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 (p 1 /p r ) / (p 0 /p r ) where p 1 /p r is based on the period 1 sample and p 0 /p r 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.

Results for Netherlands (2)

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)

Tentative contents of the Handbook Chapter 1. Preface 2. Introduction 3. Uses 4. Conceptual elements 5. Methods 6. Data sources 7. Catalogue of available indices + some cases 8. Recommendations 9. Glossary + index 10. Annex: Examples

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