate. The relationship between the Chonsei deposit to housing sales price ratio and housing price volatility was robust to different measures of housing price volatility. The long-run elasticity of Chonsei deposit to housing sales price ratio with respect to rentto- price ratio was estimated to be 1.04~1.22 and the long-run elasticity of the ratio with respect to housing price volatility was estimated to be 0.15~0.53. which is about 50 to 100 percent of the long-run elasticity with respect to expected housing price appreciation rate. These results show that previously ignored housing price volatility is one of important variables to affect Chonsei deposit to housing sales price ratio and risk factors are needed to be considered to better understand Korean housing market.

Coupling data science with community crowdsourcing for urban renewal policy analysis: An evaluation of Atlanta’s Anti-Displacement Tax Fund

We estimate the cost and impact of a proposed anti-displacement program in the Westside of Atlanta (GA) with data science and machine learning techniques. This program intends to fully subsidize property tax increases for eligible residents of neighborhoods where there are two major urban renewal projects underway, a stadium and a multi-use trail. We first estimate household-level income eligibility for the program with data science and machine learning approaches applied to publicly available household-level data. We then forecast future property appreciation due to urban renewal projects using random forests with historic tax assessment data. Combining these projections with household-level eligibility, we estimate the costs of the program for different eligibility scenarios. We find that our household-level data and machine learning techniques result in fewer eligible homeowners but significantly larger program costs, due to higher property appreciation rates than the original analysis, which was based on census and city-level data. Our methods have limitations, namely incomplete data sets, the accuracy of representative income samples, the availability of characteristic training set data for the property tax appreciation model, and challenges in validating the model results. The eligibility estimates and property appreciation forecasts we generated were also incorporated into an interactive tool for residents to determine program eligibility and view their expected increases in home values. Community residents have been involved with this work and provided greater transparency, accountability, and impact of the proposed program. Data collected from residents can also correct and update the information, which would increase the accuracy of the program estimates and validate the modeling, leading to a novel application of community-driven data science.

Stationary Forestry with Human Interference

Here, we present stationarity criteria for forest stands and establish ecological embodiments using an empirical stand development model. We introduced human interference in terms of diameter-limit cutting. Financial sustainability was investigated as a function of the cutting limit diameter. It was found that nonoperative capitalization along with its appreciation rate dictates the sustainability of management practices. In the absence of nonoperative capitalization, stationary forestry produces high capital return rates at a rather small volume of growing trees. In the case of large but constant nonoperative capitalization, a large operative capitalization resulting in a large harvesting yield provides the best capital returns. A high nonoperative appreciation rate requires a small volume of growing trees.

Valuation of Cryptocurrency Mining Operations

Traditionally, the Net Present Value method has been used to compare diverging investment strategies. However, valuating crypto-projects with fiat-based currency is confusing due to extreme coin appreciation rates as compared to fiat interest rates. Here, we provide a net present value method based on using crypto-coin as the underlying asset. Using this method, we compare buy-and-hold versus mine-and-hold; we also provide a sensitivity analysis of profitability.

Remittances, Dutch Disease, and Manufacturing Growth in Developing Economies

AbstractRemittances have grown tremendously in magnitude and economic importance in the past four decades, providing economies with additional disposable incomes and even serving as buffers against economic downturns. It is thus but fitting to ask how remittances have impacted on growth, particularly on manufacturing growth. This note presents a simple model linking remittances and manufacturing growth via a ‘Dutch Disease’ channel. Using Blundell and Bond's (1998) system general method of moments on a panel dataset of 56 developing economies from 1992 to 2016, we verify that remittances adversely affect manufacturing growth in economies that experience high real appreciation rates. This result is robust to alternate specifications, such as the inclusion of financial development indicators, the expansion of the sample to include high‐income economies, and the use of different sample periods.

Variance Risk Premiums in Emerging Markets

We provide first time the emerging market variance risk premiums (EMVRP) from 2006 to 2019, based on nine emerging stocks and options markets---Brazil, China, India, South Korea, Mexico, Poland, Russia, South Africa, and Taiwan. The EMVRP significantly predicts international stock returns and currency appreciation rates, especially for horizons longer than five months. This is in sharp contrast with the predictive pattern of the developed market variance risk premium (DMVRP), which is more important over horizons shorter than five months. These findings are consistent with an illustrative model incorporating partial market integration and heterogeneous economic uncertainty.