Workshop on Residential Property Price Indices RPPI Handbook Chapter 5: Stratification or ‘Mix Adjustment’ Methods

Contents 5.1 Simple mean or median indexes 5.2 Stratification 5.3 Aggregation and weighting issues when stratification methods are used 5.4 Main advantages and disadvantages 5.5 An example for the Dutch town of “A” 5.6 The treatment of seasonality for the Dutch example Chapter 5

5.1 Simple mean or median indexes Measures of central tendency Median is typically used Noisy and (often) biased estimates of price change – changes in the quality mix Chapter 5

5.2 Stratification Simplest tool to control for mix changes Effectiveness depends on stratification variables used - data availability issues Age class as additional stratification variable could help to reduce the quality change problem Mix adjustment has been widely used Chapter 5

5.3 Aggregation and weighting issues Homogeneous stratum: unit value is appropriate (average) price Sales RPPI: Fisher formula possible and preferred Chaining will be best if price changes are fairly smooth Stock RPPI: (fixed base) Laspeyres formula if timely stock data is missing Chapter 5

5.4 Main advantages and disadvantages Adjusts roughly for compositional change Easy to construct and to explain Does not deal adequately with quality changes of individual dwellings Some unit value bias (compositional change) will remain Sampling variability (noise) or empty cell problems Chapter 5

5.5 An example for the Dutch town of “A” Small town in the Netherlands Data on sales for detached houses; 14 quarters, 2289 observations Variables: selling price, land size (area of the plot), structure size (living space), age (decades) Empty cells: matched-cell approach Chapter 5

5.6 The treatment of seasonality for the Dutch example Each stratum (class of house) in each season is treated as a separate good Rolling year fixed base Fisher indexes Other seasonal adjustment methods also possible Chapter 5