Housing Renovations and the Quantile Repeat-Sales Price Index

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. Copyright 2006 American Real Estate and Urban Economics Association