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Monitoring Residential Property Prices: Measurement Issues & The Handbook Project Geert Bruinooge Statistics Netherlands Seminar in Memory of Svein Longva Measuring Property Prices New York, 23 February 2010 Interest in the topic

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Monitoring Residential Property Prices: Measurement Issues & The Handbook Project

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Monitoring residential property prices measurement issues the handbook project l.jpg

Monitoring Residential Property Prices: Measurement Issues & The Handbook Project

Geert Bruinooge

Statistics Netherlands

Seminar in Memory of Svein Longva

Measuring Property Prices

New York, 23 February 2010


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Interest in the topic

  • Much interest in the development of residential property (house) prices. Some examples:

  • Economic analysis (relating house prices to fundamentals, detection of bubbles, etc.)

  • Risk management by mortgage providers

  • Indicator of Financial Soundness (IMF/BIS)

  • Principal European Economic Indicator (Eurostat)

  • Wealth measurement (National Accounts, international comparisons)

  • Measurement of dwelling services (CPI)


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Thinking about measurement

  • Primary target of measurement: (Market) value change of residential property (housing) stock.

  • Various secondary targets can be imagined.

  • Main measurement issues are:

  • The universe (housing stock) changes by addition, removal, depreciation, renovation

  • Prices are only observed for (potential or actual) transactions

  • Observed prices are registered at different dates by different agencies

  • Not sure whether registered prices represent market values

  • Registered prices may include or exclude land

  • There is seasonality and how to deal with that?


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Main methods

  • Comparing (stratified) mean, median, etc. of transaction prices

  • Comparing repeat sales transaction prices

  • Comparing transaction prices to assessment (appraisal) prices

  • Ideally each method uses quality adjusted prices

  • by some ad hoc method

  • by a hedonic method


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Data sources

  • Official registers

  • Mortgage companies / banks

  • Organisations of real estate agents

  • Surveys by NSOs


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Trade-offs

  • Completeness of transactions during accounting period

  • Completeness of quality characteristics

  • Timeliness of results

  • Cost


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Sales Price Appraisal Ratio Method (SPAR)

  • Designed to solve the problem of mix change between two comparison periods.

  • Appraisals are estimates of the market values of all the houses at some reference period by some official authority.

  • The ratios of sales prices and appraisal values are used for calculating the mean price change. In stylized form: price change between periods 0 and 1 is measured by (p1/pr) / (p0/pr) where p1/pr is based on the period 1 sample and p0/pr is based on the period 0 sample.

  • Value-weighted SPAR index: sales price appraisal value ratios are weighted according to the (base period) values of the houses


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SPAR method (continued)

  • The method

  • controls for compositional (mix) change because based on matched pairs of houses;

  • does, however, not automatically adjust for quality change of houses;

  • may suffer from sample selection bias.

  • To better control for sample selection bias, stratification must be used: SPAR indexes are compiled at the level of strata (region X type of house) and then aggregated.


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Results for Netherlands (1)

  • The next slide compares

  • the monthly value-weighted SPAR index based on all sales data from the official Land Registry office;

  • the monthly (naive) arithmetic mean index based on the same data;

  • an index based on quarterly (trimmed) median prices from an organisation of real estate agents.


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Results for Netherlands (2)


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Growing demand for guidance

  • There are a number of international Manuals/Handbooks on price statistics, such as

  • Consumer Price Index Manual (ILO)

  • Producer Price Index Manual (IMF)

  • Export and Import Price Index Manual (IMF)

  • Measuring Capital (OECD)

  • Measuring Productivity (OECD),

  • but there is nothing for house prices. Agencies want guidance. International harmonisation is desirable.


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The RPPI Handbook Project

  • Under the aegis of the Intersecretariat Working Group on Price Statistics (IWGPS), Eurostat commissioned this project in May 2009 to Statistics Netherlands.

  • The project is executed by an international team of experts.


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Team

  • Bert M. Balk – Statistics Netherlands; Rotterdam School of Management, Erasmus University

  • Jan de Haan – Statistics Netherlands

  • W. Erwin Diewert – University of British Columbia

  • Marc Prud’homme – Statistics Canada; University of Ottawa

  • David Fenwick – international consultant (formerly ONS, United Kingdom)


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Tentative contents of the Handbook


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Timing of activities

  • May 2009Start of project

  • Nov 2009Eurostat-IAOS-IFC (Basel) Conference on RPPI: presentation of project and gathering of user needs

  • May 2010UNECE/ILO CPI Meeting: first draft available (also on website)

  • Feb 2011RPPI Workshop: near-final draft available

  • May 2011Final draft


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