A better method to estimate price change in single family housing : A test of median‐to‐median compared to repeat sales

Purpose – This paper aims to compare a median‐to‐median estimate of residential price change to the FHFA home price index composed of repeat sales. Further, it seeks to use the complete population of closed sales. The conceptual issue is the use of a “typical” or average comparison through time as opposed to properties where attributes and their marginal prices are held constant. Design/methodology/approach – The paper uses the total population of closed sales rather than a sample. A time series for median price changes is compared to the FHFA time series. The medians for the complete population are the benchmarks, as the median parameter is the true value. Findings – The study finds that the quarterly FHFA price changes do not capture market movements following a major external shock such as a tropical storm. Further, the FHFA data originate in mortgage applications which are not characteristic of the local market. The conclusion is that a median comparison is better, all deed recordings should be used, and repeat sales are not always a valid tool. Research limitations/implications – Acquiring the data set of all deed transactions involved a budget which may be available to all analysts. Practical implications – The practical applications are enormous. The results cast doubts on the FHFA home price index and the Case Shiller index. The paper supports the method used by the National Association of Realtors. Social implications – All researchers interested in local real estate markets are concerned about the best method to measure changes in local demand and supply market conditions. This project presents a method to use that is sound conceptually and statistically. The reason is that the goal is to measure changes in the “typical”, or average, property over time. Originality/value – The literature abounds with repeat sale papers. This paper gives an alternative and avoids the many flaws with paired sales. It should have a wide readership.