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The Importance of Accurate & Integrated Measures of Property
PricesJ. Steven Landefeld, Director
February 23rd, 201041st 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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-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Pe
rce
nt
Revaluations as a % of total household real estate assets
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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
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
55000
60000
65000
80Q1
81Q1
82Q1
83Q1
84Q1
85Q1
86Q1
87Q1
88Q1
89Q1
90Q1
91Q1
92Q1
93Q1
94Q1
95Q1
96Q1
97Q1
98Q1
99Q1
00Q1
01Q1
02Q1
03Q1
04Q1
05Q1
06Q1
07Q1
08Q1
Bill
ion
s o
f d
olla
rs
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Ind
ex, 8
0Q1:
1.00
Net worth Personal savings rate Net worth as % of DPI
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Personal Income & Housing
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
19701972
19741976
19781980
19821984
19861988
19901992
19941996
19982000
20022004
20062008
rati
o
Value of household real estate assets/Personal income Household total liabilities/Personal income
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Home price indices (percent chg)
-20
-15
-10
-5
0
5
10
15
20
Dec-0
1
Jun-02
Dec-0
2
Jun-03
Dec-0
3
Jun-04
Dec-0
4
Jun-05
Dec-0
5
Jun-06
Dec-0
6
Jun-07
Dec-0
7
Jun-08
Dec-0
8
Jun-09
Yea
r o
ver
year
% c
han
ge
Case-Shiller (20 city composite) FHFA HPI Zillow Home Value Index
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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
Personal Saving Rt. 2.90 2.70 3.50 3.50 3.40 1.40 2.40 1.70 2.70 4.60
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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]
0.9
1.1
1.3
1.5
1.7
1.9
Dec-00
Jun-0
1
Dec-01
Jun-0
2
Dec-02
Jun-0
3
Dec-03
Jun-0
4
Dec-04
Jun-0
5
Dec-05
Jun-0
6
Dec-06
Jun-0
7
Dec-07
Jun-0
8
Dec-08
Jun-0
9
Case-Shiller (20 city composite) FHFA HPI Zillow Home Value Index
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Use of Moving Averages ?
100
120
140
160
180
200
220
240
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Ind
ex
FHFA HPI FHFA HPI, 3 year average
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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?