Improving Median Housing Price Indexes Through Stratification

35 Pages Posted: 22 Jan 2007

See all articles by Anthony J. Richards

Anthony J. Richards

Reserve Bank of Australia - Economic Research

Nalini Prasad

Reserve Bank of Australia - Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: January 2007

Abstract

There is a trade-off between how easy a housing price series is to construct and the extent to which it adjusts for changes in the mix of dwellings sold. Median house price measures are easily calculated, frequently used by industry bodies and quoted in the press. However, such measures provide poor estimates of short-term changes in prices because they reflect changes in the composition of transactions as well as changes in demand and supply conditions.

Based on a database of 3.5 million transactions in the six largest Australian cities, we demonstrate that compositional shifts between higher and lower-priced parts of cities can account for much of the noise in median price measures. Accordingly, we propose a simple method of adjusting for compositional change through stratification. Our measure differs from those commonly used internationally as we group neighborhoods or small geographic regions according to the long-term average price level of dwellings in those regions. The measure of price growth produced improves substantially upon a median and is very highly correlated with regression-based measures.

Keywords: housing, housing prices

JEL Classification: G12, R31

Suggested Citation

Richards, Anthony J. and Prasad, Nalini, Improving Median Housing Price Indexes Through Stratification (January 2007). Available at SSRN: https://ssrn.com/abstract=958159 or http://dx.doi.org/10.2139/ssrn.958159

Anthony J. Richards (Contact Author)

Reserve Bank of Australia - Economic Research ( email )

GPO Box 3947
Sydney, NSW 2001
Australia
61 2 9551 8801 (Phone)
61 2 9551 8833 (Fax)

Nalini Prasad

Reserve Bank of Australia - Economic Research ( email )

GPO Box 3947
Sydney, NSW 2001
Australia

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