Missing the Mark: House Price Index Accuracy and Mortgage Credit Modeling

FHFA Working Paper 16-04

25 Pages Posted: 10 Jul 2019

See all articles by Alexander Bogin

Alexander Bogin

Federal Housing Finance Agency

William M. Doerner

Federal Housing Finance Agency

William Larson

Federal Housing Finance Agency

Date Written: September 2016

Abstract

We make two contributions to the study of house price index and mortgage credit modeling accuracy. First, we assess the predictive power of house price indices calculated at different levels of geographic aggregation. Lower levels of aggregation offer superior fit when appreciation rates vary substantially across submarkets and the indices are based on a sufficient number of transactions. Second, we estimate a competing options credit model using 15 years of mortgage performance data in the United States. Model accuracy is highest when using indices at a city or lower level of aggregation to construct current loan-to-value ratios. Fit is weaker when using state or national price indices. Overall, this research highlights the benefits of using more localized house price indices when predicting property values and mortgage performance.

Keywords: house prices, loan-to-value, mortgage performance, credit model

JEL Classification: C55, G22, R30, R51

Suggested Citation

Bogin, Alexander and Doerner, William M. and Larson, William, Missing the Mark: House Price Index Accuracy and Mortgage Credit Modeling (September 2016). FHFA Working Paper 16-04, Available at SSRN: https://ssrn.com/abstract=3416895 or http://dx.doi.org/10.2139/ssrn.3416895

Alexander Bogin

Federal Housing Finance Agency ( email )

William M. Doerner (Contact Author)

Federal Housing Finance Agency ( email )

400 7th Street, SW
Washington, DC 20219
United States
202-649-3218 (Phone)
202-649-2816 (Fax)

HOME PAGE: http://www.fhfa.gov

William Larson

Federal Housing Finance Agency ( email )

400 7th Street SW
Washington, DC 20552
United States

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