The Choice of Methodology for Computing Housing Price Indexes: Comparisons of Temporal Aggregation and Sample Definition

Peter Englund, John Quigley and Christian L Redfearn

The Journal of Real Estate Finance and Economics, 1999, vol. 19, issue 2, 112 pages

Abstract: Housing transactions are executed and recorded daily, but are routinely pooled into longer time periods for the measurement and analysis of housing price trends. We utilize an unusually rich data set, covering essentially all arm's length housing sales in Sweden for a dozen years, in an attempt to understand the effect of temporal aggregation upon estimates of housing prices and their volatilities. This rich data set also provides a unique opportunity to compare the results using the conventional weighted repeat sales model (WRS) to those based on a research strategy which incorporates all available information on house sales. The results indicate the clear importance of temporal disaggregation in the estimation of housing prices and volatilities--regardless of the model employed. The appropriately disaggregated model is then used as a benchmark to compare estimates of the course of housing prices produced by the two models during the twelve year period 1981-93. These results indicate that much of the difference between estimates of price movements can be attributed to the data limitations which are inherent in the repeat sales approach. The results, thus, suggest caution in the interpretation of government-produced price indices or those produced by private firms based on the repeated sales model. Copyright 1999 by Kluwer Academic Publishers

Date: 1999
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