Improved price index for condominiums by Han-Suck Song a and Mats Wilhelmsson b a) Department of Real Estate Economics, Royal Institute of Technology (KTH), Stockholm, Sweden b) Centre for Banking and Finance (CEFIN), Royal Institute of Technology (KTH), Stockholm, Sweden

Who presents the correct price information? 2 DN: March 12, 2009 DN: March 17, 2009

Why better apartment price index? – Economic indicator. – ”Underlying asset” in derivatives and insurance contracts. – More… 3

Construction of real estate price indexes Example of Index construction methods: Average prices (arithmetic mean and median) Repeated-Sales (Case & Shiller) Hedonic price index (different alternatives) Date of sale: Contract date or deed date? 4 16 oktober 2015Confidential - Valueguard AB © 2009 All rights reserved

Date of Sale: contract date vs. deed date 5 Advertisement Open house Contract date Deed date Statistic Sweden S&P KTH/Valueguard, Mäklarstatistik On average 55 days

Number of transactions per month and median price per square meter (Figure 1) 6

Periods Six periods – Before and older – Before World War II – After post-war – ”Million programe” – Construction subsidies – After 1990Abolishment of the subsidy system

8

X and Y Coordinates Distance to the “middle” Direction – Quadrants 9 NENW SWSE

10

Estimation procedure I Single hedonic price equtation Vs. Multiple hedonic price equation (Moving Windows Regression)

Specification Dependent variables: ln(price) Independent variables: – ln(area), ln(room), ln(fee) – First floor, top floor, floor level, no. of floors – Elevator, balcony – 6 periods – ln(distance), geographical direction – Administrative parish – … – Time dummies

13

Average price vs. Hedonic Index (Figure 2) 14

Date of Sale: Contract date vs. Deed date 15 The difference in index as compared to figures above is due to different samples; not all observations with deed date have contract dates, and vice versa.

16

MWR-first, MWR-Final, and aggregated hedonic price indexes (Figure 3) 17

Model selection 18

Estimation procedure II Spatial hedonic price index Vs. Multiple hedonic price equation (Moving Windows Regression) – There is a presence of spatial dependency in our hedonic models. – However this seems not to spill over to the price index.

Spatial hedonic models (Figure 5) 20

Updating the index 21

22

Conclusion – Date of sale important (contract date vs. deed date). – Among the many alternatives to estimate an apartment price index, estimating a single hedonic price eqationn seems sufficient. *Important to test for parameter heterogenity and spatial dependency. – Further work to improve quality of apartment price index: *Most important is to improve input of quality of inputs and number of attributes.