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House Price Changes and Idiosyncratic Risk: The Impact of Property Characteristics

Author

Listed:
  • Steven Bourassa

    (School of Urban and Public Affairs, University of Louisville)

  • Donald Haurin

    (Department of Economics, Ohio State University)

  • Jessica Haurin

    (Center for Real Estate, Massachusetts Institute of Technology)

  • Martin Hoesli

    (University of Geneva)

  • Jian Sun

    (School of Urban and Public Affairs, University of Louisville)

Abstract

While the average change in house prices is related to changes in fundamentals or perhaps market-wide bubbles, not all houses in a market appreciate at the same rate. The primary focus of our study is to investigate the reasons for these variations in price changes among houses within a market. We draw on two theories for guidance, one related to the optimal search strategy for sellers of atypical dwellings and the other focusing on the bargaining process between a seller and potential buyers. We hypothesize that houses will appreciate at different rates depending on the characteristics of the property and the change in the strength of the housing market. These hypotheses are supported using data from three New Zealand housing markets.

Suggested Citation

  • Steven Bourassa & Donald Haurin & Jessica Haurin & Martin Hoesli & Jian Sun, 2007. "House Price Changes and Idiosyncratic Risk: The Impact of Property Characteristics," Working Papers 07-03, Ohio State University, Department of Economics.
  • Handle: RePEc:osu:osuewp:07-03
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    Cited by:

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    3. Kraft, Holger & Munk, Claus & Weiss, Farina, 2019. "Predictors and portfolios over the life cycle," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 1-27.
    4. Ryan Greenaway-McGrevy & Gail Pacheco & Kade Sorensen, 2018. "Land Use Regulation, the Redevelopment Premium and House Prices," Working Papers 2018-02 JEL Classificatio, Auckland University of Technology, Department of Economics.
    5. Benjamin S. Kay, 2015. "The Effects of Housing Adjustment Costs on Consumption Dynamics," Staff Discussion Papers 15-03, Office of Financial Research, US Department of the Treasury.
    6. Katja Hanewald & Michael Sherris, 2011. "House Price Risk Models for Banking and Insurance Applications," Working Papers 201118, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
    7. Nichols, Joseph B. & Oliner, Stephen D. & Mulhall, Michael R., 2013. "Swings in commercial and residential land prices in the United States," Journal of Urban Economics, Elsevier, vol. 73(1), pages 57-76.
    8. Ooi, Joseph T.L. & Le, Thao T.T. & Lee, Nai-Jia, 2014. "The impact of construction quality on house prices," Journal of Housing Economics, Elsevier, vol. 26(C), pages 126-138.
    9. Juan Contreras & Joseph Nichols, 2009. "Consumption Responses to Permanent and Transitory Shocks to House Appreciation: Working Paper 2009-05," Working Papers 41876, Congressional Budget Office.
    10. Juerg Syz & Paolo Vanini & Marco Salvi, 2008. "Property Derivatives and Index-Linked Mortgages," The Journal of Real Estate Finance and Economics, Springer, vol. 36(1), pages 23-35, January.
    11. Kraft, Holger & Munk, Claus & Weiss, Farina, 2017. "Predictors and portfolios over the life cycle: Skill vs. luck," SAFE Working Paper Series 139, Leibniz Institute for Financial Research SAFE.
    12. Juan Contreras & Joseph B. Nichols, 2010. "Consumption responses to permanent and transitory shocks to house appreciation," Finance and Economics Discussion Series 2010-32, Board of Governors of the Federal Reserve System (U.S.).
    13. Marcel Fischer & Natalia Khorunzhina, 2019. "Housing Decision With Divorce Risk," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(3), pages 1263-1290, August.
    14. Alain Chaney & Martin Hoesli, 2015. "Transaction-Based and Appraisal-Based Capitalization Rate Determinants," International Real Estate Review, Global Social Science Institute, vol. 18(1), pages 1-43.
    15. Dag Einar Sommervoll & Jan de Haan, 2014. "Homes and Castles: Should We Care about Idiosyncratic Risk?," Land Economics, University of Wisconsin Press, vol. 90(4), pages 700-716.
    16. Ying-Hui Chiang & Yuan Ku & Feng Liu & Chin-Oh Chang, 2019. "House Price Dispersion in Taipei Residential Communities," International Real Estate Review, Global Social Science Institute, vol. 22(1), pages 109-129.
    17. Bich Hong Nguyen Thi & Trong Hoai Nguyen & Thanh Hiep Truong, 2020. "The Role of Listing Price Strategies on the Probability of Selling a House: Evidence from Vietnam," Real Estate Management and Valuation, Sciendo, vol. 28(2), pages 63-75, June.
    18. Bourassa, Steven C. & Hoesli, Martin & Scognamiglio, Donato & Zhang, Sumei, 2011. "Land leverage and house prices," Regional Science and Urban Economics, Elsevier, vol. 41(2), pages 134-144, March.
    19. Leopoldo Sdino & Paolo Rosasco & Sara Magoni, 2018. "Real Estate Risk Analysis: The Case of Caserma Garibaldi in Milan," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 6(1), pages 1-13, January.
    20. Yunus, Nafeesa, 2015. "Trends and convergence in global housing markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 100-112.
    21. Shao-Chi Fang & Wen-Chih Yeh & Chun-Chang Lee & Zheng Yu, 2021. "Factors Affecting the Price of Cost-Equivalent Land: Application of Hierarchical Linear Modeling," Land, MDPI, Open Access Journal, vol. 10(7), pages 1-23, June.

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    More about this item

    Keywords

    Atypicality; Bargaining; Housing Risk; House Price Appreciation; Search Models;
    All these keywords.

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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