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Wharton News
Wharton MBA Real Estate Club Co-President Receives AwardJason Galloway, incoming Wharton MBA Real Estate Club President is the recipient of a Fellowship from the Urban Land Institute. Jason was among eight winners chosen this year for the ULI-Kenneth M. Good Graduate Student Fellowship.
It’s Boom Time in the Housing Market, But for How Long?Knowledge at Wharton, the award winning online resource offering business insights, information and research, published an article on the current real estate market, citing Wharton’s real estate experts. Following several years of home price appreciation, are prices a bubble about to burst? Joseph Gyourko, Chair of Wharton’s real estate department and Director of the Zell/Lurie Real Estate Center points to the San Francisco housing market as a potential regional bubble. "There are clearly markets, the Bay Area being the most prominent, where the pricing implies pretty high appreciation going forward. It’s hard to see how you are going to get that with the collapse in technology. I would consider that a bubble. But in a typical market, no. I don’t think we’re in a bubble. I think prices, while up, are not unreasonable in most markets."Wharton Professor of Real Estate and Finance, Susan Wachter, says that prices have exceeded the rate of inflation for five of the last six years. "The increase in housing prices is exceptional, that much we do know," says Wachter. "If we look at historical data going back in time, this recent trend is unprecedented." Wachter feels that it is difficult to proclaim a housing bubble because she does not believe homebuyers are speculating in the housing market in order to turn a quick profit on their investment. "That may be happening in selected markets but it’s not a bubble that’s going to take down our entire mortgage sector." She does note, however, that the recent economic downturn may be reflected in prices that increase less than inflation next year. Real Estate Assistant Professor Todd Sinai says that the low cost of borrowing is a key factor in driving home price appreciation. But, he warns, "We are at a point in the housing market where homebuyers have got to be very sensitive to interest rates. If interest rates climb, we will see a commensurate drop in home prices in some markets." Sinai points out that if interest rates increase, housing sales volume will decrease, driving prices down as the few buyers in the market command more buying power. "If you are not going to move, then you don’t really care about housing prices, but it may be miserable if you decide to move." Another key component in home costs is land. Wachter suggests that controls on development may be limiting the supply of new homes and driving up prices. "New housing will be built," she says, "but with a lag, so in those markets with growth controls it doesn’t mean there will never be new housing. It may mean it will take longer." According to Chris Mayer, Wharton Associate Professor of Real Estate, the housing market tends to lag in its response to economic change, which may explain why the market continues to boom despite the recent economic downturn. "Roughly speaking, if there is a change in the economy, the housing market changes half as fast as the overall economy," says Mayer. He notes that home prices are typically based on comparable sales data which often reflects agreements made six to eight months earlier and he also points out that homeowners are very reluctant to realize a loss on their house. For the future, Mayer believes that the "buzz" over housing prices will continue. "For most individuals their house is their single largest asset. There is some evidence that when house values are going up people think of their house as an investment, but when prices fall, people think of it as a place to live."
Delighted Participants Enjoy Annual Two-Week Course of the International Housing Finance Program at Wharton
The Annual two-week course of the International Housing Finance Program Improving Housing Finance Systems in Emerging and Advanced Economies under the direction of Marja Hoek-Smit was held from June 3 to 14 at the Wharton School’s Zell/Lurie Real Estate Center. This year’s course boasted record enrollment of 53 participants from 20 countries. Participants in the course are high-level officials from private housing finance institutions, government housing finance agencies, educational institutions from emerging and advanced economies, and from international development agencies. One of the Canadian participants summed up the course in an e-mail as follows: "The course was fantastic and will help me in my work, and the fact that it was given by extremely knowledgeable and nice people in a truly pleasant city was a real bonus."
Rybczynski: Guest Speaker in Wisconsin and Florida and Awarded Honorary DoctorateWitold Rybczynski, Martin Meyerson Professor of Urbanism and Real Estate was the keynote speaker at the 2002 Wisconsin Housing Conference held in Madison on May 21-22, 2002. His talk was entitled, "Smart Growth as a Panacea: A Pragmatic Urbanist’s Perspective." He was also invited to take part in the "Case Study Critiques of Built Developments" workshop held in Seaside, Florida in May. In June, he was awarded an honorary Doctor of Science degree by McGill University in Montreal.
Marja Hoek-Smith Speaker for World Bank ForumMarja Hoek-Smit, Director of the International Housing Finance Program at the Zell/Lurie Real Estate Center, was a speaker at the World Bank's Finance Sector Forum 2002 held in Virginia on June 19. She spoke on "Extending Access to Housing Finance". The talk was part of a section on Frontier Finance and dealt with recent reforms of housing finance systems in emerging economies and innovations in government assistance to that sector to improve the "completeness" of housing finance markets.
Gyourko and Wachter at Lincoln Institute of Land PolicyJoseph Gyourko, Bucksbaum Professor of Real Estate and Finance, and Professor Susan Wachter were both discussants at the Lincoln Institute of Land Policy’s Analysis of Urban Land Markets and the Impact of Land Market Regulation held in July in Cambridge, Massachusetts.
Linneman Line-upPeter Linneman, Sussman Professor of Real Estate at Wharton, presented a talk entitled "State of US Property Markets" to the Paramount Group Lender Conference on April 30 in New York. On May 6th, he addressed the Lubert-Adler Realty Investors meeting (Conshohocken, PA), speaking on the "State of the Economy." Professor Linneman then traveled to Frankfurt-am-Main, Germany, where he spoke at the Deutsche Bank Expert Symposium on "Understanding Real Estate Private Equity Funds." To close the month, the peripatetic professor discussed the "State of the Economy and Real Estate Opportunities" with the participants in the DLJ/CSFB Real Estate Investors Conference in Greenwich, CT.
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