Estimating House Price Indexes in the Presence of Seller Reservation Prices

William Goetzmann; Liang Peng

doi:10.1162/rest.2006.88.1.100

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Estimating House Price Indexes in the Presence of Seller Reservation Prices

William Goetzmann¹; Liang Peng²

¹ Yale University · ² University of Colorado System

The Review of Economics and Statistics 2006

We analyze a bias in transaction-based price indexes due to the presence of seller reservation prices. We develop a model in which the ratio of sellers' reservation prices to the market value affects trading volume and biases of observed transaction prices: when trading volume decreases (increases), index returns are estimated with an upward (downward) bias. We propose a new econometric procedure to mitigate the bias, and use simulations to demonstrate the effectiveness of the procedure. We construct a reserve-conditional unbiased index for the Los Angeles housing market, which substantially differs from a traditional repeat sale index.

DOI: 10.1162/rest.2006.88.1.100
Volume: 88 (1)
Pages: 100-112
Language: en
Export: BibTeX
Sources: openalex crossref