Estimating and Examining Movements in Housing Market Demand and Supply Indices
Jeff Fisher, Indiana University
Dean Gatzlaff, Florida State University
David Geltner, Massachusetts Institute of Technology
Donald Haurin, Ohio State University

This study examines the magnitude and movements of alternative index measures for single-family housing. More specifically, the study estimates standard hedonic, selection-corrected hedonic and constant-liquidity (demand and supply) indices using a large dataset from a single state-Florida. Results indicate that standard hedonic estimates are selective; however, the magnitude of the correction is very small, especially at the statewide level. Changes in the constructed demand and supply indices are shown to vary each period from the selection-correction (and standard hedonic) measures; are correlated with key economic variables; and are found to precede inter-temporal changes in the value indices. The pattern of the differences is consistent with the notion that buyer reservation prices respond quicker (or greater) to new relevant information and that seller reservation prices appear to be “sticky.”

Many investment sponsors and their managers hold and trade single family mortgage securities. The values of these securities depend on property values. Estimates of these values often incorporate information from housing indices. Understanding biases in these indices therefore is very important to those investment professionals whose performance depends on deep insights into housing market values.