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Estimating House Price Indexes in the Presence of Seller Reservation Prices

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Author Info

  • William Goetzmann

    (Yale School of Management)

  • Liang Peng

    (University of Colorado at Boulder)

Abstract

We analyze a bias in transaction-based price indexes due to the presence of seller reservation prices. We develop a model in which the ratio of sellers' reservation prices to the market value affects trading volume and biases of observed transaction prices: when trading volume decreases (increases), index returns are estimated with an upward (downward) bias. We propose a new econometric procedure to mitigate the bias, and use simulations to demonstrate the effectiveness of the procedure. We construct a reserve-conditional unbiased index for the Los Angeles housing market, which substantially differs from a traditional repeat sale index. © 2006 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/rest.2006.88.1.100
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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 88 (2006)
Issue (Month): 1 (February)
Pages: 100-112

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Handle: RePEc:tpr:restat:v:88:y:2006:i:1:p:100-112

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Web page: http://mitpress.mit.edu/journals/

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Citations

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Cited by:
  1. Jim Clayton & Greg MacKinnon & Liang Peng, 2008. "Time Variation of Liquidity in the Private Real Estate Market: An Empirical Investigation," Journal of Real Estate Research, American Real Estate Society, vol. 30(2), pages 125-160.
  2. de Wit, Erik R. & Englund, Peter & Francke, Marc K., 2013. "Price and transaction volume in the Dutch housing market," Regional Science and Urban Economics, Elsevier, vol. 43(2), pages 220-241.
  3. Christian Rehring, 2012. "Real Estate in a Mixed‐Asset Portfolio: The Role of the Investment Horizon," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 40(1), pages 65-95, 03.
  4. Arthur Korteweg & Morten Sorensen, 2012. "Estimating Loan-to-Value and Foreclosure Behavior," NBER Working Papers 17882, National Bureau of Economic Research, Inc.
  5. İnaltekin, Hazer & Jarrow, Robert A. & Sağlam, Mehmet & Yıldırım, Yıldıray, 2011. "Housing prices and the optimal time-on-the-market decision," Finance Research Letters, Elsevier, vol. 8(4), pages 171-179.
  6. Hazer Inaltekin & Robert Jarrow & Mehmet Saglam & Yildiray Yildirim, 2009. "Housing Market Microstructure," Papers 0907.1853, arXiv.org.
  7. Dirk Bergemann & Ulrich Hege & Liang Peng, 2008. "Venture Capital and Sequential Investments," Cowles Foundation Discussion Papers 1682R, Cowles Foundation for Research in Economics, Yale University, revised Mar 2009.
  8. William Goetzmann & Liang Peng & Jacqueline Yen, 2012. "The Subprime Crisis and House Price Appreciation," The Journal of Real Estate Finance and Economics, Springer, vol. 44(1), pages 36-66, January.
  9. Walter Boudry & N. Coulson & Jarl Kallberg & Crocker Liu, 2013. "On Indexing Commercial Real Estate Properties and Portfolios," The Journal of Real Estate Finance and Economics, Springer, vol. 47(4), pages 617-639, November.
  10. Abel Cadenillas & Robert Elliott & Hong Miao & Zhenyu Wu, 2009. "Risk-Hedging in Real Estate Markets," Asia-Pacific Financial Markets, Springer, vol. 16(4), pages 265-285, December.
  11. Liang Peng, 2012. "Repeat Sales Regression on Heterogeneous Properties," The Journal of Real Estate Finance and Economics, Springer, vol. 45(3), pages 804-827, October.
  12. Martijn I. Dröes & W.H.J. Hassink, 2009. "Sale price expectations and mortgage commitment: inaccuracy versus price setting behaviour," Working Papers 09-24, Utrecht School of Economics.

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