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Income and Appraised Values: A Reexamination of the FRC Returns Data
Author(s) -
Wheaton William C.,
Torto Raymond G.
Publication year - 1989
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00502
Subject(s) - odds , economics , valuation (finance) , sample (material) , portfolio , index (typography) , econometrics , actuarial science , financial economics , statistics , mathematics , logistic regression , accounting , computer science , chemistry , chromatography , world wide web
This paper compares the income of those office properties that are included in the FRC index, with the appraised values that are used to determine the index's appreciation component. We find that the appraised value of the portfolio was a constant multiple of its current income, over the 1978–1988 period. This seems at odds with what modern valuation theory would suggest, since both nominal interest rates and several measures of real rates varied widely over the sample. An alternate interpretation of our results is that the appraised values were based on a set of expectations about future income growth, that turned out over the period, to be continually at odds with respect to actual income.