House Price Changes and Idiosyncratic Risk: The Impact of Property Characteristics

Abstract

To assess the quality of the fit in a multiple linear regression, the coefficient of determination or R 2 is a very simple tool, yet the most used by statistics users. It is well known that the classical (least-squares) fit and coefficient of determination can be arbitrary misleading in the presence of a single outlier. In many applied setting, the assumption of normality of the error and of absence of outliers are difficult to establish. In these cases, robust procedures for the estimation and the inference in linear regression are available and provide an excellent alternative.In this paper we present a companion robust coefficient of determination that has several desirable properties not shared by others: it is robust to deviations from the specified regression model (like in the presence of outliers), it is efficient if the errors are perfectly normal, and we show that it is a consistent estimator of the population coefficient of determination. A simulation study and two real datasets support the appropriateness of this estimator, compared with classical (least-squares) and existing robust R 2 .

The impact of construction quality on house prices

“…To probe this further, we examine whether there is any significant difference in the investment performance of good construction quality homes. This line of enquiry is consistent with prior studies which found that houses do not appreciate at the same rate due to their property attributes, such as age, type and location (Smith and Tesarek, 1991;Archer et al, 1996;Smith and Ho, 1996;Clapp and Giaccotto, 1998;Coulson and Lahr, 2005;Harding et al, 2007;Bourassa et al, 2009;Ferreira and Gyourko, 2012).…”

“…Hence, it would be insightful to calibrate to what extent capital appreciation of housing is related to construction quality. This line of enquiry extends a stream of the literature which finds that price appreciation of houses is not homogenous (see Smith and Tesarek, 1991;Archer et al, 1996;Smith and Ho, 1996;Clapp and Giaccotto, 1998;Coulson and Lahr, 2005;Harding et al, 2007;Bourassa et al, 2009;Ferreira and Gyourko, 2012).…”

“…Archer et al (1996), Harding et al (2007) and Bourassa et al (2009) employ a similar methodology to examine the determinants of house price inflation over time. An advantage of using the repeat sales approach is that it removes any potential bias from unobserved apartment or neighborhood characteristics that remain unchanged over time.…”

“…House price appreciation can be tapped and makes trading up in the housing market easier, likely increasing turnover sates in the residential market (see Bourassa et al, 2009). Variations in residential property prices also affect the risk level of a homeowner's portfolio (Englund et al, 2002).…”

Differences in housing price dynamics across cities: A comparison of different panel model specifications

“…Notes 1. Bourassa et al (2009) show that housing price dynamics also can vary across individual units within a metropolitan area. The variation in dynamics across individual units is beyond the scope of this paper.…”