Pricing Factors in Real Estate Markets: A Simple Preference Based Approach

Conventional wisdom tells us that the price level of properties should be supported by the rent they receive. This paper examines the pricing factors of properties by analyzing how individuals allocate their income to housing consumption and other goods, which in turn become the rent (or implicit rent) to support property values. Our model’s results can explain several puzzling observations in property markets, including why the variance of property appreciation rates is much higher than that of income growth rates in the same area.Preference-based model, pricing factors, property appreciation, property markets

A Rational Explanation for Boom-and-Bust Price Patterns in Real Estate Markets

This paper develops a stylized model to provide a rational explanation for the boom-and-bust price movement pattern that we frequently observe in the real world. Our stylized model indicates that there are three conditions to form a boom-and-bust price pattern in a community: a move-in of high income residents, wide income gap between new and existing residents, and supply process that leads to an inventory buildup. It seems that, based on these three conditions, China is more likely to experience a boom-and-bust price movement pattern than a developed country with a more mature and less vibrant economy.Real Estate Cycles; Boom-and-Bust; Supply Decision; Moving Costs

Does the REIT Stock Market Resemble the General Stock Market?

Gyourko and Keim (1993) point out that the continued growth of the Real Estate Investment Trust (REIT) market depends critically on the stock market's ability to provide fair and accurate valuations of real estate. Given the recent surge of REIT initial public offerings (more than $15 billion in the 1993-1994 period), it is important to know whether the stock market provides the REIT market with the same level of information dissemination, monitoring activities, and pricing mechanisms as that for other stocks. This study demonstrates that, when compared with the general stock market, REIT stocks tend to have a smaller turnover ratio, a lower level of institutional investor participation, and are followed by fewer security analysts. Furthermore, the level of financial analysts coverage and stock turnover intensity are higher when the REIT stock market is "hot." The lack of attention from financial analysts and institutional investors in the REIT stock market may have some implications for the well-documented anomalous REIT stock performance.

Institutional Investment in REITs: Evidence and Implications

It has been documented that institutional investors did not participate actively in the real estate investment trust (REIT) stock market prior to 1990 and that the percentage of institutional holdings of a REIT stock is positively correlated with the performance of the REIT stock. This article documents a reversal in trend in institutional investors’ preference for investing in REIT stocks and in other stocks. The study shows that prior to 1990, institutional investors invested more of their funds in other stocks than in REITs, whereas after 1990 they invest more of their funds in REITs than in other stocks in the market. The strategies of institutional investors investing in REITs are also analyzed. The findings of the study have implications for the agency and corporate control issues prevailing in the REIT stock market.

Over-Confidence and Cycles in Real Estate Markets: Cases in Hong Kong and Asia

Studies on the calibration of subjective probabilities find that people tend to over-estimate the precision of their knowledge. In this paper we develop a semi-rational model and apply it to the real estate markets in Hong Kong and other Asian countries. The key point is that a person is rational about her/his private information until her/his private information is confirmed by a clearly defined market signal. Using a pre-sale as a mechanism of updating a developer's beliefs, this paper analyzes the impact of over-confidence on overbuilding and cycles in real estate markets. Our finding indicates that a pre-sale activity will increase the magnitude of over-building and over-confidence will increase the volatility in real estate markets. Our model also has implications to the well-established literature dealing with the issue of over-capacity in many industrial sectors.

NNVA: Neural Network Assisted Visual Analysis of Yeast Cell Polarization Simulation

Complex computational models are often designed to simulate real-world physical phenomena in many scientific disciplines. However, these simulation models tend to be computationally very expensive and involve a large number of simulation input parameters which need to be analyzed and properly calibrated before the models can be applied for real scientific studies. We propose a visual analysis system to facilitate interactive exploratory analysis of high-dimensional input parameter space for a complex yeast cell polarization simulation. The proposed system can assist the computational biologists, who designed the simulation model, to visually calibrate the input parameters by modifying the parameter values and immediately visualizing the predicted simulation outcome without having the need to run the original expensive simulation for every instance. Our proposed visual analysis system is driven by a trained neural network-based surrogate model as the backend analysis framework. Surrogate models are widely used in the field of simulation sciences to efficiently analyze computationally expensive simulation models. In this work, we demonstrate the advantage of using neural networks as surrogate models for visual analysis by incorporating some of the recent advances in the field of uncertainty quantification, interpretability and explainability of neural network-based models. We utilize the trained network to perform interactive parameter sensitivity analysis of the original simulation at multiple levels-of-detail as well as recommend optimal parameter configurations using the activation maximization framework of neural networks. We also facilitate detail analysis of the trained network to extract useful insights about the simulation model, learned by the network, during the training process.Comment: Published at IEEE Transactions on Visualization and Computer Graphic

Intra-Project Externality and Layout Variables in Residential Condominium Appraisals

This study examines the impact of intra-project externalities and layout variables on the selling prices of 897 condominium units in the cities of Irvine and Santa Ana in Orange County, California. It documents that, at a micro-level, proximity to intra-project externalities such as greenspace, swimming pools, recreational areas, traffic noise, and the like, and project layout variables representing the location of individual condominium units within multiunit structures, have significant effects on the property values of units within a condominium project. The results indicate that, when cost is not prohibitive, both appraisers and underwriters should take intra-project externalities and layout variables into consideration when estimating property values or underwriting residential mortgages for condominium properties.

The Functional Relationships and Use of Going-In and Going-Out Capitalization Rates

In performing a Discounted Cash Flow Analysis for an income-producing property, a traditional rule-of-thumb indicates that the going-out capitalization rate should be one-half to one percent higher than the going-in capitalization rate. So far, there has been no theoretical model or empirical evidence to support or to dispute this assertion. This paper develops a model to examine the determinants of the going-out capitalization rate, as well as the relationship between going-in and going-out capitalization rates in a complete market setting. The proposed model indicates that the rule-of-thumb can be challenged, and the selection of an appropriate going-out capitalization rate requires a careful examination of the changes in the assumed income-growth rates, changes in the assumed required rates of return, and changes in the assumed property-appreciation rates during and after the projected holding period. The functional relationship between the property-appreciation rate assumption required for Ellwood methods and the going-out capitalization rate assumption required for DCF analysis also is derived.

A Note on Optimal Portfolio Selection and Diversification Benefits with a Short Sale Restriction on Real Estate Assets

This paper develops an optimal portfolio selection technique when short sales on real estate assets are restricted. Using the well-known mean-variance efficient concept, we are able to derive the optimal weights for portfolios consisting of both financial assets and real estate assets. Our paper provides a simple but powerful tool for portfolio managers to correctly construct mean-variance portfolios under short sale constraints.

The First Korean Case of KCNQ2 Mutation in a Family with Benign Familial Neonatal Convulsions

Neonatal seizures represent a heterogeneous group of disorders with vastly different etiologies and outcomes. Benign familial neonatal convulsions (BFNC) are a distinctive epileptic syndrome of autosomal dominant inheritance with a favorable prognosis, characterized by the occurrence of unprovoked partial or generalized clonic seizures in the neonatal period or early infancy. Recently, mutations in two potassium channel genes, KCNQ2 and KCNQ3, have been described in this disorder. In this report, we describe a family with BFNC due to a KCNQ2 mutation, the first such family to be described in the Korean population. The diagnosis of BFNC can be made based on clinical suspicion and careful history taking with special emphasis on the familial nature of the disorder. KCNQ2 mutations may be associated with BFNC in a number of different races, as has been reported in other ethnic groups