Hedonic Index Research Articles

House prices in the Ottoman Empire: evidence from eighteenth‐century Edirne†

AbstractThis study uses a new dataset of 2,246 notarial deeds of house sales from one of the major cities of the Ottoman Empire, Edirne, covering the period from 1720 to 1814. It estimates real hedonic house prices and urban wealth inequality for the housing market. It shows that house size, proximity to the commercial centre, access to fresh water, and family ties were important determinants of relative house prices. These findings also apply to the different quartiles of the market, indicating limited market segmentation. It demonstrates that there was an increase in housing wealth inequality during the eighteenth century as house prices became more dispersed. The hedonic house price index provides evidence that inflation‐adjusted house prices declined substantially following the Russo‐Turkish war of 1768–74. The decline is mainly explained through demographic shocks induced by plague epidemics, natural disasters, and other population movements driven by wars, army mobilization, and political upheavals.

URBAN ANALYSIS AND MULTI-LEVEL MODELS. AN INTRODUCTION

The goal is to show how multilevel models can be used for urban analysis. An example with fictional data is used, and various multilevel models are exposed to capture differences in quarter prices of land, through random means and slopes. These prices are the dependent variable, while mean income, hedonic index and land market are the independent ones. The first three are registered at quarter-first level; the last one, on the citysecond level. Main conclusion is that this kind of exercise may be a valuable tool when we try to explain inter and intra-cities quarter prices.

Price Measurement Using Scanner Data: Time‐Product Dummy Versus Time Dummy Hedonic Indexes

This paper compares two model‐based multilateral price indexes: the time‐product dummy (TPD) index and the time dummy hedonic (TDH) index, both estimated by expenditure‐share weighted least squares regression. The TPD model can be viewed as the saturated version of the underlying TDH model, and we argue that the regression residuals are “distorted toward zero” due to overfitting. We decompose the ratio of the two indexes in terms of average regression residuals of the new and disappearing items. The decomposition aims to explain the conditions under which the TPD index suffers from quality‐change bias or, more generally, lack‐of‐matching bias. An example using scanner data on packaged men's T‐shirts illustrates our framework.

An Assessment of Stumpage Price and the Price Index of Chinese Fir Timber Forests in Southern China Using a Hedonic Price Model

Research Highlights: Stumpage price is the most important factor affecting the value of forests. Therefore, an understanding of the factors affecting stumpage prices and trends is critical for effective forest management. Background and Objectives: Chinese fir is the most important fast-growing timber species in China, it is also the tree species with the largest trading volume in the stumpage markets of Southern China. The aim of this study was to analyze the determinants and trends of stumpage prices for Chinese fir timber forests. Materials and Methods: Data on 928 sales of Chinese fir timber forests transacted between 2007 and 2016 were gathered from the stumpage markets in Southern China. We analyzed the relationship between stumpage prices and sales characteristics using the hedonic price method (HPM) and measured the stumpage price index with a dummy time hedonic index. Results: (1) The double logarithmic form of the HPM yielded a more accurate estimate than the semi logarithmic form. The R2ad values in the nine annual prediction models were all above 80%. Stock volume made the greatest contribution to stumpage price, followed by stand age. Stand area had no significant impact on the stumpage price. (2) Stumpage prices of Chinese fir timber forests fluctuated greatly, especially in 2010 and 2015 when the sequential price indexes were 180.01% and 74.95%, respectively. Taking 2007 as the baseline, we calculated the base price index in 2016 to be 197%, with an average annual growth rate of 7.82%. (3) The stumpage market was associated with a higher degree of risk than the timber market. Conclusions: Our findings provide valuable inputs that can guide and facilitate the Chinese government’s efforts to optimize resource allocation and standardize the stumpage market.

Higher frequency hedonic property price indices: a state-space approach

The hedonic imputation method allows characteristic shadow prices to evolve over time. These shadow prices are used to construct matched samples of predicted prices, which are inserted into standard price index formulas. We use a spatio-temporal model to improve the method’s effectiveness on housing data at higher frequencies. The problem is that at higher frequencies, there may not be enough observations per period to reliably estimate the characteristic shadow prices. In such cases, the reliability of the hedonic imputation method is improved by using a state-space formulation which yields estimates of the shadow prices that are weighted sums of previous periods’ information. In addition, the state-space representation of the model includes a geospatial spline surface which significantly reduces the number of parameters to be estimated when compared to the standard practice of including postcode dummies in the model. Empirically, using a novel criterion, we show that in higher frequency comparisons, our hedonic method outperforms competing alternatives.

Inflation and Price Escalation Adjustments in Estimating Program Cost: F-35 Case Study

Applying price indexes presents a challenge in estimating the costs of new defense systems. An inappropriate price index—one not closely linked to the inputs to the systems being costed—can introduce errors in both development of cost estimating relationships (CER) and in development of out-year budgets. To help cost analysts understand the impacts of different price indexes, this article applies two sets of price indexes to the F-35 program. Using hedonic price indexes derived from CERs, the authors isolate changes in price due to factors other than changes in quality by developing a “Baseline” CER model using data on historical tactical aircraft programs available early in the F-35 program. The focus of the work is to improve estimates of acquisition costs. All the data used in the econometric analysis are acquisition cost data. Better cost estimates should improve projections of budget requirements.

Empirical Analysis of Investments on the Fine Art Market

In conditions of the stock market instability the art assets could be considered as an attractive investment. However, due to the heterogeneity of the fine art market's goods and the absence of the systematic information about the sales, researchers do not come to the same opinion about the merits of the art assets conducting studies on single segments of the market. We make an attempt to investigate attractiveness of the fine art market for investors. Extensive data was collected to obtain a complete pattern of the market analyzing it within different segments. We construct hedonic art price indexes using parametric and semi-parametric methodologies and assess the risk via CAPM model. The artworks in the high price sector are the potentially most profitable assets on the market, but the investments in paintings are associated with high risk.

Arte como inversión: Construcción de un índice hedónico para medir la valorización de arte colombiano en el período 1989- 2015

Esta investigación estima el comportamiento del valor de obras de artistas colombianos durante el período 1989-2015 mediante el cálculo de un índice hedónico. Para ello, se utilizan datos de subastas internacionales del portal Artprice.com y la metodología de precios hedónicos; se incorpora, además, el modelo de selección de Heckman con el fin de evitar sesgo de selección. Los resultados muestran cómo la rentabilidad de la inversión en estas obras de arte ha sido inferior al rendimiento de los principales indicadores de renta variable, pero constituye una alternativa de diversificación dentro de un portafolio de inversión.

A Multi-Attribute Sales Comparison Method for Real Estate Valuation

The theory and practice of real-estate valuation has attracted immense interest over the past decades. This paper is concerned with the sales comparison approach. First, a brief survey of some procedures used worldwide, the sales comparison by adjustments, the hedonic regression and the hedonic price index method, is presented. To improve the versatility of property appraisals a new valuation method, as a combination of multi-objective optimization (MOO) and multi-criteria decision analysis (MCDA) is developed. A unique feature of this model is that it enables the appraiser to evaluate the characteristics of a property on those scales of measurement to which they belong de facto. To comply with this objective, distinct metric distance functions on each scale of measurement, including the two qualitative scales (nominal and ordinal), are employed. After that, the physical worth of a property is derived as a weighted sum of the composite scores. This can be measured on an interval scale. To predict the monetary worth of a property, a simple linear regression model is developed. The benefits of the use of this multi-attribute valuation method is also discussed. A comprehensive real-world study showing the application of the procedure is included.

Ecarts spatiaux de niveaux de prix entre régions et villes françaises avec des données de caisse

[eng] This study is based on scanner data from large retailers sent daily to Insee in 2013. Its aim is to calculate indices that measure differences in consumer price levels between different areas of metropolitan France, focusing specifically on food products sold in supermarkets. A hedonic index based on the regression of the product price on barcode and territory dummies is developed. Several assessments are carried out over different weeks, with one week of data already providing a great degree of accuracy. The dispersion of price levels between regions or large conurbations is limited and, for the most part, robust to the choice of week. The highest prices are found in the Paris region and Corsica, with a magnitude of differences in the order of a few percentage points. A comparison of the new findings with research conducted by Insee between 1970 and 2000 shows that differences in food prices across different areas of metropolitan France are essentially structural and change little over time.

Real estate prices and stock market in Germany: analysis based on hedonic price index

PurposeReal estate and stocks are two major asset types in an investor’s portfolio. Therefore, this paper aims to investigate the relationship between these two markets to provide a valuable insight into the process of portfolio optimization and security selection.Design/methodology/approachThis study examines the long-run relationship between residential real estate prices and stock market index in the case of Germany for the period of 2005-2017 by applying time series econometrics techniques. To this aim, this study uses Hedonic House Price Index as a proxy for real estate prices and DAX30 as a proxy for stock prices. Moreover, three additional variables, namely, consumer confidence, credit availability and supply of mortgage loans, are incorporated as control variables to assess the robustness of the results.FindingsObtained empirical results indicate a long-run relationship between stock prices and real estate prices which suggests that in long-run, there is no diversification benefit from allocating stock and real estate assets in a portfolio. This finding is especially important for long-term investors such as pension funds.Originality/valueTo the authors’ best knowledge, this is the first study that empirically investigates the relationship between the real estate market and stock prices using the Hedonic Price Index for the case of Germany.

The Validity of Hedonic Models for Estimating Heterogeneous Assets Returns

In this paper, we examine the validity of hedonic models for estimating heterogeneous assets returns. We look into the art markets, and show that the returns on hedonic indices strictly depend on the specifications of the model. Different sets of variables lead to different returns. This means that the researcher may implicitly decide on the performance of the hedonic index. These results are confirmed by conducting the same analysis on different samples, but they can be also deduced with simulated data. We conclude that hedonic models are sufficient for studying movements in the market; however, for studying art or other heterogeneous assets as an investment and comparing its performance to other asset classes, the repeat-sales models are more adequate.

Accuracy and Determinants of Self-Assessed Euro Area House Prices

Using microdata from the second wave of the Household Finance and Consumption Survey, we investigate the accuracy of property values estimated by homeowners - so called “self-assessed” house prices - and explore the drivers of possible deviations of these prices from official hedonic house price indices. We find evidence that euro area homeowners overestimate the value of their properties by around 9%. Across the largest euro area countries, the overestimation lies in a range between 3.2% in Germany and 22% in Italy. Household characteristics, including the level of indebtedness, appear to explain significant discrepancies between hedonic and self-assessed house price indices, while the limited available data related to property characteristics are generally not affecting this gap. For the euro area, we find that higher self-assessed house prices are associated with a mild increase in consumption expenditures.

New Characteristics and Hedonic Price Index Numbers

Changes in product characteristics on the extensive margin are an important and hitherto neglected dimension of quality change. Standard techniques for quality-adjusting price indices cannot handle such changes satisfactorily, which leads to an economically and statistically significant bias in the measurement of prices and real output. We combine theoretical insights from index numbers and demand for characteristics to develop a new method for incorporating changes on the extensive characteristic margin. Applied to data on new car sales in the U.K., our method leads to revisions in estimated inflation rates for this commodity group that are both plausible and quantitatively important.

A RE-ASSESSMENT OF HOUSE PRICE INDICES: EVIDENCE FROM THE SPANISH MARKET

This paper using evidence from the Spanish housing market contributes significantly to the debate concerning the different results obtained from house price indices depending on the method used to build the index. Utilising a large database over the period 1994 to 2012, the paper constructs a time dummy hedonic index (HD) and an imputed hedonic index using a Laspeyres approach (HI), and compares the different effect on the price index evolution. The paper discusses control by quality changes and identifies those attributes experiencing structural changes over the analysis period, identified by the HI index but not by the HD index. Results indicate that changes in quality stem from socio-demographic conditions rather than changes to housing quality (other than size). The paper also shows that improvements in neighbourhood quality rather than change in a ‘typical house’ affects house price and argues that these considerations are important in both the method selected to calculate house price indices and the application of the methodology to estimate price changes.

Investigating the Indirect Consequences of Advancements in Information Technology on US Productivity

The slowdown in productivity growth in most developed countries in recent years have been puzzling. We attempted to provide explanations for this puzzle by analysing it from the perspective of Information Technology – more specifically, how innovations in both hardware and software have indirectly contributed to the reduction in aggregate productivity levels in the US. This first part of the paper looked at how much official semiconductor manufacturing price indexes have understated the pace of deflation through the use of hedonic indexes. We then calculated how it would have affected the aggregate productivity level if these indexes were used instead of official price indexes. We extended the research done by Byrne, Oliner and Sichel (2017) to include data for the hedonic index for years 2014-2016, but found that the impact on aggregate productivity was unsubstantial (in 2011, the US labour productivity level would have increased by 0.17%). The second part of this paper investigated the role of software in creating productivity sinks in the US economy, and quantified their impact on aggregate productivity. By using our own hypothetical productivity index, we showed that by excluding specific service industries from calculation, the aggregate productivity level would’ve been increased by around 1% in 2016. We further used panel data econometrics across different US industries to show that software investment has a negative relationship with employment growth, and that the same relationship holds for employment and productivity growth, thus proving our hypothesis that software adoption played a major role in the creation of productivity sinks. However, although these factors alone were not enough to fully explain the productivity slowdown, as even when taking them into account the sharp slowdown in productivity growth in the US would still persist, they did provide useful insights and contributed to current literature.

A New Hedonic Method for Measuring Mortgage Default Risk

Measuring and monitoring the true level of mortgage delinquencies across an economy is essential for asset pricing and financial system stability. Yet public measures of mortgage default risk almost always use simple averages across pools of individual assets, including balance-sheet loans or indices tracking default risk across portfolios of residential mortgage-backed securities (RMBS). These approaches are, like median house price indices, afflicted by compositional biases that can lead to spurious inferences regarding the direction of default rates. Sources of bias include artificial changes in default rates attributable to: increases in the volume of new loans being written or (securitised RMBS added to indices); changes in the proportion of transactions with higher loan-to-value ratios (LVRs); the introduction of less seasoned RMBS transactions with a lower weighted-average loan age; and/or shifts in borrower characteristics that have higher probabilities of default (e.g. tilts towards investment borrowers). To address this problem, we have developed the first known hedonic regression-based indices of empirical mortgage default risk that explicitly control for compositional biases through the models’ characteristic-based independent variables. Whereas simple average measures of default rates across securitised loan portfolios have declined in recent years, which suggests that the risk of loss has been falling, our hedonic mortgage default index implies exactly the opposite: that is, compositionally-adjusted default rates have, in fact, been increasing sharply in recent times. In addition to delinquency rates, we apply similar hedonic regression techniques to create a compositionally-adjusted index for RMBS prepayment rates, which shows a sharp decline in prepayments from 2017 to late 2018.

Housing demand in Indian metros: a hedonic approach

PurposeThis paper aims to understand housing demand of urban Indian households in terms of housing and household-level characteristics. Because a house is a bundle of certain characteristics which vary across houses, each characteristic has an implicit price. Finding this implicit price for certain important characteristics is the first objective of this study. The second objective of the paper is to compute the income elasticity and price elasticity of housing demand for these cities.Design/methodology/approachTo achieve comparable estimates, household-level data from India’s National Sample Survey Organisation housing surveys for the years 2002 and 2008-2009 have been used. A hedonic price function is estimated using ordinary least squares (OLS) and Box-Cox functional forms to estimate the implicit prices of housing characteristics. This exercise is attempted for owned and rented houses separately. Demand function required for computing the elasticities, uses the hedonic price index derived from the implicit prices and household characteristics.FindingsThe study finds housing demand to be income elastic and price inelastic for the six cities across both the time periods.Originality/valueFirstly, this study includes housing characteristics such as individual access to drinking water, modern sanitation facility, separate kitchen, condition of the structure, existence of a road with street light and whether the house is in a slum or non-slum area in the hedonic price function. These variables were not used in any of the earlier studies pertaining to India. Secondly, it uses the Box-Cox non-linear form to derive the hedonic price function, a specification not used earlier. Thirdly, this is the first study analysing housing demand across the six largest Indian cities.

Estimating repeat sales residential price indices for Krakow

Research background: There are several methods to construct a price index for infrequently traded real estate assets (mainly residential, but also office and land). The main concern to construct a valid and unbiased price index is to address the problem of heterogeneity of real estate or put differently to control for both observable and unobservable quality attributes. The one most frequently used is probably the hedonic regression methodology (classic, but recently also spatial and quantile regression). An alternative approach to control for unobservable differences in assets? quality is provided by repeat sales methodology, where price changes are tracked based on differences in prices of given asset sold twice (or multiple times) within the study period. The latter approach is applied in renown S&P CoreLogic Case-Shiller house price indices.
 Purpose of the article: The goal of the paper is to assess the applicability of repeat sales methodology for a major housing market in Poland. Previous studies used the hedonic methodology or mix adjustment techniques, and applied for major metropolitan areas. The most widely known example is the set of quarterly house price indices constructed by NBP ? especially for the primary and secondary market. The repeat sales methodology has not been adopted with significant success to date ? mainly because of concern regarding relative infrequency of transactions on the housing market in most metropolitan areas (thus a potentially small sample of repeated sales).
 Methods: The study uses data on repeat sales of residential transactions in Krakow from 2003 to 2015. We apply different specifications of repeat sales index construction and compare respective values to the hedonic price index for Krakow estimated by NBP.
 Findings & Value added: Findings suggest that repeat sales house sales indices can be used to track price dynamics for major metropolitan areas in Poland. The study suggests problems that need to be addressed in order to get unbiased results ? mainly data collection mechanism and estimation procedure.

Can monetary policy revive the housing market in a crisis? Evidence from high-resolution data on Norwegian transactions

Studying a Norwegian high-resolution housing transaction data set, this article examines the link between the monetary policy reversal and the housing market upswing in the fall of 2008. I construct a hedonic time dummy price index and track changes over short time periods in order to inspect interruptions and turning-points. To control for seasonal effects, I compare price differences in 2008 with differences in years before and after. The evidence shows the existence of a pronounced house price index turn-around immediately after the monetary policy reversal was initiated. Plausible transmission mechanisms are established. Alternative exogenous causal factors are ruled out or appear implausible. An endogenous explanation is shown to be unlikely. The evidence thus suggests that the monetary policy reversal played a significant role in the housing market recovery.