A recent study conducted by the University of Miami School of Business Administration showed that delicate market bubbles could be prevented if the public were made aware of the procedures used to determine how properties are valued.
The study, which is to be published in the Journal of Financial and Qualitative Analysis, used China’s 2007 stock market, which was experiencing a bubble, as its study model. It was noticed that during that period, although stock prices tripled and activity increased almost fourfold, both returned to normal levels after the bubble burst. www.dsnews.com/…/researchers-suggest-kelley-blue-book-of-real-est…
More attention would help
But the researchers found that the more attention analysts paid to certain stocks, the smaller the bubbles those stocks experienced. By comparison, stocks that received little or no analyst coverage, the larger the bubbles they experienced. Researchers concluded that lessons learned from the Chinese example can be used in the real estate market in order to achieve the same, or similar, results.
“We ran into trouble with the recent housing bubble because novice buyers falsely assumed there would always be a future buyer willing to pay more,” commented Timothy R. Burch, associate professor of finance at the school and of of the conductors of the study.
Make data easily available
This problem is much more severe when there is greater investor disagreement about an asset’s value, Burch continued, saying that making relevant information easily available regarding an asset, reduces the amount of disagreement, which consequently makes bubbles less severe.
The project’s team says that if governments and regulatory agencies free circulate information about real estate transactions, appraisals, rental yields, vacancies and other facts about properties it would “level the playing field” for anyone interested in the property, which would help limit bubbles.
‘Kelley Blue Book’ for real estate
The Federal Reserve of another government body could coordinate the beliefs of all the players in the real estate market, said Sandro Andrade, researcher and associate professor of finance. “This could be achieved by creating a “Kelley Blue Book” for real estate,” a combined source of information with a wee-promoted website where anyone could go for information on particular properties. This easily accessible information could considerably reduce the “odds and severity of future real estate bubbles,” Andrade concluded.