The Hierarchical Trend Model for Property Valuation and Local Price Indices
Posted: 7 Oct 2003
This article presents a hierarchical Trend Model for selling prices of houses, addressing three main problems: the spatial and temporal dependence of selling prices and the dependency of price index changes on housing quality. In this model the general price trend, cluster-level price trends, and specific characteristics play a role. Every cluster, a combination of district and house type, has its own price development. The Hierarchical Trend Model is used for property valuation and for determining local price indices. Two applications are provided, one for the Breda region, and one for the Amsterdam region. For these regions the accuracy of valuation results are presented and price indices based on weighted median selling prices are compared to quality adjusted price indices. It is shown for both housing markets that the Hierarchical Trend Model produces price indices which are more accurate, detailed, and up-to-date.
Keywords: hedonic models, Kalman filter, real estate price indices, thin markets
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