Factores que conforman los riesgos psicosociales

Price Appreciation Rate

In order to study when house prices are excessive, researchers frequently start by assessing the house price appreciation rate (Hendry, 1984). A bubble is recognized when the price

appreciation rate exceeds a predetermined rate (Himmelberg et al., 2005; Finicelli, 2007). Generally speaking, a house provides homeowners with two distinctive benefits: shelter and an investment asset. From the perspective of shelter, the most essential features of housing is that the house be durable but also experience depreciation with the passage of time. From the investment perspective, the total return for a homeowner consists of two components; the rent saved by living in the ‘rent-free’ house or received from the purchase-to-rent, and the

appreciation of house prices. This means a higher house price is compensation for the investor’s capital investment and the risk bearing on that investment. Therefore, high price appreciation does not necessarily mean that prices are deviating from underlying value; it may instead be driven by fundamentals such as the risk premium.

House Price-Income Ratio

A second widely used simple indicator is the house price-income ratio, which is the house price divided by income, see equation (5.1). Based on the hypothesis that home prices and incomes share some common trends in the long-term, aggregate demand for a home is proposed to be a stable function of the average income in any particular period. A high price-income ratio indicates the expense of purchasing a house entails devoting a higher percentage of income. A higher home price-income ratio ensures the growth of capital value and investment returns for those who already own a house, whereas, a higher price-income ratio means housing prices are more ‘overvalued’ (Himmelberg et al., 2005; Girouard et al., 2006; Finicelli, 2007).

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However, the price-income ratio does not consider the value of housing services and ignores mortgage rates. The per-capita income used in many countries is an average evaluation that covers the aggregate population, but the specific groups of sellers and buyers that determine the house prices may have income that is significantly different from the population mean.

Furthermore, the price-income ratio measures the local purchasing ability relative to the local housing prices. It does not consider the purchasing power from outside the local statistical area and the availability of mortgages. With the acceleration of globalization, international capital flow and population migration plays a much more important role than ever in the determination of domestic equilibrium house prices. An equilibrium price is set through market competition and refers to a situation where the supply of housing equals demand. When there is huge house demand caused either by speculation with hot money (e.g. Japan’s housing appreciation in the early 1990’s) or wealth movements from abroad or the rest of country (e.g. London at the metropolitan level; and the UK and the US at the state level (Benson et al., 1997)), domestic equilibrium house prices may be above the price that local people can afford.

House Price-Rent Ratio

A third popular cited ratio used to examine housing prices is the house price-rent ratio, see equation (5.2), this is the house price divided by the house rent. The rationale is that either

renting or owning a house provides people with shelter and when the price is high relative to rent, people should rent a house rather than buy one and vice versa. In theory, rational people will drive house prices and rents towards their long run equilibrium. A higher price-rent ratio is associated with high house prices and is akin to estimating the price-earnings ratio for shares.

5. 2

As with the price-income ratio, price-rent ratio ignores the implicit costs such as mortgage interest, tax, and maintenance costs of owning a house.

User Cost Framework

A fourth widely used indicator is the user cost framework. Poterba (1992) and Himmelberg et al. (2005) suggest the main problem of the earlier simple market indicators, is that they erroneously view the purchase price of a home as if it were the same as the cost of owning it for a year, and

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that the yield on the house equal to the capital gain or loss on that home. The user cost of ownership and the implied theoretical price-rent ratio is the most complete framework to assess when home prices are misaligned (Finicelli, 2007) out of those in the simple market indicator group.

The user cost framework suggests that people should be indifferent between renting and purchasing, given the same cost and housing attributes. The user cost of holding a house, in percentage level, is the sum of six components, as shown in equation (5.3).

5. 3

is the foregone interest rate, is the property tax rate, is the depreciation rate of the property or maintenance cost, is the risk premium for the larger uncertainty of purchasing relative to renting. is the marginal tax rate for the house buyer, usually considered constant. As nominal mortgage payment and property tax are tax deductable in many tax regimes, they often provide an offsetting benefit to the home owner. is the expected capital gain. If the house purchase was equity financed, the foregone interest rate should be measured by long- term risk free rate and without the benefit of marginal tax deduction (Himmelberg et al., 2005); if it were debt financed, the interest rate should be the nominal mortgage rate (Finicelli, 2007); if it were financed by a mix of debt and equity, the weighted average cost of capital appears much more appropriate (Hubbard and Mayer, 2009).

In the equilibrium condition, the annual cost of owning a house should equal the average corresponding market rent following the assumption of non-arbitrage, see equation (5.4):

5. 4

is actual market rent, is the theoretical housing price or fundamental housing price. Equation (5.4) implies the fundamental house price-rent ratio is the inverse of user cost, say,

. Home prices are overvalued if the theoretical price calculated by the user

cost framework is less than the market price, and vice versa. Equation (5.4) also implies that the user cost should be positive, as neither the theoretical house price nor the actual market rent should be negative. The user cost framework does not have a specific item to represent inflation,

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although the influence of inflation can be reflected via the changes of expected capital gain and nominal mortgage rate.

Although house prices and rents, and the ratio between them, are frequently indices instead of values, the average of the actual price-rent ratio and the theoretical price-rent ratio should be equal in the long run. For example,

∑

∑ 5. 5

is the number of observation, is the market house price, ⁄ is the market price- rent ratio, ⁄ is the fundamental price-rent ratio. The spread between the real price-rent ratio and the theoretical price-rent ratio at any given time shows the extent of non-fundamentals factors or the size of bubble.