Measuring Aggregate Housing Wealth: New Insights from an Automated Valuation Model

43 Pages Posted: 17 Sep 2018 Last revised: 21 Feb 2019

See all articles by Joshua Gallin

Joshua Gallin

Federal Reserve Board - Research & Statistics

Raven Molloy

Board of Governors of the Federal Reserve System

Eric Reed Nielsen

Board of Governors of the Federal Reserve System

Paul A. Smith

Federal Reserve Board of Governors

Kamila Sommer

Board of Governors of the Federal Reserve System

Date Written: 2018-09-06

Abstract

We construct a new measure of aggregate U.S. housing wealth based on Zillow’s Automated Valuation Model (AVM). AVMs offer advantages over other methods because they are based on recent market transaction prices, utilize large datasets which include property characteristics and local geographic variables, and are updated frequently with little lag. However, using Zillow’s AVM to measure aggregate housing wealth requires overcoming several challenges related to the representativeness of the Zillow sample. We propose methods that address these challenges and generate a new estimate of aggregate U.S. housing wealth from 2001 to 2016. This new measure provides insights into some of the disadvantages of other approaches to measuring housing wealth. Specifically, with respect to the owner valuations typically used in survey data, it appears that homeowners were slow to recognize the drop in housing wealth during the financial crisis and that their estimates of this drop were unrealistically small. At the same time, repeat-sales price indexes appear to overstate the extent of the drop in value between 2006 and 2011 and overstate the recovery thereafter.

Keywords: Consumer economics and finance, Data collection and estimation, Flow of funds, Residential real estate

JEL Classification: R31, E21, C82

Suggested Citation

Gallin, Joshua and Molloy, Raven and Nielsen, Eric Reed and Smith, Paul A. and Sommer, Kamila, Measuring Aggregate Housing Wealth: New Insights from an Automated Valuation Model (2018-09-06). FEDS Working Paper No. 2018-064. Available at SSRN: https://ssrn.com/abstract=3248161 or http://dx.doi.org/10.17016/FEDS.2018.064

Joshua Gallin (Contact Author)

Federal Reserve Board - Research & Statistics ( email )

20th & C. St., N.W.
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Washington, DC 20551
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(202) 872-4927 (Fax)

Raven Molloy

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Eric Reed Nielsen

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Paul A. Smith

Federal Reserve Board of Governors ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Kamila Sommer

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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