Housing Renovations and the Quantile Repeat-Sales Price Index

18 Pages Posted: 16 Nov 2006

See all articles by Daniel P. McMillen

Daniel P. McMillen

University of Illinois at Chicago - Center for Urban Real Estate

Paul Thorsnes

University of Otago - School of Business - Department of Economics

Abstract

A median-based quantile estimator suffers less bias from positive outliers, such as unobserved renovations, than a standard mean-based estimator. Quantile repeat-sales estimates for single-family homes in the city of Chicago show nominal price appreciation of 68.9% between 1993 and 2002, substantially smaller than the standard approach's estimate of 77.8%. Omitting observations with building permits reduces the mean and median-based estimates by 4.4 and 1.6 percentage points. The results imply that quality improvements account for much of the rapid rise in house prices, and that a median-based quantile estimator produces a more accurate view of the price performance of a typical house.

Suggested Citation

McMillen, Daniel P. and Thorsnes, Paul, Housing Renovations and the Quantile Repeat-Sales Price Index. Real Estate Economics, Vol. 34, No. 4, pp. 567-584, Winter 2006. Available at SSRN: https://ssrn.com/abstract=944973 or http://dx.doi.org/10.1111/j.1540-6229.2006.00179.x

Daniel P. McMillen (Contact Author)

University of Illinois at Chicago - Center for Urban Real Estate ( email )

601 South Morgan Street
MC 144
Chicago, IL 60607-7121
United States

Paul Thorsnes

University of Otago - School of Business - Department of Economics ( email )

PO Box 56
Dunedin
New Zealand

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