The Importance of Accurate & Integrated
Measures of Property Prices
J. Steven Landefeld, Director
February 23rd, 2010
41st Session of the UN Statistical Commission
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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
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7
19 5
7
19 6
7
19 7
7
19 8
7
19 9
8
19 0
8
19 1
8
19 2
8
19 3
8
19 4
8
19 5
8
19 6
8
19 7
8
19 8
8
19 9
9
19 0
9
19 1
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
07
19
Percent
Revaluations as a % of total household
real estate assets
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
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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
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Savings & Wealth
65000
1.60
60000
1.40
55000
Billions of dollars
45000
1.00
40000
0.80
35000
30000
0.60
25000
0.40
20000
15000
0.20
10000
0.00
5000
-0.20
80
Q
81 1
Q
82 1
Q
1
83
Q
84 1
Q
85 1
Q
86 1
Q
87 1
Q
1
88
Q
89 1
Q
90 1
Q
91 1
Q
1
92
Q
93 1
Q
94 1
Q
95 1
Q
96 1
Q
1
97
Q
98 1
Q
99 1
Q
00 1
Q
01 1
Q
1
02
Q
03 1
Q
04 1
Q
05 1
Q
1
06
Q
07 1
Q
08 1
Q
1
0
Net worth
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Personal savings rate
Net worth as % of DPI
Index, 80Q1:1.00
1.20
50000
Personal Income & Housing
2.0
1.8
1.6
1.4
ratio
1.2
1.0
0.8
0.6
0.4
0.2
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
0.0
Value of household real estate assets/Personal income
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Household total liabilities/Personal income
Home price indices (percent chg)
20
Year over year % change
15
10
5
0
-5
-10
-15
-20
01
ce
D
2
3
4
5
6
7
8
9
2
3
4
5
6
7
8
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
n
n
n
n
n
n
n
n
c
c
c
c
c
c
c
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
De
De
De
De
De
De
De
Case-Shiller (20 city composite)
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FHFA HPI
Zillow Home Value Index
Contributions to Percent Change in
Real GDP
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
PCE
3.44
1.85
1.85
1.97
2.42
2.34
2.01
1.84
-0.17
-0.40
Investment
1.19
-1.24
-0.22
0.55
1.55
0.92
0.46
-0.65
-1.18
-3.49
Residental
0.05
0.03
0.24
0.40
0.52
0.36
-0.45
-1.05
-1.00
-0.65
Government
0.36
0.67
0.84
0.42
0.26
0.06
0.26
0.32
0.59
0.38
Net Exports
-0.85
-0.20
-0.65
-0.45
-0.66
-0.27
-0.05
0.63
1.20
1.08
2.90
2.70
3.50
3.50
3.40
1.40
2.40
1.70
2.70
4.60
Personal Saving Rt.
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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
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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.
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Home price indices
[Dec 2000 = 1.0]
1.9
1.7
1.5
1.3
1.1
De
c0
Ju 0
n0
De 1
c01
Ju
n0
De 2
c02
Ju
n0
De 3
c0
Ju 3
n0
De 4
c04
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De 5
c05
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n0
De 6
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Ju 6
n0
De 7
c07
Ju
n0
De 8
c08
Ju
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0.9
Case-Shiller (20 city composite)
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FHFA HPI
Zillow Home Value Index
Use of Moving Averages ?
240
220
Index
200
180
160
140
120
100
2000
2001
2002
2003
FHFA HPI
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2004
2005
2006
2007
FHFA HPI, 3 year average
2008
2009
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
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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
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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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