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Measurement error in residential property valuation: An application of forecast combination

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  • Glennon, Dennis
  • Kiefer, Hua
  • Mayock, Tom

Abstract

In this study we use a large database of real estate transactions to assess the magnitude of measurement error associated with using popular house price indices (HPIs) to value individual properties. In the 4 large U.S. counties that we analyze, we find that the bias associated with using these HPIs to value individual homes increased from near zero in 2005 to between 26% and 113% in 2010. In the second part of the analysis, we use data from Florida to demonstrate that forecast combination methods can be used to improve the accuracy of property-level valuations, in some cases reducing the estimated bias by more than a factor of 3. We find that even the simplest forecast combination method – a simple average – has the potential to significantly improve value estimates.

Suggested Citation

  • Glennon, Dennis & Kiefer, Hua & Mayock, Tom, 2018. "Measurement error in residential property valuation: An application of forecast combination," Journal of Housing Economics, Elsevier, vol. 41(C), pages 1-29.
    • Handle: RePEc:eee:jhouse:v:41:y:2018:i:c:p:1-29
    DOI: 10.1016/j.jhe.2018.02.002
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