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The Efficiency of the Market for Single-Family Homes

  • Karl E. Case
  • Robert J. Shiller

Tests of weak-form efficiency of the market for single family homes are performed using data on repeat sales prices of 39,210 individual homes, each for two sales dates. Tests were done for Atlanta, Chicago, Dallas, and San Francisco/Oakland for 1970-86. While evidence for seasonality in real housing prices is weak, we do find some evidence of inertia in housing prices. A city-wide real log price index change in a given year tends to be followed by a city-wide real log price index change in the same direction (and between a quarter to a half as large in magnitude) in the subsequent year. However, the inertia cannot account for much of the variation in individual housing real price changes. There is so much noise in individual housing prices relative to city-wide price index changes that the R[squared] in forecasting regressions for annual real price change in individual homes is never more than .04.

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File URL: http://www.nber.org/papers/w2506.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2506.

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Date of creation: Feb 1988
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Publication status: published as The American Economic Review, Vol. 79, No. 1, pp. 125-137, (March 1989).
Handle: RePEc:nbr:nberwo:2506
Note: ME
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  1. Engle, Robert F. & Lilien, David M. & Watson, Mark, 1985. "A dymimic model of housing price determination," Journal of Econometrics, Elsevier, vol. 28(3), pages 307-326, June.
  2. Gau, George W, 1984. "Weak Form Tests of the Efficiency of Real Estate Investment Markets," The Financial Review, Eastern Finance Association, vol. 19(4), pages 301-20, November.
  3. Huizinga, John & Mishkin, Frederic S., 1986. "Monetary policy regime shifts and the unusual behavior of real interest rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 231-274, January.
  4. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October.
  5. George W. Gau, 1985. "Public Information and Abnormal Returns in Real Estate Investment," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(1), pages 15-31.
  6. Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, vol. 65(3), pages 269-82, June.
  7. Linneman, Peter, 1986. "An empirical test of the efficiency of the housing market," Journal of Urban Economics, Elsevier, vol. 20(2), pages 140-154, September.
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