In recent years, the United States, like many other industrialized nations, has experienced wide swings in the growth rate of housing prices. To understand the behavior of housing prices and their influence on the economy, it is crucial to have an accurate measure of aggregate housing prices. In practice, however, it is difficult to develop such a measure. Analysts rely on three approaches to measure the aggregate price of housing. The first methodology simply averages all observed prices. The second looks at repeat sales of the same property. The third treats a house as a bundle of attributes, each with its own price that changes over time. ; Rappaport provides an overview of the three methodologies for pricing housing and a detailed guide to the major house price indexes used by housing analysts. The analysis suggests there is no one “best” measure of housing prices. Each of the three methodologies has conceptual advantages and disadvantages, and the empirical house price indexes have practical advantages and disadvantages as well. Which is best depends on the question being addressed.
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Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.
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