Do House Price Levels Anticipate Subsequent Price Changes within Metropolitan Areas?

This research examines the relationship between hedonically controlled housing price levels and subsequent changes in those prices across locations within MSAs. Are areas with a high price relative to an imputed rent paying for higher appreciation? In an efficient market (e.g., Gordon Growth Model), as fundamentals (impute rent) differ across locations and change over time, anticipation of these should generate a positive correlation between (residual) price levels and subsequent price changes. We undertake these tests in four different MSAs using a panel of repeat-sale house price indices that have been scaled to price levels with the hedonic attributes of the house and ZIP code. In three markets we find that identical houses in higher priced ZIP codes subsequently appreciate faster. In one market we find that there is little statistical difference.