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Do Housing Transactions Provide Misleading Evidence about the Course of Housing Values?

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  • Englund, Peter
  • Quigley, John M.
  • Redfearn, Christian L.

Abstract

Estimates of the prices of housing and the value of the stock are derived from observations on housing transactions. These transactions may well be a non-random sample of the underlying population of dwellings. For example, it is widely thought that smaller "starter homes" sell more frequently than more expensive properties and that the frequency of transactions on high-valued properties varies over the business cycle. This paper considers the importance of these selectivity issues in making imputations about housing price trends. We estimate a model of housing price determination and of the nonrandom selection of observed transactions. We analyze the factors affecting the probabilities that transactions on different houses will be observed, and we estimate the effect of these factors upon housing prices. The analysis considers a variety of plausible selection models. For each of the alternatives, the estimated effect of selectivity upon housing price calculations is quite substantial. The analysis is based on a unique body of data containing observations of all house sales in Sweden during the period 1981- 1993.

Suggested Citation

  • Englund, Peter & Quigley, John M. & Redfearn, Christian L., 1999. "Do Housing Transactions Provide Misleading Evidence about the Course of Housing Values?," Berkeley Program on Housing and Urban Policy, Working Paper Series qt3pk6m1zd, Berkeley Program on Housing and Urban Policy.
    • Handle: RePEc:cdl:bphupl:qt3pk6m1zd
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    References listed on IDEAS

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    1. 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.
    2. Ahn, Hyungtaik & Powell, James L., 1993. "Semiparametric estimation of censored selection models with a nonparametric selection mechanism," Journal of Econometrics, Elsevier, vol. 58(1-2), pages 3-29, July.
    3. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    4. 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 357-374, December.
    5. Englund, Peter & Quigley, John M & Redfearn, Christian L, 1999. "The Choice of Methodology for Computing Housing Price Indexes: Comparisons of Temporal Aggregation and Sample Definition," The Journal of Real Estate Finance and Economics, Springer, vol. 19(2), pages 91-112, September.
    6. 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.
    7. 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 173-187, Jan.-Marc.
    8. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
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    Cited by:

    1. Zhenguo Lin & Kerry D. Vandell, 2006. "Illiquidity and Pricing Biases in the Real Estate Market," Working Paper 8577, USC Lusk Center for Real Estate.
    2. Thom Malone & Christian L. Redfearn, 2022. "To measure globally, aggregate locally: Urban land, submarkets, and biased estimates of the housing stock," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(3), pages 656-671, September.

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