Warning: Some transaction prices can be detrimental to your house price index

Abstract

There is a broad consensus in international statistical organizations such as Eurostat and the International Monetary Fund that house price indices (HPIs) should be constructed using transaction data. We show here how transaction data for new‐built properties can undermine the timeliness of hedonic HPIs when new‐built properties are pre‐sold during the planning or building stage, but entered into deed books only once the projects are completed. As a consequence, HPIs for new‐builds will include stale transaction prices. We investigate this issue for two Polish cities (Warsaw and Poznan) and find that HPIs for existing properties lead indices for new‐builds by up to 2 years. This lag can dramatically distort National HPIs. The lag also has implications for the flagship measure of inflation in Europe—the Harmonized Index of Consumer Prices (HICP)—since it is planned to include owner‐occupied housing in the HICP using a transactions HPI specifically for new‐builds. We show that the timeliness issue disappears when preliminary agreements on new‐builds are used instead of transactions in the compilation of an HPI.

The Application of the Simplified Speculative Frame Method for Monitoring the Development of the Housing Market

“…Using data for both markets together may cause some bias, which may appear according to lag in the primary market. Recent research indicates that data from the primary real estate market should be analyzed with a lag of 2 quarters due to the length of the investment process in this market (Hill et al, 2021).…”

Hedonic Approach to Vertical Residential Rentals in the Brazilian Amazon: The Case of Belém, Pará

“…Islam et al [20] found that, in general, the presence of a garage increases the rental price of a home by 15% and, analyzing by planned and unplanned areas, they found that the presence of garages in planned areas has a greater impact than in unplanned areas. The study conducted by Hill et al [47], using hedonic modeling, found a positive impact of structural attributes, such as area and the presence of a garage, for both new and existing apartments in the cities of Warsaw and Pozna ń.…”

An empirical investigation into regional housing market synchronisation in Poland

“…Nonetheless, they agree that using offer prices in forecasting models improves accuracy. Moreover, in the case of new builds listings can provide more reliable information on the housing market than transactions (Hill et al, 2023).…”