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A hedonic house price index in continuous time

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  • Sofie R. Waltl

    () (University of Graz)

Abstract

Purpose: This paper develops a methodology to measure movements in housing markets accurately and timely 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 as well as the locational effect 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 due to too few observations per period. The continuous index, in contrast, is stable, has some favourable robustness properties and is more objective in several ways. Originality/value: The resulting index tracks movements in the housing market precisely and in “real-time” and is hence suited for monitoring and assessing housing markets. Since turbulence in housing markets is often a harbinger of financial crises, such monitoring tools support policy makers 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.

Suggested Citation

  • Sofie R. Waltl, 2015. "A hedonic house price index in continuous time," Graz Economics Papers 2015-04, University of Graz, Department of Economics.
  • Handle: RePEc:grz:wpaper:2015-04
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    References listed on IDEAS

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    1. Simon N. Wood, 2003. "Thin plate regression splines," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 65(1), pages 95-114.
    2. Robert J. Hill, 2013. "Hedonic Price Indexes For Residential Housing: A Survey, Evaluation And Taxonomy," Journal of Economic Surveys, Wiley Blackwell, vol. 27(5), pages 879-914, December.
    3. Robert J. Shiller, 2008. "Derivatives Markets for Home Prices," Cowles Foundation Discussion Papers 1648, Cowles Foundation for Research in Economics, Yale University.
    4. Hulten, Charles R, 1973. "Divisia Index Numbers," Econometrica, Econometric Society, vol. 41(6), pages 1017-1025, November.
    5. Iqbal Syed & Robert J. Hill & Daniel Melser, 2008. "Flexible Spatial and Temporal Hedonic Price Indexes for Housing in the Presence of Missing Data," Discussion Papers 2008-14, School of Economics, The University of New South Wales.
    6. Eurostat, 2013. "Handbook on Residential Property Prices Indices," World Bank Publications, The World Bank, number 17280, June.
    7. Robert J. Hill & Michael Scholz, 2014. "Incorporating Geospatial Data in House Price Indexes: A Hedonic Imputation Approach with Splines," Graz Economics Papers 2014-05, University of Graz, Department of Economics.
    8. Stijn Claessens & Giovanni Dell'Ariccia & Deniz Igan & Luc Laeven, 2010. "Cross-country experiences and policy implications from the global financial crisis," Economic Policy, CEPR;CES;MSH, vol. 25, pages 267-293, April.
    9. Schwann, Gregory M, 1998. "A Real Estate Price Index for Thin Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 16(3), pages 269-287, May.
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    Cited by:

    1. repec:eee:regeco:v:68:y:2018:i:c:p:204-225 is not listed on IDEAS
    2. Yadira Mori Clement & Birgit Bednar-Friedl, 2017. "Do Clean Development Mechanism projects generate local employment? Testing for sectoral effects across Brazilian municipalities," Graz Economics Papers 2017-05, University of Graz, Department of Economics.
    3. Sofie R. Waltl, 2015. "Variation across price segments and locations: A comprehensive quantile regression analysis of the Sydney housing market," Graz Economics Papers 2015-09, University of Graz, Department of Economics.

    More about this item

    Keywords

    Residential Property; House Price Indexes; Hedonic Indexes; Continuous Indexes; Additive Models; Housing Market Analysis;

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