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Alternative Methods of Increasing the Precision of Weighted Repeat Sales House Prices Indices

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  • Michelle H. Dreiman

    ()

  • Anthony Pennington-Cross

    ()

Abstract

Weighted repeat sales house price indices have become one of the primary indicators used to identify housing market conditions and to estimate the amount of equity homeowners have gained through house price appreciation. The primary reason for the acceptance of this methodology is that it derives a location specific (typically, census division, state or metropolitan area) average change in house prices from repeated observations of individual house prices. It is this repeat attribute that allows repeat sales price indices to claim that it is a preferable index which does a better job of holding quality constant. The amount of time between the two observed prices for a single property is determined by when the home transacts. Some homes transact twice in a period of months and others do not transact for decades. It is likely that individual house price appreciation rates vary from the mean appreciation rate, as estimated by the index, in a systematic fashion. In general, the longer the time between transactions the more variance there is in individual house price appreciation. This paper extends this concept to include new dimensions. For instance, houses that appreciate faster than the mean, as estimated by the index for that location, may experience a different variation structure than homes that appreciate slower. This process can be viewed as an asymmetric treatment of the variance of house price appreciation around the estimated index. In addition, the variance of expensive and affordable homes may also be different and time varying. This paper finds evidence that adding the dimensions of price tiers and asymmetry to the variance estimate has merit and does affect the estimated index as well as homeowner equity estimates. Homeowner equity estimates are especially sensitive to these added dimensions because they depend on both the revised index and the estimated variances, which are specific to each dimension considered--time between transaction, asymmetry, and price tier.

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Bibliographic Info

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

Volume (Year): 28 (2004)
Issue (Month): 4 (05)
Pages: 299-317

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Handle: RePEc:kap:jrefec:v:28:y:2004:i:4:p:299-317

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Web page: http://www.springerlink.com/link.asp?id=102945

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Cited by:
  1. Michelle A. Danis & Anthony Pennington-Cross, 2005. "The delinquency of subprime mortgages," Working Papers 2005-022, Federal Reserve Bank of St. Louis.
  2. Clark, Steven P. & Coggin, T. Daniel, 2011. "Was there a U.S. house price bubble? An econometric analysis using national and regional panel data," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(2), pages 189-200, May.
  3. Bourassa, Steven C. & Hoesli, Martin & Sun, Jian, 2006. "A simple alternative house price index method," Journal of Housing Economics, Elsevier, vol. 15(1), pages 80-97, March.
  4. Piermassimo Pavese, 2007. "Hedonic Housing Price Indices: The Turinese Experience," Rivista di Politica Economica, SIPI Spa, vol. 97(6), pages 113-148, November-.
  5. Diewert, W. Erwin & Nakamura, Alice O. & Nakamura, Leonard I., 2009. "The housing bubble and a new approach to accounting for housing in a CPI," Journal of Housing Economics, Elsevier, vol. 18(3), pages 156-171, September.
  6. Randal Verbrugge, 2009. "The Puzzling Divergence of Rents and User Costs, 1980-2004," Working Papers 422, U.S. Bureau of Labor Statistics.
  7. Joshua Gallin, 2004. "The long-run relationship between house prices and rents," Finance and Economics Discussion Series 2004-50, Board of Governors of the Federal Reserve System (U.S.).
  8. Garner, Thesia I. & Verbrugge, Randal, 2009. "Reconciling user costs and rental equivalence: Evidence from the US consumer expenditure survey," Journal of Housing Economics, Elsevier, vol. 18(3), pages 172-192, September.
  9. S. Jansen & P. Vries & H. Coolen & C. Lamain & P. Boelhouwer, 2008. "Developing a House Price Index for The Netherlands: A Practical Application of Weighted Repeat Sales," The Journal of Real Estate Finance and Economics, Springer, vol. 37(2), pages 163-186, August.
  10. Julio Escobar & Carlos Huertas & Dora Alicia Mora & José Vicente Romero, . "INDICE DE PRECIOS DE LA VIVIENDA USADA EN COLOMBIA - I P V U - Método de ventas repetidas," Borradores de Economia 368, Banco de la Republica de Colombia.
  11. Anthony Pennington-Cross & Souphala Chomsisengphet, 2007. "Subprime Refinancing: Equity Extraction and Mortgage Termination," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(2), pages 233-263, 06.
  12. Mick Silver, 2012. "Why House Price Indexes Differ," IMF Working Papers 12/125, International Monetary Fund.
  13. Steven Clark & T. Coggin, 2009. "Trends, Cycles and Convergence in U.S. Regional House Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 39(3), pages 264-283, October.
  14. de Vries, Paul & de Haan, Jan & van der Wal, Erna & Mariën, Gust, 2009. "A house price index based on the SPAR method," Journal of Housing Economics, Elsevier, vol. 18(3), pages 214-223, September.
  15. Kim, Young Se & Rous, Jeffrey J., 2012. "House price convergence: Evidence from US state and metropolitan area panels," Journal of Housing Economics, Elsevier, vol. 21(2), pages 169-186.
  16. Anthony Pennington-Cross, 2005. "Aggregation bias and the repeat sales price index," BIS Papers chapters, in: Bank for International Settlements (ed.), Real estate indicators and financial stability, volume 21, pages 323-335 Bank for International Settlements.
  17. Robert J. Hill & Daniel Melser, 2007. "Comparing House Prices Across Regions and Time: An Hedonic Approach," Discussion Papers 2007-33, School of Economics, The University of New South Wales.

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