Developing a House Price Index for The Netherlands: A Practical Application of Weighted Repeat Sales

Abstract

This paper describes the development of a house price index that has been introduced in May 2005 in The Netherlands. This monthly index, called Woningwaarde Index Kadaster (House Price Index Kadaster), is designed to detect changes in the price of the overall stock of owner-occupied homes. Fifty-five indices are calculated: one overall index, four regional indices, 12 provincial indices and 38 indices based on combinations of region/province and dwelling type. We used Case and Shiller's geometric Weighted Repeat Sales Model to calculate monthly house price indices. We used recorded data on the sales of over 500,000 owner-occupied homes in The Netherlands, all representing repeat sales between January 1993 and December 2006. The accuracy of the index was determined using the 95% confidence interval. We observed that accuracy might become a problem in smaller sub samples. Revision volatility was explored by comparing the index values computed from all available data until December 2005 with the index values computed from the data available until December 2006. Our analysis showed that revision volatility does not seem to be a major problem to the index. We also explored heteroskedasticity in the Repeat Sales method but did not find conclusive evidence for the proposed heteroskedasticity. Given our target (a geometric mean index value) and the characteristics of the dataset (very large but without property characteristics) the Repeat Sales Method seems to be adequate for calculating a house price index for The Netherlands.

Repeat Sales Index for Thin Markets

“…Indices are provided on a national level as well as on regional and house type levels. More details on the index construction method and the database can be found in Jansen et al (2008).…”

“…A frequently used method to model house price movements is the repeat sales approach. For example, the House Price Index of the Kadaster (the Dutch Land Registry) is an application of the repeat sales model for the Netherlands, see Jansen et al (2008).…”

A house price index based on the SPAR method

“…A set of fifty-five monthly indexes was computed, consisting of a nation-wide index, four regional indexes and indexes based on combinations of region and dwelling type. These indexes, described extensively in Jansen et al (2008), were estimated using a weighted version of the repeat 1 Apart from house prices as such, the treatment of owner-occupied housing in the HICPs, the consumer price indexes produced in European Union Member States on the basis of harmonized standards, is also of interest. HICPs are needed in particular for the assessment of price convergence, for monitoring inflation and for conducting monetary policy in the euro zone.…”

“…In the Netherlands no conveyance tax needs to be paid on a house that is resold within six months. Jansen et al (2008) have…”

“…Clapp and Giacotto (1999) and Steel and Goy (1997) suggest eliminating very short holds from the dataset. Jansen et al (2008) explored the potential impact of such very short holds by calculating the monthly growth rate for each house sold. The mean growth rates were 8.2%, 5.2%, 1.2% and 0.9% for houses sold within six months, within twelve months, within all periods, and between twelve months and the end of the period, respectively.…”