Development of stratified housing price measures
The Reserve Bank released today a discussion paper on the development of stratified housing price measures using the Real Estate Institute of New Zealand's (REINZ) housing market data.
Reserve Bank Assistant Governor Dr John McDermott said: "By using detailed sale price information collected by REINZ, the Bank has developed a housing price measure that provides a timely and regular reading of housing price movements."
Dr McDermott said the current monthly REINZ median housing price is timely, but changes in the mix of properties sold each month can make it difficult to identify residential property price trends. A changing proportion of more (or less) expensive housing being actually sold in one month can move the median sale price even if the market prices for all properties have not changed.
The REINZ housing price index is put together using a technique known as stratification; basically it is an average of sale prices for common groups.
"Obtaining timely signals on housing prices are important for analysis of the New Zealand economy. Given their close historical linkage with household consumption, changes in housing prices can provide a useful gauge of household demand conditions. This more timely measure of housing price movements will allow the Bank to identify housing market trends more quickly," Dr McDermott concluded.
The REINZ Monthly Housing Price Index is a new development and is based on detailed suburb-level data. Future improvements, including updating comparison periods, investigating complementary data sources, and the introduction of new regional areas will be introduced periodically.
More information on the new index and how stratification works can be found in the discussion paper Developing stratified housing price measures for New Zealand (PDF 455KB).
REINZ will start publishing the new monthly housing price index on 14 August.
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How stratification works
- Dwelling sales from approximately 1800 New Zealand suburbs are ranked according to their median sales price over the relevant comparison period (currently January 2005 - June 2009).
- The suburbs are allocated into ten different groups (or strata). Suburbs accounting for 10 percent of the lowest sales by price are grouped into stratum 1; suburbs with 10 percent of the most expensive sales price are in stratum 10. The allocation of suburbs to each stratum is fixed over the comparison period.
- The number of sales and median sales prices in each stratum is used to obtain a sales-weighted median price. This puts more weight on suburbs where there are more sales while filtering out sales of very high or low priced properties, giving a more stable measure of price trends for the stratum.
- The sales-weighted median housing price in each stratum is averaged to produce a housing price measure from which the housing price index is derived.
The REINZ Monthly Housing Price Index is based on a value of 1000 in January 1992, the first month for which electronic information is available. Changes in the index represent movements in housing prices, where the mix of sales between the groups is held constant and are more likely to reflect genuine property price movements. Indexes for each of the ten strata used to calculate the REINZ Monthly Housing Price Index will also be published.
Using the same methodology, regional REINZ Monthly Housing Price Indexes have been developed for Auckland, Wellington, the rest of North Island, Christchurch and the rest of the South Island. A REINZ Monthly Residential Section Price Index will also be published.