R. Meese et N. Wallace, TESTING THE PRESENT VALUE RELATION FOR HOUSING PRICES - SHOULD I LEAVE MY HOUSE IN SAN-FRANCISCO, Journal of urban economics, 35(3), 1994, pp. 245-266
We examine the efficiency of residential housing markets by examining
price, rent, and cost of capital indices generated from a transactions
level data base for Alameda and San Francisco Counties in Northern Ca
lifornia. We can reject both constant and nonconstant discount rate ve
rsions of the housing price present value relation in the short run. L
ong-run results are consistent with the housing price present value re
lation when we adjust the discount factor for changes in both tax rate
s and borrowing costs that characterize our 1970-1988 sample period. O
ur preferred explanation for the short-run rejection of, but long-run
consistency with, the present-value model is the high transaction cost
s that characterize the housing market. However, we cannot rule out th
e possibility that deviations of actual and present value price are du
e to asset market bubbles or nonrational expectations. (C) 1994 Academ
ic Press, Inc.