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The Importance of Accurate & Integrated Measures of Property Prices

The Importance of Accurate & Integrated Measures of Property Prices. J. Steven Landefeld, Director. February 23 rd , 2010 41 st Session of the UN Statistical Commission. Importance of Property Prices. Housing and other asset bubbles significant part of U.S. macro story.

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The Importance of Accurate & Integrated Measures of Property Prices

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  1. The Importance of Accurate & Integrated Measures of Property Prices J. Steven Landefeld, Director February 23rd, 2010 41st Session of the UN Statistical Commission

  2. Importance of Property Prices • Housing and other asset bubbles significant part of U.S. macro story. • Rising housing prices and their affect on net worth, debt accumulation, consumer spending and saving. • Rising housing prices and their affect on residential investment • Effects of falling prices: • Reductions in consumer spending and investment in residential structures • Increased saving and rebuilding of balance sheets • Multiplier affects

  3. Revaluations as a % of total household real estate assets

  4. Importance of Property Prices • An IMF study of housing price booms and busts in 14 industrial countries, 1970-2001 (Helbling, 2005) found that: • “Housing price busts coincided with sharp slowdowns in economic activity, and in all but one case, with outright recessions.” • “Downturns in economic activity tend to be more severe in the case of boom-bust cycles.” • For international housing price trends, see www.economist.com/houseprices

  5. Savings & Wealth

  6. Personal Income & Housing

  7. Home price indices (percent chg)

  8. Contributions to Percent Change in Real GDP

  9. What Prices? • Asset Prices • Stock: Variety of housing prices from sales, assessments, and survey data • Investment flow for structures: Replacement cost using mix of hedonic and other measures • Rental Price: • Gross rent: Rental and benchmark housing survey data • Maintenance and other costs: Variety of data • Net rent: residual

  10. Why It’s Important to Get It Right • Asset prices affect consumer confidence, saving, consumer spending, and availability of credit. • Rental prices affect inflation and COLA’s, equity prices, bond prices and interest rates, exchange rates, Fed policy, and real output and employment. • Investment prices affect industry and national real GDP and productivity, inflation, Fed Policy, and real output and employment.

  11. Home price indices [Dec 2000 = 1.0]

  12. Use of Moving Averages ?

  13. Potential Problems • Use of marginal prices in valuing stocks • Markets can be very thin and volatile • Market transactions in the downturn may be overly weighted to distress sales and sales from distressed areas • Example from the United States • Important issue in relation to the discussion of marking assets to market

  14. Potential Problems • Owner’s equivalent rent (OER): • Adequacy of respondent estimates of rental values • Adequacy of rents from rental units as a proxy for implicit owner occupied housing rents • Ambiguity of relationship between user cost and OER estimates

  15. Conclusions • Importance of accurate, timely, and relevant data on property prices call for: • Indicators of sustainability in trends in property prices • Property price to personal and business income ratios. detailed leverage ratios, bank exposure, debt service, and integrated financial and real accounts. • More complete data on housing transactions, including characteristics and prices. • New hedonic indexes for commercial and residential asset prices • Use of a moving averages? • More accurate data on owners equivalent rent (OER): • More complete and timely benchmark data on rental values and characteristics • Mix of user cost and OER methods?

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