Rental Income and Cap Rates: A Comparison of the Lisbon and Porto Housing Markets

Moreira, António Carrizo; Tavares, Fernando Oliveira; Pereira, Elisabeth

doi:10.37043/jura.2016.8.2.5

Cited by 1 publication

(1 citation statement)

References 18 publications

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“…Another approach to avoiding the residual autocorrelation is to forecast single point-in-time metrics as done in Moreira et al (2016). This micro-level study successfully identified over-investment in a neighbourhood of Portugal by creating a multivariate regression of a single period.…”

Section: Literature Reviewmentioning

confidence: 99%

The determinants of capitalisation rates: evidence from the US real estate markets

Larriva¹,

Linneman²

2021

JPIF

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PurposeEstablishing the strength of a novel variable–mortgage debt as a fraction of US gross domestic product (GDP)–on forecasting capitalization rates in both the US office and multifamily sectors.Design/methodology/approachThe authors specifies a vector error correction model (VECM) to the data. VECM are used to address the nonstationarity issues of financial variables while maintaining the information embedded in the levels of the data, as opposed to their differences. The cap rate series used are from Green Street Advisors and represent transaction cap rates which avoids the problem of artificial smoothness found in appraisal-based cap rates.FindingsUsing a VECM specified with the novel variable, unemployment and past cap rates contains enough information to produce more robust forecasts than the traditional variables (return expectations and risk premiums). The method is robust both in and out of sample.Practical implicationsThis has direct implications for governmental policy, offering a path to real estate price stability and growth through mortgage access–functions largely influenced by the Fed and the quasi-federal agencies Fannie Mae and Freddie Mac. It also offers a timely alternative to interest rate-based forecasting models, which are likely to be less useful as interest rates are to be held low for the foreseeable future.Originality/valueThis study offers a new and highly explanatory variable to the literature while being among the only to model either (1) transactional cap rates (versus appraisal) (2) out-of-sample data (versus in-sample) (3) without the use of the traditional variables thought to be integral to cap rate modelling (return expectations and risk premiums).

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Section: Literature Reviewmentioning

confidence: 99%