The fourth repeat-sales model of Goetzmann and Spiegel (1995) is motivated by the fact that in many cases the features of properties are not constant through time. The second and third repeat-sales models, developed by Calhoun (1996) and Webb (1988), extend the Case and Shiller model to allow for “non-linearities” in the relationship between time and return dispersion. This was the first repeat-sales model to identify that the dispersion of price appreciation of properties is likely to be related to the time between sales, making explicit adjustments that mitigate the biasing effect of this. The first is called the "linear" weighted repeat-sales model (see Case and Shiller (1987)). CoreLogic publish a suite of five different "repeat-sales" indices, all replicating methods in the academic literature. The third type of index estimates the performance of the market by analysing the returns on individual properties for which there are at least two observed sales prices, each at different points in time.
Hedonic impact series#
For example, median price series are useful in answering economic policy questions relating to housing affordability. The fact that median or other percentile based series cannot be used to track changes in value of a market portfolio does not make them wrong: it is simply that they have different applications than hedonic indices. As such, the publication frequency of median price series is often limited to quarterly, although CoreLogic do offer a monthly median series. Further, in order to provide useful statistics, one needs to aggregate a sufficiently large numbers of property sales over what can be long periods of time. By way of example, in one period the median priced house observed may happen to be a 3 bedroom home and in the next period it may be a 4 bedroom home. In fact, it is most unlikely that any of the properties observed selling in one period will be the same as the properties selling in the next measurement period when examining quarterly or monthly median price series. Median prices do not track the same properties through time. The major shortcoming of median (or any other selected percentile) price series is that they do not represent changes in the value of the residential property market portfolio.
Further, rather than selecting the 50th percentile (ie, the median) from whatever properties are observed to sell over a particular measurement period, other percentiles such as the 25th or 75th percentile can equally be selected using the same method so as to create other percentile series. Median and stratified median indices are simple to calculate and provide the price of the middle ranking property observed to sell in a given measurement period. The stratified median index that CoreLogic produces for houses groups suburbs by their long-term price to land size ratio. The stratified median index that CoreLogic produces for units and apartments, groups suburbs by their long-term median transaction price. The strata definitions used to classify properties into subsets are based on price, geography, land size, and interactions of these variables. Unique price series are created for these subsets which are then aggregated to estimate suburb-adjusted price movements in the overall market.
Stratification is a process for creating subsets of houses which are qualitatively similar. The second class of indices CoreLogic have produced are based on a median and “stratified” median price series. Another important advantage of a hedonic imputation index is that its calculation frequency can be daily and that it tracks the value of an entire portfolio of property, not just the prices of properties observed to sell in a given period. The hedonic method has the advantage that it utilises attribute (or characteristic) information of each dwelling to mitigate biases that are otherwise prevalent in median and repeat sales property price indices. This index utilises comprehensive information on the attributes and characteristics of residential properties (such as location, land size, and bedrooms) to measure “quality-adjusted” changes in property value over time and to also impute the value of dwellings having a certain set of characteristics (but no current sales price) by observing the sales prices and characteristics of other dwellings which have recently been observed as selling. The CoreLogic Home Value Index is a hedonic model. The first class of index, known as the “hedonic” model, had not been commercially produced in Australia prior its introduction by CoreLogic.
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