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Repeat sales house price indices: comparative properties under alternative data generation processes

Arthur Grimes (), Kade Sorensen and Chris Young

New Zealand Economic Papers, 2021, vol. 55, issue 1, 7-18

Abstract: Accurate analysis of housing markets requires the use of an appropriate house price index. We compare the properties of two common repeat sales house price indices [Bailey, Muth and Nourse (BMN) and Case-nd Shiller (CS)] with those of Gao and Wang’s unbalanced panel (UP) approach. Using data across three differing housing markets within New Zealand, the three indices produce similar measures of house price movements. When evaluated using separate training and testing sub-samples of the data, none of the three measures is unambiguously superior to the others. When we test properties using simulated data with alternative data generation processes, a clear result emerges: The CS method is clearly superior when relative house prices follow an actual or near random walk; otherwise the UP method is (slightly) superior. Thus researchers should consider the time series properties of their data when choosing a method of house price index construction.

Date: 2021
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DOI: 10.1080/00779954.2019.1612937

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