Removing Appraisal Bias from a Repeat-Transactions House Price Index – A Basic Approach

Andrew Leventis ()

No 06-01, FHFA Staff Working Papers from Federal Housing Finance Agency

Abstract: Responding to concerns that house price appraisals are biased measures of true home values, some researchers have suggested that repeat-transaction house price indices should be calculated using only price data from home purchases. This paper builds on previous literature and presents an alternative way of inoculating such indices from appraisal bias. Trends in and estimation precision for the "bias-neutral" index are compared against the properties of a purchase-only index, as well as the basic OFHEO house price index. Empirical estimates for three states and two metropolitan areas indicate that the "bias-neutral" index closely tracks the other two indices, while benefiting from relatively small standard errors.

Pages: 67 pages
Date: 2006-02
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Citations: View citations in EconPapers (10)

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