Inho Song, KDI

The Asset Price of a House

Song studies how an asset-pricing model is derived for a house based on conditions from the rental and mortgage capital markets. The house's rent-price ratio has factors for expected real appreciation, mortgage rates and inflation. Each factor's coefficient is its rent-price incidence, or proportion of shocks borne by tenant users. Over 1981-2013 U.S. houses are near bonds. Rent-price yields reflect only 17% of real house asset price or mortgage shocks. A house's equity premium is bond-like at 1.05% annually, one-quarter that of stocks. During 1998-2004 houses earn a stock-like equity premium above 5% annually before reverting, potentially presaging the crisis.