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Selectivity, Quality Adjustment and Mean Reversion in the Measurement of House Values

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Author Info
Min Hwang ()
John M. Quigley ()

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Abstract

This paper develops a model of price formation in the housing market which accounts for the non-random selection of those dwellings sold on the market from the stock of existing houses. The model we develop also accounts for changes in the quality of dwellings themselves and tests for mean reversion in individual house prices. The model is applied to a unique body of data representing all dwellings sold in Sweden's largest metropolitan area during the period 1982--1999. The analysis compares house price indices that account for selectivity, quality change and mean reversion with the conventional repeat sales models used to describe the course of metropolitan housing prices. We find that the repeat sales method yields systematically large biased estimates of the value of the housing stock. Our comparison suggests that the more general approach to the estimation of housing prices or housing wealth yields substantially improved estimates of the course of housing prices and housing wealth.

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Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 28 (2004)
Issue (Month): 2_3 (03)
Pages: 161-178
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Handle: RePEc:kap:jrefec:v:28:y:2004:i:2_3:p:161-178

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jerry A. Hausman, 1979. "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 33-54, Spring. [Downloadable!] (restricted)
  2. Englund, Peter & Quigley, John M. & Redfearn, Christian L., 1998. "Improved Price Indexes for Real Estate: Measuring the Course of Swedish Housing Prices," Journal of Urban Economics, Elsevier, vol. 44(2), pages 171-196, September. [Downloadable!] (restricted)
  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  4. Gatzlaff, Dean H & Haurin, Donald R, 1997. "Sample Selection Bias and Repeat-Sales Index Estimates," The Journal of Real Estate Finance and Economics, Springer, vol. 14(1-2), pages 33-50, Jan.-Marc. [Downloadable!] (restricted)
  5. Karl Case & John Quigley & Robert Shiller, 2006. "Stock Market Wealth, Housing Market Wealth, Spending and Consumption," Berkeley Program on Housing and Urban Policy, Working Paper Series 1021, Berkeley Program on Housing and Urban Policy. [Downloadable!]
  6. Case, Bradford & Quigley, John M, 1991. "The Dynamics of Real Estate Prices," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 50-58, February. [Downloadable!] (restricted)
  7. G. Donald Jud & Terry G. Seaks, 1994. "Sample Selection Bias in Estimating Housing Sales Prices," Journal of Real Estate Research, American Real Estate Society, vol. 9(3), pages 289-298. [Downloadable!]
  8. Goetzmann, William N, 1993. "Accounting for Taste: Art and the Financial Markets over Three Centuries," American Economic Review, American Economic Association, vol. 83(5), pages 1370-76, December. [Downloadable!] (restricted)
  9. Case, Bradford & Pollakowski, Henry O & Wachter, Susan M, 1997. "Frequency of Transaction and House Price Modeling," The Journal of Real Estate Finance and Economics, Springer, vol. 14(1-2), pages 173-87, Jan.-Marc. [Downloadable!] (restricted)
  10. Goetzmann, William N & Spiegel, Matthew, 1995. "Non-temporal Components of Residential Real Estate Appreciation," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 199-206, February. [Downloadable!] (restricted)
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  11. Min Hwang & John Quigley, 2002. "Price Discovery in Time and Space: The Course of Condominium Prices in Singapore," Department of Economics, Working Paper Series 1040, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
    Other versions:
  12. Clapp, John M & Giaccotto, Carmelo, 1992. "Estimating Price Trends for Residential Property: A Comparison of Repeat Sales and Assessed Value Methods," The Journal of Real Estate Finance and Economics, Springer, vol. 5(4), pages 357-74, December.
  13. Gatzlaff, Dean H. & Haurin, Donald R., 1998. "Sample Selection and Biases in Local House Value Indices," Journal of Urban Economics, Elsevier, vol. 43(2), pages 199-222, March. [Downloadable!] (restricted)
  14. Meese, Richard A & Wallace, Nancy E, 1997. "The Construction of Residential Housing Price Indices: A Comparison of Repeat-Sales, Hedonic-Regression and Hybrid Approaches," The Journal of Real Estate Finance and Economics, Springer, vol. 14(1-2), pages 51-73, Jan.-Marc. [Downloadable!] (restricted)
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  1. Erik Hjalmarsson & Randi Hjalmarsson, 2006. "Efficiency in housing markets: do home buyers know how to discount?," International Finance Discussion Papers 879, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Hjalmarsson, Erik & Hjalmarsson, Randi, 2006. "Efficiency In Housing Markets: Do Home Buyers Know How To Discount?," Working Papers in Economics 232, Göteborg University, Department of Economics. [Downloadable!]
  3. Wensheng Peng & Dickson C. Tam & Matthew S. Yiu, 2007. "The Property Market and the Macroeconomy of the Mainland: A Cross Region Study," Working Papers 052007, Hong Kong Institute for Monetary Research. [Downloadable!]
  4. Michel Baroni & Fabrice Barthe´le´my & Mahdi Mokrane, 2007. "APCA Factor Repeat Sales Index for Apartment Prices in Paris," Journal of Real Estate Research, American Real Estate Society, vol. 29(2), pages 137-158. [Downloadable!]
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