Real Estate Price Indices and Price Dynamics: An Overview from an Investments Perspective

Abstract

This article reviews the state of the art in real estate price indexing and, related to that, the current state of knowledge about real estate price dynamics, with a primary focus on investment property, income generating commercial properties. Such assets form a large component of the national wealth and of the capital markets, and represent a major investment asset class. They are characterized by heterogeneity of various types, among assets, markets, and data sources, making the study of real estate pricing uniquely challenging. Yet urban economists and econometricians have pioneered major new price indexing methodologies in recent decades which, combined with new types of data sources, are now shedding new light on the nature of commercial property price dynamics, revealing both important commonalities as well as unique differences compared with equities and fixed-income securities pricing.