A Regression Method for Real Estate Price Index Construction

Bailey, Martin J.; Muth, Richard F.; Nourse, Hugh O.

doi:10.2307/2283324

Cited by 346 publications

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“…In addition to biasing the repeat subsample further, these properties introduce nonzero covariances into the error term. They also introduce the problem of how to pair the sales in the repeat database (see Palmquist 1982 andBailey, Muth, andNourse, 1963). The pairing of these multiple repeat sales can have a strong effect on price trend estimates (Knickerbocker, 1990).…”

Section: Discussionmentioning

confidence: 99%

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Estimating price trends for residential property: A comparison of repeat sales and assessed value methods

Clapp

Giaccotto

1992

J Real Estate Finan Econ

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The repeat sales methodology for estimating residential price indices is based on actual appreciation of individual properties. On the other hand, the repeat sales method wastes data, typically discarding a large percentage of all sales. This article explores two issues related to the subsample of repeat sales. First, are paired sales representative of the entire population of properties that sold? Second, is there evidence that sample selectivity biases the price trend estimates? Evidence from five metropolitan areas supports a negative answer to the first question and the second question. It appears that a "lemon" or "starter home" effect causes repeat residential sales to be a biased subsample of all transactions. Cumulative price trends for the repeat subsamples can differ from the full samples over periods ranging from two to ten quarters. While short-term price trends can differ widely, there are no systematic differences among the samples over long periods of time (e.g., three years or more).The repeat sales methodology estimates real estate price trends from pairs of transactions for properties with unchanged characteristics. The methodology was originally proposed by Bailey, Muth, and Nourse (1963) and later refined by Palmquist (1979Palmquist ( , 1982 and Case and Shiller (1989). Price indices based on paired sales have been used by Case and Shiller (1989), Hendershott and Peach (1990), Pollakowski andWachter (1990), andDiPasquale andWheaton (1990).The repeat sales methodology is attractive because it is based on actual appreciation of individual properties [see Case and Shiller (1987) and Palmquist (1982)]. Therefore, it may offer better control over quantitative and qualitative characteristics of the property than alternative methods, such as hedonic regression, that control for these characteristics by using variables and parameters estimated with error.The most important criticism of the repeat sales methodology is that it wastes data, typically discarding a large percentage of the sample. For example, Case and Shiller started with a universe of 952,606 transactions in four cities over a 16-year period; they found only 358 JOHN M. CLAPP AND CARMELO GIACCOTTO 39,210 (4.1 percent) repeat transactions with no discernible changes in property characteristics. Thus, while they endup with a lot of transactions per city, the data provide limited ability to disaggregate to the neighborhood level. Abraham and Schauman (1990) found that about 2.5 percent of Federal Home Loan Bank Board sales, during 1970Board sales, during -1989 repeats. On the other hand, Mark and Goldberg (1984) found that about 40 percent of the sales in Vancouver, 1957Vancouver, -1979 repeats. As the time period lengthens for a given market area, it is reasonable to expect an increasing percentage of repeat sales, but a decreasing percentage sold without changes in property characteristics.This article explores two issues related to the subsample of repeat sales. First, are paired sales representative of the entire population of properti...

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Section: Discussionmentioning

confidence: 99%

“…The methodology was originally proposed by Bailey, Muth, and Nourse (1963) and later refined by Palmquist (1979Palmquist ( , 1982 and Case and Shiller (1989). Price indices based on paired sales have been used by Case and Shiller (1989), Hendershott and Peach (1990), Pollakowski andWachter (1990), andDiPasquale andWheaton (1990).…”

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confidence: 99%

Estimating price trends for residential property: A comparison of repeat sales and assessed value methods

Clapp

Giaccotto

1992

J Real Estate Finan Econ

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“…When a house has sold more than once in the observed time period, the difference in the selling price can be explained in terms of differences in any explanatory variables that have also changed over time. This method for eliminating all the time-invariant characteristics from the analysis was first proposed by Bailey et al (1963), and has recently been used to analyze the influence of news stories about Superfund sites on housing prices (Gayer and Viscusi 2002). One disadvantage of this method is that the sample of repeatsales dwellings over-represents houses with greater turnover and excludes dwellings that have been sold only once during the window of time for which data are available.…”

Section: Psychology and Economics Of Superfundmentioning

confidence: 99%

Can Stigma Explain Large Property Value Losses? The Psychology and Economics of Superfund

Messer

Schulze

Hackett

et al. 2006

Environ Resource Econ

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This research documents the long term impacts of delayed cleanup on property values in communities neighboring prominent Superfund sites. The research examines the sale prices of nearly 34,000 homes near sites in three metropolitan areas for up to a 30-year period. To our knowledge, no other property value studies have examined sites in multiple areas with large property value losses over the length of time used here. The results are both surprising and inconsistent with most prior work. The principal result is that, when cleanup is delayed for 10, 15, and even up to 20 years, the discounted present value of the cleanup is mostly lost. A possible explanation for these property value losses is that the sites are stigmatized and the homes in the surrounding communities are shunned. The results suggest that expedited cleanup and minimizing the number of stigmatizing events would reduce these losses. Copyright Springer 2006hedonic models, property values, stigma, superfund,

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“…This is the original formulation of the repeat sales regression by Bailey, Muth, and Nourse (1963). It uses ordinary least squares to estimate the logged return series /~OLS = (XtX)-lXty By ignoring the differing variances of the observations, the procedure overweights those that contain relatively less information and underweights those that contain relatively more information about the fluctuations of the/~ series.…”

Section: Unweighted Repeated Sales Estimator (Ols)mentioning

confidence: 99%

“…First suggested by Bailey, Muth, and Nourse (1963), the method uses actual transactions data in a linear model that will be described in some detail below. Since then, modifications to the original model have been proposed by Webb (1988), who applied it to the residential housing market in the southwest United States and Case and Shiller (1987), who used it to study the residential housing market in four major U.S. cities.…”

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confidence: 99%

The accuracy of real estate indices: Repeat sale estimators

Goetzmann

1992

J Real Estate Finan Econ

198

151

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Simulation techniques allow us to examine the behavior and accuracy of several repeat sales regression estimators used to construct real estate return indices. We show that the generalized least squares (GLS) method is the maximum likelihood estimator, and we show how estimation accuracy can be significantly improved through a Baysian approach. In addition, we introduce a biased estimation procedure based upon the James and Stein method to address the problems of multicollinearity common to the procedure.

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A Regression Method for Real Estate Price Index Construction

Cited by 346 publications

References 0 publications

Estimating price trends for residential property: A comparison of repeat sales and assessed value methods

Estimating price trends for residential property: A comparison of repeat sales and assessed value methods

Can Stigma Explain Large Property Value Losses? The Psychology and Economics of Superfund

The accuracy of real estate indices: Repeat sale estimators

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