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SUMMARY:Housing Booms and the Return to Salient Fundamentals - Professor J
 ohn Clapp\, University of Connecticut
DTSTART:20151104T160000Z
DTEND:20151104T170000Z
UID:TALK61966@talks.cam.ac.uk
CONTACT:Clare Eaves
DESCRIPTION:The first price of a repeat pair is widely recognized as a sal
 ient reference price. We show that fundamentals at the date of the first s
 ale are salient at time of the second sale. We propose that any expectatio
 ns about price appreciation will be tested against change in fundamentals 
 realized after the purchase date. The salient gap is defined as the differ
 ence between change in market value and change in fundamental value\, both
  between the two sales. A positive salient gap that opens up during a boom
  should rationally increase the probability of sale and reduce market valu
 e.\n\n\nConnecticut data show that the probability of sale is a significan
 t positive function of the salient gap for repeat sales\, whereas the rela
 tionship is weaker for all sales\, supporting the salience of the date of 
 the first sale. When the salient gap is introduced into a model of the sec
 ond sales price\, we find that sales with gains are discounted by 6% on av
 erage relative to losses and by an additional 10% the presence of a positi
 ve salient gap. The discount is significantly larger (about 3% more) for a
  big positive gap. Analysis of the relationships to the salient gap would 
 not be possible using gap variables developed in previous literature. \n\n
 \nThese results are robust to a number of model specifications and to cont
 rols for the quality of the property traded. However\, even if the results
  are entirely due to unobservable quality (market prices reflect trades of
  lower quality properties with gains) they still show that the market is i
 nfluenced by salient fundamentals and that properties with gains are impor
 tant to the return to fundamentals.\n\n\nQuantitative easing created large
  negative gaps in Connecticut after 2008 and these are associated with a s
 hift in market behavior. The probability of sale is lower in the presence 
 of large negative gaps and there is more uniformity in responses of sales 
 to the gap. This suggests that Fed policy reduced income to real estate pr
 ofessionals reliant on trading.\n\n\nBiography\n\nJohn M. Clapp is a Profe
 ssor of Finance and Real Estate at the University of Connecticut where he 
 teaches real estate markets as a source of cash flows. These valuation fun
 damentals arise from spatial relationships between supply and demand in lo
 cal residential and commercial markets. His statistical methods for tracki
 ng the evolution of property prices over space and time were featured at a
  meeting of the International Association of Assessing Officers (IAAO) in 
 2008\, and subsequently published in the Journal of Property Tax Assessmen
 t and Administration. His foundational research on valuation has resulted 
 in numerous articles in scholarly journals including The Journal of Urban 
 Economics\, Real Estate Economics\, Regional Science\, Economic Journal\, 
 The Journal of Real Estate Finance and Economics\, and the Journal of the 
 American Statistical Association.  They have assisted with analysis of the
  aging of the housing stock\, the forces driving development of urban area
 s\, the value of public schools and methods for property tax assessment. \
 n\n\nProfessor Clapp's current research seeks to value the option to redev
 elop the existing bundle of property characteristics. This work establishe
 s that traditional valuation methods omit variables designed to capture th
 e proportion of value related to redevelopment options. He served as Direc
 tor for the Center for Real Estate and Urban Economic Studies from 2009 
 – 2012. He received his B.A. in economics from Harvard College\, and a M
 BA and Ph.D. from Columbia University. \n
LOCATION:Mill Lane Lecture Room 1
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