On the Evolution of the House Price Distribution

Takaaki Ohnishi; Takayuki Mizuno; Chihiro Shimizu; Tsutomu Watanabe

On the Evolution of the House Price Distribution
Ohnishi, Takaaki
Mizuno, Takayuki
Shimizu, Chihiro
Watanabe, Tsutomu
Center on Japanese Economy and Business
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Center on Japanese Economy and Business Working Papers
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Center on Japanese Economy and Business, Graduate School of Business, Columbia University
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New York
Is the cross-sectional distribution of house prices close to a (log) normal distribution, as is often assumed in empirical studies on house price indexes? How does the distribution evolve over time? To address these questions, we investigate the cross-sectional distribution of house prices in the Greater Tokyo Area for the period 1986 to 2009. We find that size-adjusted house prices follow a lognormal distribution except for the period of the housing bubble and its collapse in Tokyo, for which the price distribution has a substantially heavier right tail than that of a lognormal distribution. In addition, we find that, during the bubble era, the sharp price movements were concentrated in particular areas, and this spatial heterogeneity is the source of the fat upper tail. These findings suggest that the shape of the size-adjusted price distribution, especially the shape of the tail part, may contain information useful for the detection of housing bubbles. Specifically, the presence of a bubble can be safely ruled out if recent price observations are found to follow a lognormal distribution. On the other hand, if there are many outliers, especially near the upper tail, this may indicate the presence of a bubble, since such price observations are unlikely to occur if they follow a lognormal distribution. This method of identifying bubbles is quite different from conventional ones based on aggregate measures of housing prices, and therefore should be a useful tool to supplement existing methods.
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Takaaki Ohnishi, Takayuki Mizuno, Chihiro Shimizu, Tsutomu Watanabe, , On the Evolution of the House Price Distribution, Columbia University Academic Commons, .

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