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Revisiting the Past: Revision in Repeat Sales and Hedonic Indexes of House Prices

Eric Clapham, Peter Englund, John M. Quigley, Christian L. Redfearn
This paper examines index revision in measuring the prices for owner-occupied housing. We consider the context of equity insurance and the settlement of futures contracts. In addition to other desirable characteristics for aggregate price indexes, their usefulness in these contexts requires stability as they are revised. Methods that are subject to substantial or complex revision raise questions about the viability of derivatives markets. We find that revision is an inherent feature of indexes, but also that the commonly used indexes are not equally exposed to volatility in revision. Hedonic indexes appear to be substantially more stable than repeat-sales indexes and are less prone to substantial revision in the light of new information. We analyze alternative settlement procedures and contracts to mitigate the impact of revision associated with repeat sale indexes.