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Wharton News Professor Wong Research on Housing Bubbles Grace Wong In the June issue of Institutional Investor Magazine, Wong was referred to as the "bubble expert." The article, "Relax: Bubble expert Wong buys a house," discusses her analysis of how to possibly predict if and when the bubble might burst. A Knowledge@Wharton (5/05) article, "Speculators: Here's a Lesson from Hong Kong's Housing Bubble," reported on Grace Wong's paper, "The Anatomy of a Housing Bubble," which offers ways to spot future real estate bubbles in time to introduce corrective measures before the damage takes its toll. Wong has written about a rapid run-up in Hong Kong housing prices in the late 1990s. The movements in the underlying market and macro-economic fundamentals in Hong Kong do not fully justify the dramatic price upswing or the changes in the volume of trading in homes. Wong says her study offers "a potentially powerful tool" to define, track and look for evidence of speculative activity in the housing markets. A bubble is typically defined as the situation in which prices are at levels higher than economic basics justify. Speculation can cause a bubble, but price hikes also can arise because of factors such as construction cost increases or an undersupply of homes. "You wouldn't be so worried if the housing prices are moving up because of fundamentals like that," she notes. Increase in Students Focusing on Real EstateBoth MBA and undergraduates have been bitten hard by the real estate bug. Georgette Poindexter, Chair of the Real Estate Department at the Wharton School, was interviewed for "Career Journal: The Jungle," in the Wall Street Journal (7/12/05). Despite warnings that the housing bubble might burst, MBA students are packing real-estate finance, strategy, and investment classes. According to the article, "The Wharton School at the University of Pennsylvania expects 4.5% of the class of 2005 to land jobs in real estate, up from 2.7% last year." Poindexter says of the growing interest by students, "No matter where you decide to go in life, you are bound to encounter real-estate issues. People have woken up and realized that they have neglected this major asset. Now, MBAs tell me they feel that they have to get some real estate under their belts, whether in entrepreneurship, investments or another class."Gyourko Comments on Housing BoomKnowledge@Wharton's July article, "Is Commercial Real Estate Still a Good Investment?" quoted Joseph Gyourko, Martin Bucksbaum Professor of Real Estate and Finance and Director of the Zell/ Lurie Real Estate Center at Wharton. "There was huge overbuilding in the late 1980s which really hurt the market when we had a recession," he said. "But for the most part real estate did not get overbuilt before the last downturn." Contrasted with the United States, demand in China is growing, while construction costs are rising and banks have become more conservative in their lending.Professor Gyourko spoke at a meeting of Career Women in Real Estate—Philadelphia Chapter on "The Rise and Decline of Philadelphia" on April 28, 2005. He was also a speaker at the GHAR ICI Chapter meeting, "Making Sense of Cap Rates and Pricing in Today's Real Estate Markets," in Harrisburg, Pa., on June 2, 2005. He was a guest on CNBC's "Power Lunch" cable show for an interview on housing bubbles. International Housing Finance Program Marks Twenty YearsThe International Housing Finance Program marked its 20th anniversary with the largest class in its history. Sixty-three participants from more than 25 countries and several multilateral agencies attended the June conference, "Improving Housing Finance Systems." A panel of international experts on Capital Market Funding for Housing Finance across the World complemented presentations from participants on innovations in their countries. Workshops on securitization were led by private practitioners with extensive international experience. Program director Drs. Marja Hoek-Smit notes this relatively new addition to the program has become extremely popular. Read how the participants viewed the course on the IHFP website.IHFP organized a highly successful program, "Developing a Housing Finance System for Vietnam." The program welcomed public officials from Hanoi who wanted to learn specifically about the role of government in improving the effectiveness of housing markets. Rybczynski—Architecture CriticWitold Rybczynski, Martin Meyerson Professor of Urbanism and Real Estate, was invited to speak at Sotheby's in New York City and The Mount in Lenox, Massachusetts. He lectured on the National Historic Landmark and architectural marvel, Vizcaya, built in Miami by American industrialist James Deering, who wintered on the property from 1916 to 1925. Rybczynski's articles appear regularly in the online news magazine Slate.com.Supreme Court Cites Sagalyn BookProfessor Lynne Sagalyn's book Downtown Inc.: How American Rebuilds Cities (co-author Bernard J. Frieden), was cited in a recent U.S. Supreme Court case on eminent domain, "Kelo et al. v. City of New London," in the dissenting opinion of Justice Clarence Thomas.Blissful Times for Commercial Real EstateThe Knowledge@Wharton article, "Is Commercial Property Still a Good Investment?" (7/05), concludes, "These are blissful times." "People often forget that income goes up faster than occupancy," says Peter Linneman, Wharton Professor of Real Estate. "That's because as occupancy picks up you can boost your rents a little and you pick up more ancillary income from things such as parking and health clubs. I think this year will be good in terms of income for commercial properties, and next year will be great."Housing Prices Expert—Professor WachterProfessor of Real Estate and Finance Susan Wachter, was quoted in the Wall Street Journal (4/24). "People have formed expectations for future price increases based on past price increases," she said. "Their expectations may not play out the way they thought they would … They may in fact find that they are buying in at the top of the market." Wachter was quoted in an article, "Family Values Rank High in Dream Houses," in Inman News (5/18/05). "When people spend money on their dream house, it's not just consumption. It's recreation. Housing consumption is consuming home activities. Housing is not just physical space, but access to activities in a convenient setting where families can participate in those activities together." She was also cited in "Increasing Real Estate Taxes not Sufficient for Controlling a Real Estate Boom" in the Chosun Daily (6/2/05).In "Complex Loans Can Be Risky for 1st-Time Buyer" in the Wall Street Journal Online (6/10/05), Wachter said, "The high transaction costs of going in and out within a matter of three years is something to give you pause in this case and move [you] toward the rental side of the equation." In "Real Estate, the Global Obsession" in the New York Times (6/12/05), Wachter said, "The real concern is that the housing boom extends across so many countries this time. That just raises the stakes, and the risk, when the music stops." The article was reprinted in the International Herald Tribune. Also in the New York Times (6/14/05), in "Middleman Now Rich Man in Real Estate Boom," Wachter said, "Everything is going for the superstars in these markets. The market's hot, the prices are high, and if they have the Rolodex, they can just keep going." The article was reprinted in the Times Daily, the Chicago Tribune, and the Ledger. Wachter was interviewed for "Retail: Chicago City Council Puts Hold on Wal-Mart" in the Arkansas Democrat Gazette (6/27/05). "It's going to require more political dexterity with customers and their labor force for chains to succeed in the city," she said. In "Avoiding Rent During New-Home Construction," in the Wall Street Journal Online (7/8/05), Wachter was quoted, "It may not be possible to sell except at a discount, in which case there may be a cost rather than a savings on rent." In "My House, My Tax Burden" in BusinessWeek Online (7/8/05), Wachter explained, "Real estate taxes are 'state-regulated' and related to market values, which are based on the sale price of comparable properties." Wachter was interviewed for an article in the Philadelphia Business Journal (6/6/05). "Philadelphia did not participate in the bubble in the late '80s, but we are potentially participating in the bubble right now," said Wachter. "When supply is constrained, you're more likely to have froth and volatility up and down." Wachter gave the keynote address, "Housing and Government Policy in the Global Economy: The Cases of Korea and the U.S.," at the Korea Development Institute International Conference on "Residential Welfare and Housing Policies: The Experience and Future of Korea," in Seoul, June 2-3, 2005. She spoke on "Government Sponsored Enterprises and the Long Term Prepayable Fixed Rate Mortgages in the U.S." at the Dutch Embassy, Washington D.C., June 7, 2005. She advised on "Deploying Spatial Intelligence," at a congressional briefing presented as part of "Building Geographic Management Systems-Tackling Critical Policy Needs for the Nation's Future," sponsored by Consortium of Social Science Associations (COSSA) and the American Association of Geographers (AAG), June 14, 2005. She was a guest on "The Connection" on Boston's NPR station WBUR, concerning how Americans see their homes, on May 25, and on CNBC's "Street Signs" with Ron Insana on June 13, 2005.
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