Fundamentals or trends? A long-term perspective on house prices

Authored by Piet Eichholtz, Ronald Huisman, Remco C J Zwinkels

Date Published: 2015

DOI: 10.1080/00036846.2014.987919

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

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.

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