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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

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
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)
thinking about measurement
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?
main methods
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
data sources
Data sources
  • Official registers
  • Mortgage companies / banks
  • Organisations of real estate agents
  • Surveys by NSOs
trade offs
Trade-offs
  • Completeness of transactions during accounting period
  • Completeness of quality characteristics
  • Timeliness of results
  • Cost
sales price appraisal ratio method spar
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
spar method continued
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.
results for netherlands 1
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.
growing demand for guidance
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.
the rppi handbook project
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.
slide13
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)
timing of activities
Timing of activities
  • May 2009 Start of project
  • Nov 2009 Eurostat-IAOS-IFC (Basel) Conference on RPPI: presentation of project and gathering of user needs
  • May 2010 UNECE/ILO CPI Meeting: first draft available (also on website)
  • Feb 2011 RPPI Workshop: near-final draft available
  • May 2011 Final draft
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