Faculty research provides new perspectives on industry challenges, energizes curriculum development, prompts compelling case study creation, and influences policy decisions and solutions.

Our research focuses on understanding the determinants of commercial property capital expenditure decisions, on constructing price indices for illiquid assets (commercial and residential real estate), and modeling spatial and temporal variations in house prices.

Our faculty frequently partner with distinguished industry professionals who bring relevant, real-time experience to the classroom setting. Lecturers include experts in the areas of architecture, development, engineering, and law.

Research Papers: 


Author: Thomas G. Thibodeau
Status: Published
Publication: Encyclopedia of Housing 2nd Edition (2012)

Many places across the globe experienced house price bubbles during the first seven years of this century. A May 2003 article in The Economist titled Castles in Hot Air identified “six countries where houses appear to be overvalued (America, Britain, Australia, Ireland, the Netherlands and Spain).” Four years later, The Economist’s depiction of house price bubbles proved to be true in a number of cities across the globe. This article first defines house price bubbles. It then illustrates house price bubbles using price indices for selected cities in the United States over the 2000 through 2010 period. The article then examines some literature that attempts to identify bubbles and finally explores some of the underlying causes of these house price fluctuations.

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Author: Chen Huo, Thomas G. Thibodeau and Ron Throupe 
Status: Working Paper

This paper analyzes the effect of a major airport closure on house prices. Because of the unique history and proximity to housing, the closure of the Stapleton International Airport in Denver CO allows for the study of house prices before and after the closure of the facility. We study these effects using a combination of hedonic pricing models and the geographic location of noise contours for airport sound levels. The results show price discounts prior to closure, typical of other studies. Discounts vanish in one city but remain in another after closure.

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Author: Liang Peng and Thomas G. Thibodeau
Status: Under Review

This paper uses about 26 million home sales to measure house price idiosyncratic risk for 7,580 U.S. zip codes during three periods: (1) when the U.S. housing market was stable (1996 to 2000), (2) booming (2001 to 2007), and (3) busting (2007 to 2012), and investigates the determinants of house price risk. We find very strong relationships between risk and some basic housing market characteristics. There is a U-shaped relationship between risk and zip-code level median household income; risk is higher in zip codes with more appreciation volatility; and risk is not compensated with higher appreciation.

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Author: Liang Peng and Thomas G. Thibodeau
Status: Working Paper

Not really. This paper compares the unlevered returns on value added and core investments of private commercial real estate equity in the National Council of Real Estate Investment Fiduciaries (NCREIF) database. We use capital expenditures on building improvements to identify value added investments, and use a difference in differences approach to control for mismatch in holding periods and locations of investments. The results provide no evidence for difference in average returns on value added and core investments, despite higher perceived risk for the former. We also find that value added investments have lower unlevered returns when “value creation” starts in booming real estate markets and when “value creation” costs more, which suggests possible systematic mispricing of the real options embedded in value added investments.

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Author: Liang PenG
Status: Working Paper

This paper empirically measures the integration of the asset market of commercial real estate by studying the respective explanatory power of three types of variables – macroeconomic conditions, local market conditions, and property attributes – for property transaction cap rates. Results from analyzing about 10,000 sales of institutional grade commercial properties from 1977 to 2012 indicate that the asset market is substantially but not completely integrated. Macroeconomic conditions, particularly credit availability, risk-adjusted returns of past real estate investments, lagged house price appreciation, and nonresidential construction spending, play a dominating role in explaining property cap rates. Core Business Statistic Area (CBSA) fixed effects and property attributes provide some incremental explanatory power, but local market conditions explain very little of transaction cap rates.

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Authors: Liang Peng and Thomas G. Thibodeau
Status: Working Paper

Idiosyncratic risk in house prices is important to homeowners as it directly affects uncertainty in home value appreciation. This paper empirically examines whether this risk is systematically related to the level of house price, household income, and contemporaneous average home value appreciation of the neighborhood (delineated with zip codes), using 26.5 million transactions of single-family homes sold between 1996:Q1 and 2012:Q3 in 7,862 zip codes across the US. For each neighborhood, we fit the same hedonic model to home sales in each of three separate time periods: (1) when US house prices were essentially constant in real terms; (2) during the recent housing boom; and (3) during the recent housing bust, and then use the standard deviation of the residuals to measure the house price risk. We find that U-shape relationships between house price risk and home values, and between house price risk and household income in all three periods. The risk is relatively high in both low- and high-income neighborhoods; is relatively high in both low- and high-home value neighborhoods. Further, we find that house price risk increased during the housing bust for low-income neighborhoods; and that the relationship between cross-sectional house price risk and house price appreciation varies across income groups and over time.

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Authors: William N. Goetzmann, Liang Peng and Jacqueline Yen
Status: Published 
Article Publication: Journal of Real Estate Finance and Economics (2012) 44 (1): 36-66

This paper argues that econometric analysis of housing price indexes before 2006 generated forecasts of future long-term price growth and low estimated probabilities of extreme price decreases. These forecasts of future increases in home-loan collateral values may have affected both the demand and the supply of mortgages. Standard time series models using repeat-sales indexes suggest that positive trends had a long-half-life. Expectations based on such models support expectations that could lead to an asset bubble.

Analysis of data from the HMDA loan database and LoanPerformance.com at the MSA level and at the loan level substantiates the effects of past price trends on the demand and supply of subprime mortgages. On the demand side, at the MSA level, past home price increases are associated with more subprime applications, higher loan to income ratios and lower loan to value ratios of applications for both prime and subprime mortgages. This is consistent with the notion that households not only borrowed more but also invested more in home equity conditional on greater past house price increases. On the supply side, past home price appreciation had a significantly greater impact on the approval rate of subprime applications than the approval rate of prime applications. Loan level analysis indicates that past home price appreciation increased the approval rate of subprime applications but did not affect the approval rate of prime applications. Further, approved HMDA subprime loans had higher loan to income ratios in MSAs with greater past house price trends.

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