Do House Price Levels Anticipate Subsequent Price Changes within Metropolitan Areas?

25 Pages Posted: 4 Aug 2015

See all articles by Nai Jia Lee

Nai Jia Lee

National University of Singapore (NUS) - Department of Real Estate

Tracey Seslen

University of Southern California - Marshall School of Business - Finance and Business Economics Department; University of Washington - Michael G. Foster School of Business

William C. Wheaton

Massachusetts Institute of Technology (MIT) - Department of Economics

Date Written: Fall 2015

Abstract

This research examines the relationship between hedonically controlled housing price levels and subsequent changes in those prices across locations within MSAs. Are areas with a high price relative to an “imputed rent” paying for higher appreciation? In an efficient market (e.g., Gordon Growth Model), as fundamentals (impute rent) differ across locations and change over time, anticipation of these should generate a positive correlation between (residual) price levels and subsequent price changes. We undertake these tests in four different MSAs using a panel of repeat‐sale house price indices that have been scaled to price levels with the hedonic attributes of the house and ZIP code. In three markets we find that identical houses in higher priced ZIP codes subsequently appreciate faster. In one market we find that there is little statistical difference.

Suggested Citation

Lee, Nai Jia and Seslen, Tracey N. and Wheaton, William C., Do House Price Levels Anticipate Subsequent Price Changes within Metropolitan Areas? (Fall 2015). Real Estate Economics, Vol. 43, Issue 3, pp. 782-806, 2015. Available at SSRN: https://ssrn.com/abstract=2639437 or http://dx.doi.org/10.1111/1540-6229.12098

Nai Jia Lee (Contact Author)

National University of Singapore (NUS) - Department of Real Estate ( email )

Singapore

Tracey N. Seslen

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
HOH701
Los Angeles, CA 90089
United States
310-569-0151 (Phone)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

William C. Wheaton

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-252B
Cambridge, MA 02142
United States
617-253-1723 (Phone)
617-253-1330 (Fax)

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