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Consumption-Wealth Ratio and Expected Housing Return

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  • N. Kundan Kishor
  • Swati Kumari

Abstract

In this paper, we estimate expected return on housing by exploiting information from the variations in the consumptionwealth ratio. We combine a present-value model of consumption with an unobserved component model to express the excess consumption-assets ratio (consumption in excess of labor income) as a linear function of unobserved return on housing assets, financial assets, and consumption growth. We apply a Kalman filter to extract expected housing asset returns from the history of realized returns and excess consumption growth. Our results suggest that filtered housing returns do a significantly better job in predicting realized housing returns than other popular predictors.

Suggested Citation

  • N. Kundan Kishor & Swati Kumari, 2014. "Consumption-Wealth Ratio and Expected Housing Return," Journal of Real Estate Research, Taylor & Francis Journals, vol. 36(1), pages 87-108, January.
    • Handle: RePEc:taf:rjerxx:v:36:y:2014:i:1:p:87-108
    DOI: 10.1080/10835547.2014.12091383
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    Cited by:

    1. Zhao, Mengxue & Yuan, Zhihang & Chan, Hon S., 2023. "Housing wealth and household carbon emissions: The role of homeownership in China," Ecological Economics, Elsevier, vol. 212(C).
    2. Hongyun Han & Fan Si, 2020. "How Does the Composition of Asset Portfolios Affect Household Consumption: Evidence from China Based on Micro Data," Sustainability, MDPI, vol. 12(7), pages 1-17, April.
    3. Eli Beracha & Alexandre Skiba & Ken H Johnson, 2017. "Housing Ownership Decision Making in the Framework of Household Portfolio Choice," Journal of Real Estate Research, American Real Estate Society, vol. 39(2), pages 263-288.
    4. Jie Chen & William Hardin & Mingzhi Hu, 2020. "Housing, Wealth, Income and Consumption: China and Homeownership Heterogeneity," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(2), pages 373-405, June.
    5. Fan, Gang-Zhi & Pu, Ming & Deng, Xiaoying & Ong, Seow Eng, 2018. "Optimal portfolio choices and the determination of housing rents under housing market uncertainty," Journal of Housing Economics, Elsevier, vol. 41(C), pages 200-217.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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