Monthly house price indices and their applications in New Zealand : a thesis presented in fulfilment of the requirements for the degree of Doctor of Philosophy, Department of Economics and Finance, College of Business, Massey University
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Date
2009
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Massey University
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Abstract
Developing timely and reliable house price indices is of interest worldwide, because
these measures influence consumer behaviour, inflation targeting, and spot and
futures markets. Several techniques for constructing a constant quality price index are
available in the literature, but these methods are difficult to apply in localities where
market transaction data is limited. Since house price movements are a local
phenomena, improving the timeliness of a quality controlled price index at local
housing market levels in small countries like New Zealand is a challenge.
This thesis comprises three essays that focused on improving the timeliness of
reported house price indices at the local market levels. The timeliness issue examined
in this thesis has not previously been rigorously investigated and this makes the
results of this thesis both important and unique for the benefit of both academic
research and practical application. Essay One reviews the sale price appraisal ratio
(SPAR) method, which has been applied since the 1960s for producing local house
price indices at a semi-annual and quarterly basis in New Zealand. Utilizing a variety
of statistical tests and comparing this index with the repeat sales and median price
index result in the study highlighting the potential of, as well as the problems
associated with, a price index produced by the SPAR method at a monthly level. In
the following two essays, monthly price indices are tested using empirical real estate
research methods in order to examine their usefulness in exploring the research
questions as well as revealing the statistical differences between them. Essay Two
studies the relationship between sale price and trading volume, and the ripple effect of
local house price comovements. The results show that the trading volume generally leads the sale price in the long-run and the ripple effect is most likely constrained
within regions. In Essay Two, the monthly SPAR index produces similar statistical
results to those estimated by the repeat sales index for large cities. Essay Three is a
study on the market efficiency of housing markets. It is found the local housing
market is neither weak-form nor semi-strong form efficient. Local house price
movements are strongly correlated and are mean reverting towards their long-run
equilibrium. It is further concluded that monthly price indices for small cities are
problematic due to the problem of small sample size.
Overall, the findings in this thesis show monthly house price indices can be generated
by using the SPAR method at local market levels. However, this potential is limited to
large cities. Further research can focus on improving the quality of monthly price
indices for large cities.
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Keywords
Housing prices, Price indices, New Zealand