Report Shows How to Limit Future Real Estate Crashes

September 6, 2012

A new study conducted by the Miami School of Business Administration University reported that had the government and its regulatory body shared information with the public about the factors that determine an asset’s value, market bubbles, like the one preceding the recent housing collapse, could have been prevented. Of course, the recent economic collapse greatly affected Miami’s real estate.

The Journal of Financial and Qualitative Analysis published the result of their research, which analyzed China’s 2007 stock market within a bubble period of six months. During the period, stock prices increased three-fold and trading activity was multiplied by four. However, normal levels were resumed after the bubble burst. The researchers said that they used the Chinese experience as stock market findings are applicable everywhere.

In the study, researchers found that stocks that have a large amount of analyst coverage make smaller bubbles compared to those with no analyst coverage. Timothy Burch, associate professor of University of Miami School of Business Administration, claimed that the trouble with the recent housing bubble was due to new buyers falsely assuming that there would always be future buyers willing to pay more. The problem is much more serious when there is disagreement between investors about an asset’s value. Homeowners in Miami must keep tabs of the right market value before putting their homes up for sale. Research shows that providing relevant ready information of an asset would reduce disagreement, making less serious bubbles.

To minimize real estate market bubbles, researchers recommend that governments and regulatory bodies must level the playing field so all participants can freely receive all the information they need about appraisals, demographic/migration trends, prospective changes in zoning laws, real-property borrowing statistics, rental yields, transactions and vacancies. Likewise, researchers stated that to minimize stock market bubbles, government agencies must collect and disseminate all kinds of information and even provide budget for analyst research when it is needed.