Interest Rates and Fundamental Fluctuations in Home Values

Room 2343 Public Affairs Building

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Fluctuations in housing prices have significant consequences for wealth accumulation, labor mobility, consumption, macroeconomic volatility, and financial market stability. However, it is difficult to know if housing price movements are due to fundamental factors such as rental prices or "irrational exuberance".

 

Professor Albert Saiz proposes some grounded theoretical expectations about the impact of changes in rental prices on home values. He finds that rental prices and rental expenditures  are explained by interest rates, and that expected changes in home values are a function of the supply elasticity of housing and the initial share of land relative to prices in a city.


 

Albert Saiz is Associate Professor of Urban Economics and Real Estate at the Massachusetts Institute of Technology. An urban/housing economist, Saiz pursues research interests in local public finance, real estate economics, and urban economic development, with an emphasis on immigration and immigrant location choices and the impact of skills on earnings and city growth. At MIT, he conducts research and teaching in both the urban planning and real estate programs. Saiz has done substantial work on the determinants of housing supply and the impact of immigrant inflows on housing prices in urban areas, and his work in progress valuing urban amenities and building design promises to open broad areas of collaboration between economists, urban designers, and urban developers.