Quality-Adjusted House Price Indexes
- (pp. 339-56)
AbstractThe constant-quality assumption in repeat-sales house price indexes (HPIs) introduces a significant time-varying attribute bias. The direction, magnitude, and source of the bias varies throughout the market cycle and across metropolitan statistical areas (MSAs). We mitigate the bias using a data-driven textual analysis approach that identifies and includes salient text from real estate agent remarks in the repeat-sales estimation. Absent the text, MSA-level HPIs are biased downward by as much as 7 percent during the financial crisis and upward by as much as 20 percent after the crisis. The geographic concentration of the bias magnifies its effect on local HPIs.
CitationNowak, Adam D., and Patrick S. Smith. 2020. "Quality-Adjusted House Price Indexes." American Economic Review: Insights, 2 (3): 339-56. DOI: 10.1257/aeri.20190337
- C43 Index Numbers and Aggregation; leading indicators
- E31 Price Level; Inflation; Deflation
- R11 Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
- R31 Housing Supply and Markets