Sofie R. Waltl
University of Graz
This paper aims to develop a methodology to accurately and timely measure movements in housing markets by constructing a continuously estimated house price index. Design/methodology/approach
The continuous index, which is extracted from an additive model that includes the temporal and the locational effects as smooth functions, can be interpreted as an extension of the classical hedonic time-dummy method. The methodology is applied to housing sales from Sydney, Australia, between 2001 and 2011, and compared to three types of discrete indexes.Findings
Discrete indexes turn out to approach the continuously estimated index with decreasing period lengths but eventually become wiggly and unreliable because of fewer observations per period. The continuous index, in contrast, is stable, has favourable robustness properties and is more objective in several ways.
The resulting index tracks movements in the housing market precisely and in “real-time” and is hence suited for monitoring and assessing housing markets. Because turbulence in housing markets is often a harbinger of financial crises, such monitoring tools support policymakers and investors in tailoring their decisions and reactions. Additionally, the index can be evaluated arbitrarily frequently and therefore is well suited for use in property derivatives.
Keywords: Housing market analysis, House price indexes, Residential property, Additive models, Continuous indexes, Hedonic indexes
This project has benefited from funding from the Austrian National Bank (Jubiläums-fondsprojekt 14,947) and the JungforscherInnenfonds sponsored by the council of the University of Graz.
A hedonic house price index in continuous time, International Journal of Housing Markets and Analysis 9(4), 2016, 648 – 670.
Presentations: [Austrian Economic Association conference at U Klagenfurt, June 2015] [SEM conference at U Chicago Booth, August 2014]