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Sample Selection Approaches to Estimating and Allocating House Transaction Funding Price Differentials

Andres Jauregui (), Alan Tidwell () and Vivek Sah ()
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Andres Jauregui: California State University, Fresno
Alan Tidwell: University of Alabama
Vivek Sah: University of Nevada, Las Vegas

The Journal of Real Estate Finance and Economics, 2019, vol. 58, issue 3, 366-407

Abstract: Abstract This study examines house transaction price differentials observed among funding type combinations; accounting for potential sample selection and spatial biases yields a better approximation of price differentials between group combinations. Consistent with expectations we detect, and correct for, selectivity and spatial biases. Transactions with conventional financing have superior characteristics compared to all-cash funded transactions, and Federal Housing Administration (FHA) and Veterans Affairs (VA) funded houses have inferior characteristics relative to all-cash characteristics. Price counterfactuals for (1) all-cash financed property, (2) conventional, (3) FHA, and (4) VA property transactions reveal, consistent with expectations, unexplained coefficient pricing premiums, i.e., a financing premium. However, total all-cash explained housing/neighborhood characteristics, are superior relative to FHA and VA financed properties. Results reinforce the notion that credit matters in the provision of financial services with regard to housing prices, while Blinder-Oaxaca price differential decompositions provide additional insights.

Keywords: Sample selection correction; Hedonic price model; Spatial modeling; Financing; Cash (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:kap:jrefec:v:58:y:2019:i:3:d:10.1007_s11146-018-9661-4