The Review of Economics and Statistics Vol. 88 No. 1 2006
Estimating House Price Indexes in the Presence of Seller Reservation Prices
Abstract
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
- Issue
- 1
- Pages
- 100-112
- Language
- en
- Sources
- openalex crossref