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 • 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 • 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 • 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 • Official registers • Mortgage companies / banks • Organisations of real estate agents • Surveys by NSOs
Trade-offs • Completeness of transactions during accounting period • Completeness of quality characteristics • Timeliness of results • Cost
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) • 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) • 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 • 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 • 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.
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 • 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