The Hierarchical Trend Model for Property Valuation and Local Price Indices

Posted: 7 Oct 2003

See all articles by Marc Francke

Marc Francke

University of Amsterdam - Faculty of Economics and Business (FEB); Ortec Finance

G.A. Vos

University of Amsterdam - Faculty of Economics and Business (FEB)

Abstract

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

Suggested Citation

Francke, Marc and Vos, Gerjan A., The Hierarchical Trend Model for Property Valuation and Local Price Indices. Journal of Real Estate Finance and Economics, Vol. 28, No. 2, Available at SSRN: https://ssrn.com/abstract=436943

Marc Francke (Contact Author)

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands

HOME PAGE: http://www.uva.nl/en/contact/staff/item/m.k.francke.html?f=francke

Ortec Finance ( email )

Orly Centre
Barajasweg 10
Amsterdam, 1043 CP
Netherlands
+ 31 20 7009 700 (Phone)
+ 31 20 7009 701 (Fax)

HOME PAGE: http://www.ortec-finance.com

Gerjan A. Vos

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

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