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Todd Sinai on Home Values

Biography

Wharton School of Business
Professor of Real Estate and Business Economics and Public Policy

Education

PhD, Massachusetts Institute of Technology, 1997; BA, Yale University, 1992

Career and Recent Professional Awards; Teaching Awards

Journal of Urban Economics Highly Cited Author Award, 2009
Edwin S. Mills Best Paper Award, 2004
HUD/AREUEA Best Paper Award, 2001

Academic Positions Held

The Wharton School, University of Pennsylvania

July 1, 2014 present: Professor of Real Estate and Business Economics and Public Policy (with tenure)
2010–2014:  Associate Professor of Real Estate and Business Economics and Public Policy (with tenure)
2005–2010: Associate Professor of Real Estate (with tenure)
2000–2005: Abraham Mitchell Term Assistant Professor of Real Estate
1997–2000: Assistant Professor of Real Estate

Other Positions

Faculty Research Fellow, National Bureau of Economic Research, 1999present
Visiting Scholar, Federal Reserve Bank of Chicago, 2011
Visiting Scholar, Federal Reserve Bank of Philadelphia, 20002003, 2009, 2012

Professional Leadership

Coorganizer,"Housing Markets and the Financial Crisis" conference and volume
Coorganizer, Public Policy and Real Estate sessions at NBER, 1999present
Editorial Board, Journal of Urban Economics (2009present)
Editorial Board, Real Estate Economics (2007present)

Todd Sinai, Joseph Gyourko, Christopher J Mayer (2013), Superstar Cities, American Economic Journal: Economic Policy, 5 (4), pp. 167199.

Abstract: We document large longrun differences in average house price appreciation across metropolitan areas over the past 50 years and show they can be explained by an inelastic supply of land in some unique locations combined with an increasing number of highincome households nationally. The resulting high house prices and pricetorent ratios in those “superstar” areas crowd out lowerincome households. The same forces generate a similar pattern among municipalities within a metropolitan area. These facts suggest that disparate local house price and income trends can be driven by aggregate demand, not just changes in local factors such as productivity or amenities.

Todd Sinai, Peter Englund, Thomas Jansson (Work In Progress), How Parents Influence the Wealth Accumulation of Their Children.

Todd Sinai and Nicholas S. Souleles (2013), Can Owning a Home Hedge the Risk of Moving, American Economic Journal: Economic Policy, 5 (2), pp. 282312.

Abstract: For households that face a possibility of moving across MSAs, the risk of home owning depends critically on the covariance of the sale prices of their current houses with the purchase prices of their likely future houses.  We find empirically that households tend to move between highly correlated MSAs, significantly increasing the distribution of expected correlations in real house price growth across MSAs, and so raising the “movinghedge” value of owning. We also find that tenure decisions are sensitive to this hedging value, with households being more likely to own, ceteris paribus, when their hedging value is greater due to higher expected correlations and likelihoods of moving.

Todd Sinai and Cindy Soo (Work In Progress), Timing the Housing Market.

Todd Sinai (Forthcoming), House Price Moments in BoomBust Cycles.

Abstract: This paper describes six stylized patterns among housing markets in the United States that potential explanations of the housing boom and bust should seek to explain.  First, individual housing markets in the U.S. experienced considerable heterogeneity in the amplitudes of their cycles.  Second, the areas with the biggest boombust cycles in the 2000s also had the largest boombusts in the 1980s and 1990s, with a few telling exceptions.  Third, the timing of the cycles differed across housing markets.  Fourth, the largest booms and busts, and their timing, seem to be clustered geographically.  Fifth, the cross sectional variance of annual house price changes rises in booms and declines in busts.  Finally, these stylized facts are robust to controlling for housing demand fundamentals – namely, rents, incomes, or employment – although changes in fundamentals are correlated with changes in prices.

Todd Sinai and Andrew Paciorek (2012), Does Home Owning Smooth the Variability of Future Housing Consumption?, Journal of Urban Economics, 71 (2), pp. 244256.

Abstract: We show that the hedging bene fit of owning a home reduces the variability of housing consumption after a move. When a current home owner's house price covaries positively with housing costs in a future city, changes in the future cost of housing are offset by commensurate changes in wealth before the move. Using Census microdata, we nd that the crosssectional variation in house values subsequent to a move is lower for home owners who moved between more highly covarying cities. Our preferred estimates imply that an increase in covariance of one standard deviation reduces the variance of subsequent housing consumption by about 11 percent. Households at the top end of the covariance distribution who are likely to have owned large homes before moving get the largest reductions, of up to 40 percent relative to households at the median.

Todd Sinai (2011), Understanding and Mitigating Rental Risk , Cityscape, 13 (2), pp. 105125.

Abstract: The decision of whether to rent or own a home should involve an evaluation of the relative risks and the relative costs of the two options. It is often assumed that renting is less risky than homeownership, but that is not always the case. Which option is riskier depends on the risk source and household characteristics. This article provides a framework for understanding the sources of risk for renters. It outlines the most important determinants of risk: volatility in the total cost of obtaining housing, changes in housing costs after a move, and the correlation of rents with incomes. The article characterizes the magnitudes of those risks and discusses how the effects of risk vary across renter types and U.S. metropolitan areas. In addition, the article shows that renters spend less of their cash flow on housing than do otherwise equivalent owners and, thus, are better able to absorb housing cost risk. Finally, potential policy approaches to rental housing that avoid increasing rent risk are discussed. A simple way to maintain renters’ capacity to absorb rent risk is to avoid subsidies that result in an incentive to consume a larger rental housing quantity. Targeting rental subsidies to more mobile households or those living in lowvolatility cities, where renting is less risky, should be considered. Longterm leases would provide an intermediate position between renting annually and owning but are currently rare.

Todd Sinai and James Poterba (2011), Revenue Costs and Incentive Effects of the Mortgage Interest Deduction for OwnerOccupied Housing , National Tax Journal, 64 (2), pp. 531564.

Abstract: We analyze how changes in the income tax deduction for mortgage interest would affect loantovalue ratios on owneroccupied homes, the distribution of income tax liabilities, and the consumption of housing services. Using the 2004 Survey of Consumer Finances, we estimate that repealing the mortgage interest deduction in 2003 would have raised federal and state income tax revenues by $72.4 billion in the absence of any household portfolio adjustments, but by only $58.5 billion if homeowners drew down financial assets to pay down their mortgage debt.

Stephen H. Shore and Todd Sinai (2010), Commitment, Risk, and Consumption: Do Birds of a Feather Have Bigger Nests?, Review of Economics and Statistics, Forthcoming, 2010.

Abstract: This paper presents a model and evidence that consumption commitments goods like housing for which adjustment is costly change the relationship between risk and consumption.  Commitment provides a motive to reduce consumption in advance of possible future losses too small to warrant adjustment; this motive is absent for losses large enough to make adjustment worthwhile.  This implies conditions for adjustment costs and loss magnitudes under which a meanpreserving increase in risk one that makes small losses less likely but no loss or larger losses more likely can actually increase housing consumption.  Our empirical evidence exploits the interaction of these conditions with a novel source of variation in unemployment risk.  Couples who share an occupation face increased risk as their unemployment shocks are more highly correlated.  Consistent with our model, such couples spend more on housing, but only when adjustment costs are high and when potential losses are sufficiently large.

Todd Sinai (2010), Feedback between Real Estate and Urban Economics, Journal of Regional Science, Forthcoming, 2010.

Past Courses

FNCE209 REAL ESTATE INVESTMENTS

This course provides a broad introduction to real estate with a focus on investment and financing issues. Project evaluation, financing strategies, investment decision making and real estate capital markets are covered. No prior knowledge of the industry is required, but students are expected to rapidly acquire a working knowledge of real estate markets. Classes are conducted in a standard lecture format with discussion required. The course contains cases that help students evaluate the impact of more complex financing and capital market tools used in real estate. There are case studies and two midterms, depending on instructor.

REAL209 REAL ESTATE INVESTMENTS

This course provides an introduction to real estate with a focus on investment and financing issues. Project evaluation, financing strategies, investment decision making and real estate capital markets are covered. No prior knowledge of the industry is required, but students are expected to rapidly acquire a working knowledge of real estate markets. Classes are conducted in a standard lecture format with discussion required. The course contains cases that help students evaluate the impact of more complex financing and capital markets tools used in real estate. There are case studies and two midterms, (depending on instructor).

REAL240 ADV REAL EST INV, ANALYS

This course is designed for majors in Real Estate, but is also open to financeoriented students who wish a deeper analysis of real estate investment and investment analysis issues than that offered in REAL 209. The class will contain a mixture of lectures, guest speakers and case discussions. Academic research is paired with recent industry analysis of key issues in order to marry sound theory and empirical results with current events and practices. Several classes will include lectures outlining what economics and finance tell us about a number of topics. Generally, these will be followed by guest lectures from industry professionals who will focus on a specific application of the principles introduced in the lectures.

REAL721 REAL ESTATE INVESTMENTS

This course provides an introduction to real estate with a focus on investment and financing issues. Project evaluation, financing strategies, investment decision making and capital markets are covered. No prior knowledge of the industry is required, but students are expected to rapidly acquire a working knowledge of real estate markets. Classes are conducted in a standard lecture format with discussion required. The course contains cases that help students evaluate the impact of more complex financing and capital markets tools used in real estate. There are case studies and two midterms, (depending on instructor). Crosslisted with FNCE 721.

REAL723 INTRO TO REAL ESTATE

The goal of this class is to help students become informed consumers of real estate advice. The class material breaks down into four major sections: 1) The financial risk and return of property level real estate investments. Be able to interpret, understand and evaluate a real estate property investment pro forma. 2) The legal landscape for investing in real estate and using legal structures to manage risk. 3) The economics of commercial real estate markets. Understanding the forces that will determine the value and incomeproducing potential of a real estate investment. 4) Important real estate issues of the day.

REAL840 ADV REAL EST INV, ANALYS

This course, is designed for majors in Real Estate, but is also open to financeoriented students who wish a deeper analysis of real estate investment and investment analysis issues than that offered in REAL/FNCE 721. The class will contain a mixture of lectures, guest speakers and case discussions. Academic research is paired with recent industry analysis of key issues in order to marry sound theory and empirical results with current events and practices. Several classes will include lectures outlining what economics and finance tell us about a number of topics. Generally, these will be followed by guest lectures from industry professionals who will focus on a specific application of the principles introduced in the lectures. Format: Lecture, industry speakers.

REAL899 INDEPENDENT STUDY

All independent studies must be arranged and approved by a Real Estate Department faculty member with the exception of the Annual Student Research Competition. Annual Student Research Seminar: This class meets in the Spring semester to analyze how to conduct research in the real estate market, where to find data; how to critique research; how to frame research questions; how to write a business research report; how to present a business research report. Topics are provided each year. For further information regarding the Annual Student Research Competition see the Real Estate department's website: http://realestate.wharton.upenn.edu/

REAL900 REAL ESTATE PROSEMINAR

Real estate is a rapidly changing and evolving field. Traditional course offerings are not always able to incorporate the most recent advances in the many areas that make up the field of real estate. In this course, the participants both faculty and students research and present current topics and recent advances in real estate. The content will vary depending on the participants' interests and areas of expertise, but will typically cover urban economics, spatial issues, the economics of housing and commercial real estate markets, and real estate finance and investment. ,This course is intended to expand students' awareness of current topics in real estate and to prepare them to conduct their own academic quality research. The proseminar is organized as a series of lectures by faculty and students on topics of their own choosing. These lectures may involve wellknown areas of knowledge, research, and methodology, as well as subjects currently under study. The main course requirements are preparing and presenting a series of lectures on a real estate topic (subject to the organizing faculty member's approval) and writing a research proposal that describes a workable project building upon or extending one of the topics covered in the course.

REAL999 INDEPENDENT STUDY

Edwin S. Mills Best Paper Award for the best paper in Real Estate Economics, 2004 Housing and Urban Development (HUD)/AREUEA best paper in housing and urban development at the Annual AREUEA Conferences, 2001

Knowledge @ Wharton

Propping up the American Dream: Housing Reform Proposals Are on the Rise, Knowledge @ Wharton 04/28/2014 Locking Homeowners Out of Their Favorite Deduction: At What Price?, Knowledge @ Wharton 11/29/2012 What the Demise of Fannie Mae and Freddie Mac Means for the Future of Homeownership?, Knowledge @ Wharton 03/30/2011 What the Demise of Fannie Mae and Freddie Mac Means for the Future of Homeownership, Knowledge @ Wharton 03/16/2011 The Big Financial Stretch: Preparing for Those Later Decades, Knowledge @ Wharton 12/06/2010 By Acquiring AirTran, Will Southwest Continue to Spread the LUV?, Knowledge @ Wharton 10/13/2010 Drowning or Hedging? The Risks and Rewards of Owning a Home, Knowledge @ Wharton 03/31/2010 Tentatively and Sporadically, Real Estate Investing in the U.S. Makes a Comeback, Knowledge @ Wharton 01/06/2010 Tentatively and Sporadically, Real Estate Investing Makes a Comeback, Knowledge @ Wharton 11/24/2009 Collateralized Damage: Commercial Mortgage Securities Are at a Standstill, Knowledge @ Wharton 07/23/2008 Subprime Crisis: Could New Rules Avert Another Credit Crisis? Perhaps, but Be Wary, Knowledge @ Wharton 06/20/2008 Credit Crisis Interview: Todd Sinai on Home Values, Knowledge @ Wharton 06/20/2008 Mortgage Crisis Bailout: Relief for Some, Risk for Others, Knowledge @ Wharton 03/05/2008 The Subprime Blame Game: Where Were the Realtors?, Knowledge @ Wharton 10/17/2007 Home Truths about the Housing Market, Knowledge @ Wharton 09/05/2007 Feel Free to Move About the Airport: Turbulence Continues to Roil the Airline Industry, Knowledge @ Wharton 07/25/2007 You’ve Worked Hard, Saved and Just Retired: How Do You Manage Your Finances Now?, Knowledge @ Wharton 06/13/2007 Subprime Meltdown: Who’s to Blame and How Should We Fix It?, Knowledge @ Wharton 03/21/2007 Protecting the Value of Real EstateRich Portfolios, Knowledge @ Wharton 03/15/2006 Picking Up the Pieces from Katrina: What Lies Ahead, Knowledge @ Wharton 11/21/2005 Around the World on $48 (or So): How High Can Discount Airlines Fly?, Knowledge @ Wharton 10/05/2005 Could Risky Mortgage Lending Practices Prick the Housing Bubble?, Knowledge @ Wharton 09/21/2005 Fare Wars: The ‘Friendly Skies’ Are More Cutthroat Than Ever, Knowledge @ Wharton 06/16/2004 It’s Boom Time in the Housing Market, But for How Long?, Knowledge @ Wharton 07/03/2002 Flight Delayed Again? The Hub’s the Rub, Knowledge @ Wharton 04/24/2002 Real Estate Developers Can Expect Relocation, not Dislocation, from the Internet, Knowledge @ Wharton 01/20/2000 Finding the REIT Value, Knowledge @ Wharton 05/24/1999

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