Real Estate MBA
The Real Estate Track in the MBA program emphasizes a multi-disciplinary, integrated approach to the study of real estate. The integrated process of preparing real estate students for careers in real estate will include: analysis of real estate opportunities from a development and sustainable development perspective; exploration of the link between real estate and the capital markets through examination of financial institutions and instruments used to finance real property; a thorough understanding of legal issues associated with developing, acquiring, transferring and leasing real property; exploring alternative methodologies for estimating real estate value and development of skills in real estate decision-making whereby teams design, complete, and present real estate projects in a competition forum.
Additional Course Offerings
The multi-disciplinary focus of the program takes place both within and outside the Leeds School of Business. In addition to the core real estate courses students can choose from a variety of business electives that compliment real estate, as well as electives outside the School of Business such as the College of Architecture and Planning, the Construction Management program within the College of Engineering and Applied Science, and sustainability courses within the Environmental Studies program. Sustainability electives are also available across the CU campus. This interdisciplinary approach helps students broaden their understanding of real estate and its related sectors. Students must receive approval from the MBA office before registering for electives offered outside of the business school
Suggested Courses
A minimum of 5 courses are required.
First Year
Fall Semester
Spring Semester
- MBAX 6600: Real Estate Principles
- MBAX 6815: Survey in Best Practices in Sustainable Development
Summer
Second Year
Fall Semester
- MBAX 6610: Real Estate Finance & Investment Analysis
- MBAX 6635: Real Estate Economics
- MBAX 6640 Real Estate Law & Contract
Spring Semester
- MBAX 6620: Real Estate Project Competition
- Real Estate Related Elective (optional)
Real Estate Fellowships
The Real Estate Center offers fellowships to both incoming MBA students as well as second year MBA students. The amounts of the fellowships vary from year to year. The criteria used to select candidates are based on a combination of various items including: Academic standing, work experience, financial need, and commitment to real estate and passion for the industry.
If you are interested in applying for fellowships as an incoming student, the application is part of the overall MBA application. Current second year students should see Blackboard for current deadlines and the application.
Internships
The Center coordinates the placement of MBA interns in top real estate companies. The program is designed for first year MBA students who have a genuine interest in a career in real estate. Internships provides students with real world experience that strengthens a student’s resume and understanding of the industry, while contributing to the bottom line of the business. In many cases, an internship is an opportunity for a company and a student to “test drive” an organization and in some cases can lead to a permanent position upon graduation. Internships are a highlight of the students’ educational experience and a valued opportunity for their employers.
Through the Real Estate Council network and beyond, the real estate Center has connections at the local, regional, national and international levels. We work one-on-one with each student to devise a plan to best connect students with the individuals that align with their area of interest and expertise.
Employers
If you are an employer and interested in hosting an intern, please contact Katie Latier at katie.latier@colorado.edu or 303.492.3643.
For Current Students
To help coordinate the best opportunity between student and employer, we ask that each student give serious thought to the kind of internship you want. Before making an appointment with the Real Estate Center to discuss internship opportunities, fill out the Internship Questionnaire and send the questionnaire AND your current resume to katie.latier@colorado.edu.
Courses
MBAX 6600: Real Estate Principles
MBA: Spring 2012
The course will introduce MBA students to real estate, with an emphasis on the commercial sector. The lectures will survey topics in real estate development, economics, finance, valuation, law, planning, brokerage, management, investment, deal structure and sustainability. The course begins with broad overviews of real estate property and capital markets. It will then explore the subject areas of planning and development, market research, acquisitions, law, brokerage and asset management. We will cover all the major real estate “food groups” including office, retail, industrial, multifamily and mixed use. Included in our study will be the increasingly important aspect of sustainability. Other key aspects we will study will be the public sector’s regulatory role, capital and financing requirements, and execution. Additionally, if requested by the class, Mr. Lehr will make himself available either before or after class to discuss other aspects of real estate, business, careers, etc.
Syllabus
MBAX 6610: Real Estate Finance and Investments
MBA: Fall 2012
The primary objectives of this course are to: (1) conduct income property investment analyses; (2) develop the technical competence necessary to structure real estate transactions; and (3) understand the financial assets securitized by real estate. The student will analyze income properties using Excel and ARGUS-DCF®. Techniques for structuring real estate transactions examined in this course include lender participations, sale-leasebacks, joint ventures, and real estate syndications. Students are required to use ARGUS-DCF® in this class. ARGUS-DCF® is widely used throughout the real estate industry by equity investors, lenders, commercial brokers, appraisers and property managers to analyze and manage income producing (e.g. apartments and commercial) properties. The students will receive some instruction on how to use ARGUS-DCF® during class. I am also willing to schedule additional sessions for ARGUS-DCF® training. The take home portion of the mid-term exam will require students to use ARGUS-DCF® to analyze an income producing property. The secondary market for mortgages and mortgage backed securities (MBSs) will be examined in some detail. Topics covered include a survey of the private and public institutions that participate in the secondary mortgage market; pooling mortgages to create a MBS; and pricing MBSs. The course will examine both single-family property MBSs and commercial property mortgage backed securities (CMBSs). The homogeneity of the mortgage pool, prepayment risk, and default risk are examined in some detail. The course will also examine real estate investment trusts (REITs) and returns to real estate investments.
Syllabus
MBAX 6620: Real Estate Project Competition
MBA: Spring 2012
Develops skills in real estate decision-making. Teams design, complete and present a real estate project in a competition forum. Team members organize and assign responsibilities, interact with real estate professionals, and apply appropriate quantitative and qualitative tools and procedures.
Syllabus
MBAX 6630: MBAX 6630: Real Estate Economics
MBA: Fall 2012
The course begins with an overview of residential and commercial property markets. We will identify the underlying economic determinants of real estate supply and demand, market equilibrium and short- and long-run adjustments to disequilibrium (e.g. cycles). The course then describes the three major approaches to estimating real property value: market (or sales) comparison, the income approach, and the cost approach. These techniques will be used to estimate market values for both residential and commercial properties. The course will then examine real estate market behavior. We will examine various theories of land price determination and use these models to understand how the private market allocates land to competing residential, office, retail, industrial/warehouse, hotel and other end users. This course draws heavily from topics taught in traditional urban and regional economics courses and treats real estate like any other scarce resource allocated in a market oriented economy. The student will examine how factors influencing the demand for real estate interact with the factors influencing the supply of real estate to determine market rents and how the flow of future expected income is capitalized to yield the market price of the property. The course will also examine the roles that local, state and federal governments have in real estate market outcomes. Finally, the course includes an examination of three special topics: affordable housing, resort markets, and transit oriented development.
Syllabus
MBAX 6640: Real Estate Law
MBA: Fall 2012
This course is intended to cover many of the basic legal concepts relevant to, and inherent in, the real estate business. While many traditional real property law concepts will be covered in the course, the course is intended to introduce the student to the transactional legal aspects of the real estate business, including acquisition, disposition, development, investment, management, leasing and workouts, including tax implications. At the conclusion of the course, the student is expected to have acquired a basic understanding of these principles so that the student will have the ability to function with respect to these matters in many of the various aspects of the real estate business. In order to facilitate this process, examples and cases will be utilized in order to illustrate the principles being covered.
Syllabus
MBAX 6815: Survey of Best Practices in Sustainable Real Estate Development
MBA: Spring 2012
Introduction to Survey of Best Practices in Sustainable Real Estate Development is a graduate level survey course designed to explore sustainable real estate development from a financial and ecological perspective across several scales: from the built environment to land use to emerging environmental market asset classes to large landscape conservation. While the course is intended to be a survey course and expose you to a spectrum of topics, there will be opportunities to explore a topic in depth with your service learning external consulting project. The course is a service?learning based course and you will have opportunities to interact with our local community. These include guest speakers, an external consulting project and a short presentation, on the topic of your choice, to the larger Boulder community.
Syllabus
REAL 3000: Principles of Real Estate Practice
Undergraduate: Spring 2012
An introduction to real estate as an asset with associated property rights, an industry, profession, and investment. The course covers a broad spectrum of real estate principles and terms including legal concepts, regulation and land use, valuation, financing methods and sources, and investment analysis. This course is an excellent elective for all students and provides the foundation for other real estate courses at Leeds.
Syllabus
REAL 4000: Real Estate Law
Undergraduate: Spring 2012
The course will cover a broad sampling of laws impacting and governing real property rights and interests including the possession, use, encumbrance and conveyance of real property.
Syllabus
REAL 4100: Real Estate Finance and Investments
Undergraduate: Spring 2012
This course discusses important real estate financing and investment problems. Topics include mortgage instruments, income property analysis, valuation and financing of income properties, risk analysis, disposition and renovation decisions, financing corporate real estate, financing project development, the secondary mortgage market, and real estate investment trusts and portfolio considerations.
Syllabus
REAL 4810: Academic Internship
Undergraduate: Spring 2012
The course is designed to complement the internship experience of the students. The class will focus on (1) sharing the experiences of the students in their respective internships, (2) exploring career opportunities in the real estate industry, and (3) discussing current issues in the real estate industry.
Syllabus
REAL 4820: Real Estate Development
Undergraduate: Spring 2012
Provide the student with a sense of how the Real Estate Development process has been handled during past and recent history and why communities and developments occur the way they do. The focus will be on current Real Estate Development practices, but will include a discussion of significant historical figures and developments. Recent trends in development such as green building, LEED certification, growth management, brownfields, TOD, environmental issues, sustainability, and others will be covered.
Syllabus
Publications
Forthcoming
Authors: William N. Goetzmann, Liang Peng, and Jacqueline Yen
This paper argues that econometric analysis of housing price indexes before 2006 generated forecasts of future long-term price growth and low estimated probabilities of extreme price decreases. These forecasts of future increases in home-loan collateral values may have affected both the demand and the supply of mortgages. Standard time series models using repeat-sales indexes suggest that positive trends had a long-half-life. Expectations based on such models support expectations that could lead to an asset bubble.
Analysis of data from the HMDA loan database and LoanPerformance.com at the MSA level and at the loan level substantiates the effects of past price trends on the demand and supply of subprime mortgages. On the demand side, at the MSA level, past home price increases are associated with more subprime applications, higher loan to income ratios and lower loan to value ratios of applications for both prime and subprime mortgages. This is consistent with the notion that households not only borrowed more but also invested more in home equity conditional on greater past house price increases. On the supply side, past home price appreciation had a significantly greater impact on the approval rate of subprime applications than the approval rate of prime applications. Loan level analysis indicates that past home price appreciation increased the approval rate of subprime applications but did not affect the approval rate of prime applications. Further, approved HMDA subprime loans had higher loan to income ratios in MSAs with greater past house price trends.
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Forthcoming
Authors: Stephen Billings and Thomas G. Thibodeau
This paper empirically examines the extent to which the property tax liability created by financing residential infrastructure using special district bonds is capitalized in house prices. We compare house prices for single-family detached homes built within development districts to similar properties located outside development districts. Our hedonic specification includes the usual housing characteristics and controls for the influence of spatial attributes using Census Block Group 'neighborhood' fixed effects. The preferred empirical specification restricts the data to neighborhoods that have numerous sales of recently constructed single-family detached homes located both within and outside development districts. The empirical results indicate that house prices for homes located within development districts are lower than house prices for similar homes located outside of development districts, but the amount of property tax capitalization is significantly less than full. Results depend on our Generalized Methods of Moments estimator, which instruments property tax rates using the characteristics of development districts. We identify valid instruments by restricting transactions to properties located in rapidly growing suburban developments.
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Working Paper
August 2011
Author: Liang Peng and Thomas G. Thibodeau
This paper empirically examines the segmentation of house price risk across 99 zip-code delineated neighborhoods in metropolitan Denver. The house price risk in each neighborhood is measured with the temporal variation of quarterly appreciation rates of the neighborhood house price index over the 2002 to 2007 period. Cross sectional regressions of neighborhood house price risk on the median household income and the percentage of population in poverty from the 2000 census data for the same neighborhood provide strong evidence that the house price risk is significantly higher in low-income/poor neighborhoods. Sub-period analyses further indicate that the risk segmentation exists in both a booming period (pre 2005:2) and a busting period (post 2005:3). The results indicate that homeownership can be a much riskier investment for low-income/poor households.
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Working Paper
August 2011
Authors: Liang Peng and Thomas G. Thibodeau
This paper empirically analyzes the non-monotonic influence that interest rate changes have on irreversible investment in income producing properties. Using the complete history of quarterly capital improvements for 1,416 commercial properties over the 1978 to 2009 period, we find strong evidence of the non-monotonic effect for apartment, office, and retail properties, but not for industrial properties. For the first three property types, a decrease in the Treasury yield dramatically increases capital improvements when property values are high, but has a weak or negative effect when property values are low. This result has important implications for monetary and fiscal policies.
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Forthcoming
Author: Stephen Billings and Thomas G. Thibodeau
This paper empirically examines the extent to which the property tax liability created by financing residential infrastructure using special district bonds is capitalized in house prices. We compare house prices for single-family detached homes built within development districts to similar properties located outside development districts. Our hedonic specification includes the usual housing characteristics and controls for the influence of spatial attributes using Census Block Group 'neighborhood' fixed effects. The preferred empirical specification restricts the data to neighborhoods that have numerous sales of recently constructed single-family detached homes located both within and outside development districts. The empirical results indicate that house prices for homes located within development districts are lower than house prices for similar homes located outside of development districts, but the amount of property tax capitalization is significantly less than full. Results depend on our Generalized Methods of Moments estimator, which instruments property tax rates using the characteristics of development districts. We identify valid instruments by restricting transactions to properties located in rapidly growing suburban developments.
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Publication
August 2011
Authors: Stephen Billings and Thomas G. Thibodeau
This paper examines the influence that the intrametropolitan growth in special districts has on residential property values. Our empirical approach tests whether the benefits of decentralizing local public good providers increases, decreases or leaves residential property appreciation rates unchanged. Past research in this area has been limited by the lack of variation in government structure within a region and by the self-selection of areas that decentralize governments. This research overcomes these limitations by 1) comparing appreciation rates for single-family homes that were located in areas that added local governments to appreciation rates for properties that were not; and 2) employing an estimation technique that border matches repeat sales to control for the self-selection of government structure. Overall, empirical results indicate that institutional decentralization has no influence on single-family property appreciation rates. It makes no dierence whether the new government is the 3rd, 4th, 5th or 6th new jurisdiction-the new government does not influence appreciation rates. Residential property values for homes located in jurisdictions that added security special districts experienced rates of appreciation that were lower than otherwise comparable properties. Recreation, fire, water, sewer and other special districts had no measurable influence on appreciation rates. Empirical results also indicate that more overlap among local governments reduces appreciation rates. New governments created in areas whose residents have greater income heterogeneity increase appreciation rates. The distance separating the new government from existing governments, the land area of the new government and the creation of multiple new governments have no influence on appreciation rates. Finally, these results depend on the border matching repeat sales estimation technique employed here.
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Forthcoming
Authors: Liang Peng and Rainer Schulz
This paper examines the dynamics of the covariance matrix of return rates for securitized real estate, other company stocks, and government bonds for a cross- section of eight countries. In-sample analysis establishes that in all countries the covariance matrix is time-varying and reacts stronger to bad than to good news. Using a realistic out-of-sample exercise, we find that portfolios selected with a forecasted dynamic covariance matrix are less risky than portfolios constructed with the static matrix. However, benefits of using the dynamic covariance matrix for active portfolio management are mostly offset by rebalancing cost. Passive buy-and-hold investors benefit, because the forecasted dynamic covariance matrix provides better risk assessment.
Forthcoming
Authors: Marcel Arsenault, Jim Clayton, and Liang Peng
This paper provides strong evidence for a positive feedback loop between property prices and mortgage supply, using data from the U.S. commercial property and mortgage markets over the 1991 to 2011 period. The empirical analyses control for the endogeneity of property prices, mortgage flows, mortgage interest rates, and loan to value ratios, and provide two main findings. First, exogenous increases in mortgage supply, measured with the growth of the CMBS market, significantly reduce property cap rates. Second, volatility of past price changes and the "biggest loss" in property values in the past significantly affect mortgage supply. This positive feedback loop may be an important driving force for real estate cycles.
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Publication
August 2011
Authors: Norman Miller, Liang Peng, and Michael Sklarz
Using quarterly data for all 379 metropolitan statistic areas (MSAs) in the U.S. from 1980:1 to 2008:2, this paper empirically studies the effect of house prices on local Gross Metropolitan Product (GMP). We compare the effects of predictable and unpredictable house price changes, which we use to capture the collateral and wealth effects of house prices respectively. We further analyze the relationship between the effects and household borrowing constraints, as well as the temporal pattern of the effects. Our analysis provides the following findings. First, house price changes have significant effects on GMP growth, and the effect of predictable changes (the collateral effect) is about three times stronger than the effect of unpredictable changes (the wealth effect). Second, the persistent component of predictable changes has a stronger collateral effect than the novel component. Third, when households are more financially constrained, the collateral effect is stronger, the wealth effect is weaker, and the total effect remains unchanged. Finally, the effects last for eight quarters, and peak on the fourth quarter after house price changes take place.
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Publication
May 2011
Authors: Norman G. Miller, Liang Peng, and Michael A. Sklarz
If realized house prices have the wealth effect and the collateral effect on the economy, anticipated house price changes should have similar economic effects. This paper empirically analyzes the effects of single family home sales, which are shown to be able to predict house prices in the literature, on economic production, using 372 Metropolitan Statistic Areas in the U.S. from the first quarter of 1981 to the second quarter of 2008 in a panel Vector Error Correction Model. Changes in home sales are found to Granger cause the growth rate of per capita Gross Metropolitan Product, and the dynamic effects are visualized with impulse response functions. Supporting evidence for the economic impact of home sales is also found in contemporaneous regressions.
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Working Paper
August 2010
Author: Liang Peng
This paper analyzes the risk and returns of direct commercial real estate investments at the property level. A novel regression is developed to use property level cash flows instead of index returns to estimate the sensitivity of real estate returns to economic variables. Monte Carlo simulations suggest that this regression is more accurate than the conventional index approach. Applying this regression to 3,125 commercial properties held between 1978 and 2009, this paper finds that commercial real estate risk premium is positively related to GDP growth and the change in the credit spread, and negatively related to inflation, the stock market risk premium, and the change in the term spread. The sensitivities vary across property types and time. This paper also finds that the risk characteristics of commercial real estate, such as loadings on Fama French factors, vary across property types and time.
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Forthcoming
Author: Liang Peng
This paper proposes a generalized repeat sales regression (GRSR) that uses repeat sales from the entire market, in which properties may have heterogeneous value appreciation processes, to estimate price indices for not only the entire market, but also submarkets or customized portfolios of properties that only have small numbers of value observations. Monte Carlo simulations provide strong evidence that the GRSR indices more accurately measure the index for the entire market as well as individual property value appreciation than conventional RSR indices. This paper also proposes a Chi-square test to detect the heterogeneity in property value appreciation across submarkets/portfolios, and use simulations to show that the test is powerful in small samples. This paper finally illustrates the application of the GRSR using a historical dataset of the Chicago housing market from 1970 to 1986.
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Forthcoming
Authors: Liang Peng and Thomas G. Thibodeau
Municipal governments in China established direct control of the supply of urban land in August 2004. This paper examines whether this government action mitigates the efficiency of the residential land market. Using a unique data set of detailed land and residential community transactions with manually collected location information for residential land lots in seven Chinese cities, this paper analyzes the relationship between the land lease prices and residential property prices from the first quarter of 2001 to the fourth quarter of 2007. Results indicate that property prices determined land prices both before and after 2004:3, but the effect was significantly weaker after 2004:3. This is consistent with the hypothesis that the market for residential land became less efficient after municipal governments gained direct control of the land supply
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Publication
January 2010
Authors: Jim Clayton, Norman Miller, and Liang Peng
Housing market cycles are featured by a positive correlation of prices and trading volume, which is conventionally attributed to a causal relationship between prices and volume. This paper analyzes the housing markets in 114 metropolitan statistical areas in the United States from 1990 to 2002, treats both prices and volume as endogenous variables, and studies whether and how exogenous shocks cause comovements of prices and volume. At quarterly frequency, we find that, first, both home prices and trading volume are affected by conditions in labor markets, the mortgage market, and the stock market, and the effects differ between markets with low and high supply elasticity. Second, home prices Granger cause trading volume, but the effects are asymmetric—decreases in prices reduce trading volume, and increases in prices have no effect. Third, trading volume also Granger causes home prices, but only in markets with inelastic supply. Finally, we find a statistically significant positive price-volume correlation; which, however, is mainly explained by co-movements of prices and volume caused by exogenous shocks, instead of the Granger causality between prices and volume.
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Publication
November 2009
Authors: Patric H. Hendershott, Halbert C. Smith and Thomas G. Thibodeau
This paper summarizes the 45-year history of the American Real Estate and Urban Economics Association (AREUEA). It describes how AREUEA was created in the mid-1960s by a few academics interested in promoting real estate research. It tracks the Association's growth into a highly respected international association of real estate academics and researchers employed by industry and governments. The paper also examines the activities of its members: officers elected, awards presented, conferences organized and scholars' contributions to its main academic publication—Real Estate Economics. The article identifies the most prolific contributors to the Journal (located both in the US and internationally) and the impact that the Journal's publications have had on real estate research. Finally, we describe how real estate research interests have changed over time.
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Publication
March 2009
Authors: Gina Nicolosi, Liang Peng, and Ning Zhu
After analyzing retail investors' stock trades for potential learning behavior, we present evidence that individual investors learn from their trading experience. Initially, we question whether investors' previous forecasting ability (inferred from prior purchases' subsequent risk-adjusted performance) affects their future trade profitability and activity. Indeed, as an investor's inferred ability increases, so does her ensuing trade profitability and intensity. Further, because additional investment experience allows more accurate ability inference, we posit that trading experience should help investors obtain better investment performance. Consistent with this hypothesis, not only do excess portfolio returns improve with account tenure, but we also find that trade quality (i.e., average raw and excess buy-minus-sell returns) significantly increases with experience (i.e., calendar time and account tenure). In sum, individual stock investors do learn, and they consequently adjust their behavior and thus effectively improve their investment performance.
Publication
June 2008
Authors: Jim Clayton, Greg MacKinnon, and Liang Peng
This paper proposes and empirically evaluates competing models to explain the time variation in private real estate market liquidity documented in Fisher et al. (2003). We test three classes of models. In the first, that seller estimates of property value lag market conditions because of an asymmetric information problem. Sellers, at least in part, base their estimates of value on observations of signals from the market, but the presence of noise means a change in signal is not fully reflected in sellers' updated value estimates. The second class of models incorporates the value of waiting or opportunity cost of not transacting, recently introduced by Krainer (2001) and Nov-Marx (2004), into seller's optimal valuation strategy. In the third, we allow for the possibility of noise traders, or investors who are not fully rational in the sense that they trade on market sentiment. We follow Baker and Stein (2003) and consider a formal model that links stock market-wide liquidity to investor sentiment with higher liquidity being due to the presence of irrationally over-optimistic traders. In this model measures of aggregate liquidity act as an indicator of the relative presence (or absence) of sentiment-based traders in the market place and therefore the divergence of asset price from fundamental value. Empirical findings are generally consistent with models of optimal valuation with rational updating and provide support for the opportunity cost.
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Publication
June 2008
Authors: Allen C. Goodman and Thomas G. Thibodeau
In the first half of this decade, US house prices experienced significant real rates of appreciation. The dramatic increase in house prices led some economists to conclude that there was a speculative bubble in the US housing market. This paper explores how much of the recent appreciation in US house prices was attributable to the fundamental economic determinants of house prices. On the demand side, we note that the rate of homeownership in the US increased from 66.8% in 1999 to 69% in the fourth quarter of 2005 1 . Each percentage point increase in the homeownership rate increases the demand for owner-occupied housing by about one million units. On the supply side, land prices and housing construction costs increased substantially in real terms over this period. The national average increase in house prices conceals significant spatial variation in appreciation rates. According to OFHEO, house prices in California cities increased by more than fifteen percent per year during this period while house prices in Texas cities increased four percent per year. The increase in aggregate housing demand had different effects on metropolitan area house prices because housing market supply elasticities vary spatially. We estimate housing supply elasticities for 133 metropolitan areas and conclude that although areas on the East Coast and in California had large observed price increases, they owe much of their house price increases to inelastic supplies of owneroccupied housing.
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Working Paper
August 2007
Authors: Wenbin Li, Thomas G. Thibodeau, and Ying Xaio
During the 2002-2004 period, the Beijing government's procedures for transferring land use rights changed twice in economically significant ways. We examine the effect that these reforms have had on local house prices using a hedonic house price equation and transaction data for newly constructed homes over the 1998-2006 period. We employ five alternative house price specifications to control for spatial variation in Beijing house prices. We observe significant increases in house prices after the August 31, 2004 reform became effective.
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Publication
June 2007
Authors: Allen C. Goodman and Thomas G. Thibodeau
An important question related to housing submarket construction is whether geographic areas must be spatially adjacent in order to be considered the same submarket. Housing consumers do not necessarily limit their search to spatially concentrated areas and may search similarly priced neighborhoods located throughout a metropolitan area when making housing consumption decisions. This paper examines two alternative procedures for delineating submarkets: one that combines adjacent census block groups into areas with enough transactions to estimate the parameters of a hedonic house price equation; and a second that permits spatial discontinuities in submarkets. The criterion used to evaluate the alternative techniques is the accuracy of hedonic house price predictions. The empirical research is conducted using data obtained from the Dallas Central Appraisal District (DCAD). The DCAD provided information for every parcel of real property in Dallas County. As of January 1, 2003, there were approximately 500,000 single-family homes in the DCAD area and 44,000 transactions in the 2000:4-2002:4 period. We find that both submarket constructs significantly increase hedonic prediction accuracy over a standard pooled model, but that neither construct statistically dominates the other. These results have important implications for empirically modeling submarkets within metropolitan area housing markets. Creating housing submarkets by combining spatially adjacent census block groups that lie within the same municipality and same independent school district is time consuming and costly. These results suggest that comparable increases in hedonic prediction accuracy can be achieved by delineating submarkets by dwelling size and median census block group per square foot transaction price.
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Working Paper
August 2006
Authors: Christopher R. Cunningham and Tom Thibodeau
Zoning is often pursued by homeowners seeking to protect themselves from the subsequent introduction of a disamenity on neighboring properties that may negatively affect their home values (Fischel 2001). However, in the many communities the feared disamenity, is not industry or commercial land uses, but simply other housing. absence of zoning protections, developers can mimic these safe guards through restrictive covenants Siegan (1970), and homebuyers can seek out locations near land that is protected from development because of government ownership or the existence of conservation easements, Walsh (2003). We examine the home prices and development activity in several communities in the mountains of Colorado in which the feared disamenity may be additional housing developments. We go on to explore the unsuccessful efforts to pass binding growth management legislation in 2001. The analysis incorporates GIS to construct several novel right hand side variables including the share of housing protected or developed land within a given buffer distance of homes which are included in a hedonic regression framework. Our initial findings are that homebuyers are willing to pay a premium for houses near but not adjacent to protected or conserved land. We also find that homes with a higher share of protected land around them were worth more when there was an increased likelihood that the state would place constraints on rural development.
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Publication
June 2006
Authors: Norman Miller and Liang Peng
This paper uses GARCH models and a panel VAR model to analyze possible time variation of the volatility of single-family home value appreciation and the interactions between the volatility and the economy, using a large quarterly data set that covers 277 MSAs in the U.S. from 1990:1 to 2002:2. We find evidence of time varying volatility in about 17% of the MSAs. Using volatility series estimated with GARCH models, we find that the volatility is Granger-caused by the home appreciation rate and GMP growth rate. On the other hand, the volatility Granger causes the personal income growth rate but the impact is not economically significant.
Publication
March 2006
Authors: William Goetzmann and Liang Peng
We analyze a bias in transaction-based price indices due to the presence of seller reservation prices. We develop a model in which the ratio of seller's reservation prices to the market value affects trading volume and biases of observed transaction prices: when trading volume decreases (increases), index returns are estimated with an upward (downward) bias. We propose a new econometric procedure to mitigate the bias, and use simulations to demonstrate the effectiveness of the procedure. We construct a reserve-conditional unbiased index for the Los Angeles housing market, which substantially differs from a traditional repeat sale index.
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Working Paper
August 2005
Authors: Christopher R. Cunningham and Thomas G. Thibodeau
This paper examines the relationship between open space and housing price in a mountain region of Colorado. Recent innovations in information technology have freed a growing number of workers from traditional urban employment centers. This trend, combined with the improving health and activity of retirees, has created substantial demand for housing in areas with special scenic value and access to wilderness. However, too much development may threaten the very amenity that brings people to these areas in the first place. Successful housing development in these communities requires that we identify the premium, if any, homebuyers place on low density housing. In addition, we assess how the legal protection against development is valued by homebuyers in these bucolic settings. This paper utilizes a rich dataset of housing attributes and electronic maps of parcels to identify the effects of housing density and preserved open space on home prices in Summit County Colorado.
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Publication
May 2004
Authors: Brent W. Ambrose and Thomas G. Thibodeau
In the 1980's, housing market analysts and policymakers were concerned that Freddie Mac and Fannie Mae were not adequately facilitating the financing of affordable housing for low- and moderate-income families. To address these concerns, the Department of Housing and Urban Development establish quantitative Affordable Housing Goals requiring the Government Sponsored Enterprises (GSEs) to increase their purchases of mortgages originated by low- and moderate-income households and for homes located in low-income neighborhoods. Our analysis indicates that the goals increased the supply of mortgage credit available to low- and moderate-income households, after controlling for other mortgage market factors. Our analysis suggests that the increase in the supply of low-income mortgage credit occurred primarily in 1998.
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Publication
August 2003
Authors: Norman G. Miller, Michael A. Sklarz, and Thomas G. Thibodeau
This research examines how well nominal income, nominal interest rates and employment explain temporal variation in nominal metropolitan area house prices. Rather than use a traditional model of real house prices, we explain nominal house prices with a measure of "intrinsic" house value that combines local economic factors with an affordable price based upon what the local median income household could afford to pay at prevailing interest rates. The affordable price variable captures local household income trends and current interest rates. We then relate temporal variation in observed house prices to "intrinsic" value and estimate the parameters of separate autoregressive house price models for 316 cities. Like Capozza, Hendershott and Mack [2004], and Abraham and Hendershott [96] before them, we observe that the coastal markets exhibit much greater appreciation/depreciation rates and much more volatility than cities in the central portions of the country. Here we focus primarily on the impact of interest rates on nominal prices in various MSAs, a factor that many housing analyst have pointed to when debating the existence of housing bubbles. Some markets are much more or less responsive to interest rates than others. Supply constraints may explain some of but not all of this increased responsiveness.
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