Fundamentals or Trends: A Long-term Perspective on House Prices

Date
01-01-2015
Publication
Published in Applied Economics
Expertise
Investments

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 forma- tion of expectations about future changes in house prices between funda- mental 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.

Publication

Eichholtz-et-al_Fundamentals-or-trends.pdf

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