Theory and Practice of Real Estate Cycle Analysis
||Pyhrr, Stephen A. and Waldo L. Born
||Theory and Practice of Real Estate Cycle Analysis
||Book of Abstracts: 2005 European Real Estate Society conference in association with the International Real Estate Society
||Rigorous analysis of cycles in the economy began with Wesley Michell's Business Cycles: The Problem and the Setting. Michell's work was a much broader examination then Irving Fisher's much earlier study, The Rate of Interest, that formalized the linkage between inflation and interest rates. The most recent macroeconomic cycles study in Fabozzi and Greefield's The Handbook of Economic and Financial Measures presents differential effects on several sectors including real estate. The formal structure for linking inflation cycles to prices and interest rates was developed by Van Horne in the 1974 edition of Financial Management and Policy and was formalized in Copeland and Weston's Financial Theory and Corporate Policy. Pyhrr's "Computer Simulation Model to Measure Risk in Real Estate Investments" investigated the linkages between exogenous economic forces and cash flow variables in a discounted cash flow model (a capital budgeting problem). Lusht's "Inflation and Real Estate Investment Value", AREUEA Journal 1978, formalized inflation's linkage to cash flows and the required rate of return in a DCF model. Born in A Framework and Model for the Analysis of Income Producing Real Estate Investments Under Cyclical Inflationary Conditions, developed the operational discounter cash flow analysis model integrating cycles linkages to interest rate and dollar denominated variables evaluating cyclical effects on value. Pyhrr and Born refined this structure in later articles notably in Pyhrr, Born, Robinson and Lucas, "Real Property Valuation in a Changing Economic and Market Cycle" (Appraisal Journal 1996). Theory has been extended into practice in Mueller's "Understanding Real Estate's Physical and Financial Market Cycles" (Real estate Finance 1994) that has been applied to periodic analysis by Legg Mason in their periodical Real Estate Market Cycle Monitor. In a broader sense the Royal Institute of Chartered Surveyors (RICS) has sponsored extensive applied cycles research, and probably the most comprehensive effort was their Understanding Property Cycles, 1994; Main Report: Economic Cycles and Property Cycles. In addition industry applications have appeared in a number of studies, notably by Jones Lang LaSalle. This study will summarize development of the underlying real estate cycle theory, the progressive development of real estate cycle analytical frameworks, and extensions to professional practice. This study will also integrate an extensive biographical reference list of real estate cycle theory and practice literature into the summary.
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