Warning: Some Transaction Prices can be Detrimental to your House Price Index

Abstract

There is a broad consensus in international statistical organizations such as Eurostat, the European Central Bank, and the International Monetary Fund that price indices should be constructed using transaction data. However, transaction data often lag behind actual market developments in the primary housing market (i.e., the market for new-builds) as prices are typically set months or years before the transactions are finalized. We find that for two large Polish cities (Warsaw and Poznan), secondary market house price indices (HPIs) (for existing properties) lead primary indices (for new builds) by, on average, eight quarters. In Poland and other countries with large primary-markets, this lag can dramatically distort National HPIs. The lag also affects the European Union's flagship measure of inflation, the Harmonized Index of Consumer Prices (HICP). This is because the HICP includes owner-occupied housing (on an experimental basis) using exclusively primary market transaction data. We illustrate here that replacing final transactions in the primary market with preliminary agreements would resolve these timeliness issues.

Supply, Demand and Asymmetric Adjustment of House Prices in Poland

“…However, the NBP data did not meet the objectives of this study for two main reasons. Firstly, there were significant disparities in recorded transaction volume and average house prices between the NBP data and the available comprehensive housing transaction information (Gluszak, et al, 2018;Hill, et al, 2023;Konowalczuk, 2014). Secondly, the NBP dataset did not cover the early 2000s, a period of particular eISSN: 2300-5289 | © 2023 The Author(s) | Article under the CC BY 4.0 license interest for the investigation.…”

“…Nonetheless, several studies suggest that offer data can provide valuable insight into property market changes and may serve as a suitable substitute when transaction data is unavailable (Anenberg & Laufer, 2017;Kolbe, et al, 2021;Lyons, 2019;Shimizu, et al, 2016). Moreover, in the case of new construction ,listings can provide more reliable information on the housing market than transactions (Hill,et al, 2023).…”