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Repeat-Sales Method Definition
Repeat sales method calculates price change of a specific real estate over a different time frame. The repeat sales method is used to provide information about housing price indexes to investors, home buyers and sellers and the housing Industries as a whole. It is also a monitoring indicator of price changes in a home or any other property over a period of time.
A Little More on What is the Repeat-Sales Method
Most housing price index is focussed on monitoring home prices within a designated region over a period of time. Hence, not all price indexes are the same and the way they are calculated can cause problems if the housing price trend is not duly represented. In the United States, it is important to monitor housing market trends because the housing market is one of the decisive economic indicators.
Price index calculations may be wrong and result in issues if there are inadequacies in the measures deployed to drive at the calculation. For example, selecting random houses that may not necessarily be for sale or with varying sizes and types. An example of an index with a random sample is the National Association of Realtors (NAR) Median Index or the Census Bureau Median Index.
The repeat sales method was primarily deployed to serve as a solution to the structural issues. It was created to closely monitor the price changes of real estate between the current sale and previous sale. The method is useful in calculating the average sales price and it offers a precise alternative to regression analysis. The repeat sales have been able to account for changes in home prices based on sales of the same property. This has been able to curb issues that may arise from differences in the price of houses with similar or varying features. One of the striking disadvantages of this method is that it does not account for homes sold within the specified time of the report and this is also part of market activity.
Examples of Repeat-Sales Indexes
Indexes that use the repeat sales methods are the National Composite House Price Index, Federal Housing Finance Agency’s (FHFA), the Case-Shiller Index. One of the most popular housing indexes is the Case-Shiller Index. This index exempts home sales between families which are known as non-arms-length transactions, new construction, condos, and co-ops but monitors foreclosure sales. This index uses the repeat sales method. National Composite House Price Index accounts for changes in home prices in a month, quarter and year, this index is Canada’s important home price index. The Federal Housing Finance Agency monthly House Price Index is derived from Fannie Mae and Freddie Mac’s data on single-family home sale prices and refinances appraisals and CoreLogic’s LoanPerformance Home Price Index. This covers a wide range of locations than the other price indexes.