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Home Price Indexes for Homes in Different Price Tiers: Biases and Corrections

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  • Andrew V. Leventis

    (Federal Housing Finance Agency)

Abstract

Under the repeat-transactions framework for constructing house price indexes, the paper analyzes the technical challenges associated with producing unbiased price indexes for homes in distinct price tiers. The basic problem is that the “tier” to which a given home truly belongs is unobservable and can vary over time. Various approaches to forming tiered indexes, including the methodology used in the formation of S&P/Case-Shiller tiered indexes, are analyzed. Some are shown to be susceptible to mean-reversion-related biases (under- or over-statement of price changes) when home prices reflect “true” home values plus transactions-related noise. Empirical comparisons of price trends in California as a whole and two California metropolitan areas--San Francisco and San Diego--are shown where indexes are constructed under various tier-classification schemes.

Suggested Citation

  • Andrew V. Leventis, 2012. "Home Price Indexes for Homes in Different Price Tiers: Biases and Corrections," FHFA Staff Working Papers 12-01, Federal Housing Finance Agency.
    • Handle: RePEc:hfa:wpaper:12-01
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    File URL: https://www.fhfa.gov/sites/default/files/2023-03/2012-09_workingpaper_12-1_n508.pdf
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    File URL: https://www.fhfa.gov/research/papers/wp1201
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    Cited by:

    1. Crocker H. Liu & Adam Nowak & Stuart Rosenthal, 2014. "Bubbles, Post-Crash Dynamics, and the Housing Market," Working Papers 14-18, Department of Economics, West Virginia University.
    2. Harding, John P. & Rosenthal, Stuart S., 2017. "Homeownership, housing capital gains and self-employment," Journal of Urban Economics, Elsevier, vol. 99(C), pages 120-135.
    3. Liu, Crocker H. & Nowak, Adam & Rosenthal, Stuart S., 2016. "Housing price bubbles, new supply, and within-city dynamics," Journal of Urban Economics, Elsevier, vol. 96(C), pages 55-72.

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