Do Values of Existing Home Sales Reflect Property Values?

Abstract

In many locales, the average price of existing home sales is used as an of indicator home prices. This information is then used to establish the value of the property for tax purposes. A simple example is presented here to show that this approach can be very misleading. In this example, the average price of existing home sales is always rising at the rate of growth of the economy, and yet the price each home remains constant.