A PCA Factor Repeat Sales Index (1973-2001) To Forecast Apartment Prices in Paris (France)
In this paper we address the issue of building a repeat sales index, based on factors. This is an extension of a companion paper, Baroni, Barthélémy and Mokrane (2001, BBM) in which we had built a factorial index as a selected linear function of existing economics and financial variables. Here we offer a more general and robust model based on a Principal Components Analysis (PCA). We apply this methodology to the Paris residential market. We use the CD-BIEN database that contains more than 220 000 repeat sales transactions for residential apartments in the Paris area covering the period 1973-2001 period. Our PCA index for the Paris and close surrounding area is estimated and its characteristics and robustness are analysed depending on: estimation period, choice of observations, periodicity and reversibility. We then compare it to the traditional WRS repeat sales index developed by Case & Shiller (1987). Finally we show that contrary to the WRS index, our index can be used to forecast apartment prices.
|Date of creation:||Feb 2005|
|Date of revision:|
|Contact details of provider:|| Postal: ESSEC Research Center, BP 105, 95021 Cergy, France|
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- Case, Bradford & Quigley, John M, 1991. "The Dynamics of Real Estate Prices," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 50-58, February.
- Mahdi Mokrane & Michel Baroni, 2001. "Physical Real Estate : Risk Factors and Investor Behaviour," ERES eres2001_236, European Real Estate Society (ERES).
- Brown, Gerald R & Matysiak, George A, 2000. "Sticky Valuations, Aggregation Effects, and Property Indices," The Journal of Real Estate Finance and Economics, Springer, vol. 20(1), pages 49-66, January.
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