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House prices and rents in Spain: does the discount factor matter?

Author

Listed:
  • Juan Ayuso

    (Banco de España)

  • Fernando Restoy

    (Banco de España)

Abstract
We estimate alternative price to rent ratios in the Spanish housing market by considering different stochastic discount factors in present value models similar to those used in the financial literature but where the higher rigidity that characterises this market is taken into account. We identify three robust across model regularities: i) the increase in the price to rent ratio since the late nineties helped at first to restore equilibrium, ii) further increases in house prices raised the ratio between 24% and 32% above equilibrium by 2004, although iii) at that time the ratio was only around 2% above its short term adjustment path towards a (new) long run equilibrium.

Suggested Citation

  • Juan Ayuso & Fernando Restoy, 2006. "House prices and rents in Spain: does the discount factor matter?," Working Papers 0609, Banco de España.
    • Handle: RePEc:bde:wpaper:0609
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/06/Fic/dt0609e.pdf
    File Function: First version, April 2006
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    References listed on IDEAS

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    Cited by:

    1. José Francisco Bellod Redondo, 2011. "Detección de burbujas inmobiliarias: el caso español," Contribuciones a la Economía, Servicios Académicos Intercontinentales SL, issue 2011-05, May.
    2. Drobyshevsky Sergey & Narkevich Sergey & E. Pikulina & D. Polevoy, 2009. "Analysis Of a Possible Bubble On the Russian Real Estate Market," Research Paper Series, Gaidar Institute for Economic Policy, issue 128.
    3. Christophe André, 2010. "A Bird's Eye View of OECD Housing Markets," OECD Economics Department Working Papers 746, OECD Publishing.
    4. Enrique Alberola & Ángel Estrada & Daniel Santabárbara, 2014. "Growth and imbalances in Spain: a reassessment of the output gap," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 5(2), pages 333-356, August.
    5. Eden Hatzvi & Glenn Otto, 2008. "Prices, Rents and Rational Speculative Bubbles in the Sydney Housing Market," The Economic Record, The Economic Society of Australia, vol. 84(267), pages 405-420, December.
    6. Philip Arestis & Ana Rosa Gonzalez‐Martinez, 2019. "Economic precariousness: A new channel in the housing market cycle," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(2), pages 1030-1043, April.

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    More about this item

    Keywords

    housing; price-to-rent ratio; overvaluation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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