A group of researchers at the University of Miami School of Business Administration has come up with a solution to prevent future meltdown in the housing sector.
According to the researchers, a housing collapse can be prevented if all necessary information determining an asset’s value is shared with the public. This includes information regarding transactions, appraisals, rental yields, vacancies, demographic/migration trends, prospective changes in zoning laws, and real-property borrowing statistics.
They believe the issue becomes severe when there is greater investor disagreement about an asset's value.
"We ran into trouble with the recent housing bubble because novice buyers falsely assumed there would always be a future buyer willing to pay more," Timothy R. Burch, associate professor of finance at the University of Miami School of Business Administration stated in a press release.
He conducted the study along with Sandro C Andrade, assistant professor of finance at the School and Jiangze Bian of the University of International Business and Economics.
"Our research shows that making relevant information about an asset readily available reduces disagreement, which in turn makes bubbles less severe," he said.
"The Federal Reserve or another government body could take steps to help coordinate the beliefs of all of the players in the real estate market," Andrade said in the release. "This could be achieved by creating a 'Kelley Blue Book' for real estate, a centralized, well-promoted website where everyone could go before making real estate decisions. Providing such information could go a long way in reducing the odds and severity of future real estate bubbles."
