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

Alternative Methods of Increasing the Precision of Weighted Repeat Sales House Prices Indices 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

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

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Publisher
Springer Journals
Copyright
Copyright © 2004 by Kluwer Academic Publishers
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1023/B:REAL.0000018784.25879.1f
Publisher site
See Article on Publisher Site

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.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Oct 18, 2004

References

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