Improved price index for condominiums by Han-Suck Songa and Mats Wilhelmssonb a) Department of Real Estate Economics, Royal Institute of Technology (KTH), Stockholm, Sweden han-suck. song@abe. kth. se b) Centre for Banking and Finance (CEFIN), Royal Institute of Technology (KTH), Stockholm, Sweden mats. wilhelmsson@abe. kth. se
Who presents the correct price information? DN: March 17, 2009 DN: March 12, 2009 2
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? 15 mars 2018 Confidential - Valueguard AB © 2009 All rights reserved 4
Date of Sale: contract date vs. deed date On average 55 days Open house Advertisement Deed date Contract date KTH/Valueguard, Mäklarstatistik Statistic Sweden S&P 5
Number of transactions per month and median price per square meter (Figure 1) 1400 50000 Transactions 1200 45000 Median price Transactions per month 1000 35000 30000 800 25000 600 20000 15000 400 Median price per square meter (SEK/sqm) 40000 10000 200 5000 0 0 Jan/ Mar May Jul/ Sep/ Nov Jan/ Mar May 05 /05 05 05 /05 06 /06 06 06 /06 07 /07 07 07 /07 08 /08 08 08 /08 09 /09 6
Periods Six periods – – – Before 1900 -1940 -1960 -1975 -1990 After 1990 1800 and older Before World War II After post-war ”Million programe” Construction subsidies Abolishment of the subsidy system
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X and Y Coordinates • • Distance to the “middle” Direction – Quadrants NW NE SW SE 9
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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
Hissens priseffekt 0. 05 0. 04 0. 03 0. 02 0. 01 0 -0. 01 -0. 02 -0. 03 -0. 04 -0. 05 0 1 2 3 4 5 6 7 8 9 Priseffekt 13
Average price vs. Hedonic Index (Figure 2) 180 Index arithmetic mean 170 Index median 160 Index hedonic 150 140 130 120 110 100 90 80 Jan/0 Mar/ May/ Jul/0 Sep/ Nov/ Jan/0 Mar/ May/ Jul/0 Sep/ Nov/ Jan/0 Mar/ May/ 5 05 05 6 06 06 7 07 07 8 08 08 9 09 09 14
Date of Sale: Contract date vs. Deed date 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. 15
1. 2 Implicita priser över tiden 1 0. 8 0. 6 0. 4 0. 2 0 2005 2006 2007 2008 -0. 2 -0. 4 Living area Rooms Fee 16
MWR-first, MWR-Final, and aggregated hedonic price indexes (Figure 3) 170 160 150 MWR - First MWR-Final Index hedonic 140 130 120 110 100 90 80 Jan/ Mar/ May/ Jul/0 Sep/ Nov/ Jan/ Mar/ May/ 05 05 05 06 06 06 07 07 07 08 08 08 09 09 09 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.
ols sar /0 7 M ay /0 7 Ju l/0 7 Se p/ 07 No v/ 07 Ja n/ 08 M ar /0 8 M ay /0 8 Ju l/0 8 Se p/ 08 No v/ 08 Ja n/ 09 7 06 n/ 0 M ar Ja 6 06 v/ No p/ Se 6 6 /0 l/0 Ju M ay /0 6 05 n/ 0 M ar Ja 5 05 v/ No p/ Se 5 5 /0 l/0 Ju M ay /0 5 n/ 0 M ar Ja Spatial hedonic models (Figure 5) 170 160 150 140 130 120 110 100 sem 20
Updating the index 21
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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.
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