Real Estate Market Efficiency: Issues and Evidence

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Abstract
This paper provides a review of the studies that have examined the efficiency of the real estate market. Existing evidence suggests that real estate market segments (i.e., housing, income-property, and land markets) experience different degrees of efficiency. Short-run returns to housing (and real house price changes) are generally found to be positively auto-correlated. In addition, initial evidence suggests that long-run returns to housing may be mean-reverting. Consistent with the housing market, land price movements appear to be serially dependent. Income property markets are reported to be more efficient than the housing market but less efficient than corporate security markets. Most researchers report, however, that when trading rules are examined, transaction costs typically prohibit investors from exploiting the predictable price movements in any of the market segments. Finally, many of the studies report that their findings are preliminary and indicate the need for additional work. (JEL G14, JREL 410)

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