Real Estate Prices—Availability, Importance, and New Developments · 2018. 4. 10. · CPI rent Selling price index 3 Expenditures for housing services: 26.4% ... 200507 200510 200601

Second IMF Statistical Forum 2014 (IMF, Washington DC, US)

2014/11/18 page. 11

Second IMF Statistical Forum, Statistics for Policymaking Identifying Macroeconomic and Financial Vulnerabilities Session IV, Real Estate Prices—Availability, Importance, and New Developments

Discussion of Robert Shiller (Yale University) & Mick Silver (IMF)

Chihiro SHIMIZU [email protected]

Chihiro Shimizu(Reitaku University & University of British Columbia)

November 18, 2014

Real Estate Prices—Availability, Importance, and New Developments

Japanese experience and New challenge


2014/11/18 page.

1. Macroeconomic Policy and Housing Market

• Fluctuations in real estate prices and economic activities.

• In Japan, a sharp rise in real estate prices during the latter half of the 1980s and its decline in the early 1990s has led to a decade-long stagnation of the Japanese economy.

• Shimizu,C and T.Watanabe(2010), “Housing Bubble in Japan and the United States,” Public Policy Review Vol.6, No.3, 431-472.

• At the center of my definition of the bubble are the epidemic spread, the emotions of investors, and the nature of the news and information media. Bubbles are not, in my mind, about craziness of investors. (Robert Shiller (2014))

2Chihiro SHIMIZU [email protected]


2014/11/18 page.

Official Statistics on Housing market: Rent and Prices.

• The most important link between asset pricesand goods & services prices is the one through housing rents (Goodhart 2001)

• Fundamental Value: Expected Present Value Models and Excess Volatility. Robert Shiller(1984, 1989).

• Housing rents account for more than one fourth of personal spending

1.0

1.5

2.0

2.5

3.0

3.5

QT

1986

/1Q

T19

88/1

QT

1990

/1Q

T19

92/1

QT

1994

/1Q

T19

96/1

QT

1998

/1Q

T20

00/1

QT

2002

/1Q

T20

04/1

QT

2006

/1

CPI rentSelling price index

3

Expenditures for housing services: 26.4%Housing rents: 4.9%Imputed rents from owner occupied housing: 19.4%Housing maintenance and others: 2.3%

“Consumer Price Index (CPI) in Tokyo, 2010”



2014/11/18 page. 4

Pr( 0) 1 Pr( 1) Pr( 1)

Pr( 0 | 1) Pr( 1)

Pr( 0 | 1)Pr( 1)

it

it

Nit

Rit

R Rit

N Nit i

it

t

it

I

I I

R

R

I

IR I

1 ititit RRR

Frequency of Rent Adjustments

0

5

10

15

20

25

30

35

26-Sep-88

23-Jun-91

19-Mar-94

13-Dec-96

9-Sep-99

5-Jun-02

1-Mar-05

26-Nov-07

10 th

ousa

nd y

en p

er m

onth Unit 11

Unit 219Unit 220Unit 245Unit 298Unit 308Unit 339


Price ChangeProbability of event on New Contract (IN) and Renewed Contract (IR)

5

Negative Zero Positive Number of Observations

Turnover Units 85 397 44 526

(0.162) (0.755) (0.084) (1.000)

Rollover Units 18 576 0 594

(0.030) (0.970) (0.000) (1.000)

All Units 103 15,492 44 15,639

(0.007) (0.990) (0.003) (1.000)

Frequency of Rent Adjustments: Shimizu, Nishimura and Watanabe (2010)

Fraction of housing units without no rent change per year

US 29%Germany 78%Japan 90%

Estimated by Genesove (2003)

Estimated by Kurz-Kim (2006)

Estimated by Shimizu et al (2010)


2014/11/18 page.

2. How should different countries construct Residential property price indexes?

• The Eurostat published Handbook on Residential Property Price indexes. Mick Silver (2014).

• The housing rent in CPI did not work well as a “mirror” of housing prices.

• How should different countries construct residential property price indexes?

• With the start of the RPPI Handbook project, the government of Japan set up an Advisory Board in 2012 and is proceeding with the development of a new transaction based residential property price index (RPPI).

• Japan had only official appraisal based RPPI.6Chihiro SHIMIZU [email protected]


2014/11/18 page.

Transaction price-based index and Appraisal value based index in Tokyo.

7

0

2

4

6

8

10

12

14

16

18

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

-60

-40

-20

0

20

40

60

80

100

120

MarketPrice

PublishedLandPrice

MarketPrice

PublishedLandPrice

Inde

x:19

75=1

Calendar Year

annual change rate (%)

0

20

40

60

80

100

120

1975

0919

7609

1977

0919

7809

1979

0919

8009

1981

0919

8209

1983

0919

8409

1985

0919

8609

1987

0919

8809

1989

0919

9009

1991

0919

9209

1993

0919

9409

1995

0919

9609

1997

0919

9809

-40

-30

-20

-10

0

10

20

30

40

50

ULPI

MarketPrice

ULPI

MarketPrice

Inde

x:19

90M

arch

=100

Calendar Year/ Half yearly

annual change rate (%)


Lagging Problem

Appraisal Error

Appraisal Error


2014/11/18 page.

Estimation Methods for Constructing Residential Property Price Indexes

• Housing: The location, history and facilities of each house are different from each other in varying degrees.

• Houses have “particularity with few equivalents.”

• Quality-Adjustment Methodology in House Price Index

• → Hedonic method and Repeat sales method



2014/11/18 page.

Heteroskedasticity and Age Adjustments to the Repeat Sales Index• Case-Shiller adjustment:• Case and Shiller (1987, 1989) have proposed a model in which

a GLS estimation is performed taking account of heteroscedasticity.

• Age-adjustment to repeat sales index:• The number of years for which are houses in the market is

remarkably short, the depreciation problem is potentially significant in Japan.

• To take account of the age effect, we estimate Age-adjustment to repeat sales index.(Shimizu, Nishimura and Watanabe(2010), Wong, Chau and Shimizu(2013)).



2014/11/18 page.

Case of Japanese RPPI: Methods

• The question of which method is “best” remains open but the depreciation bias in the standard repeat sales method tends to lead us to prefer hedonic methods. (Handbook on Residential Property Price indexes by EuroStat (2013))

• The government of Japan decided to prepare an official residential property price index based on the hedonic method.

• In particular, it has been determined that it will be estimated with the rolling window hedonic method proposed by Shimizu, Takatsugi, Ono and Nishimura (1998) and Shimizu, Nishimura and Watanabe (2010) and system development is underway.



2014/11/18 page.

When did the condominium price hit bottom?

11

‐0.16

‐0.14

‐0.12

‐0.10

‐0.08

‐0.06

‐0.04

‐0.02

0.00

0.02

0.04

199701

199801

199901

200001

200101

200201

200301

200401

200501

200601

200701

200801

Standard repeat salesCase‐ShillerAge‐adjusted RSHedonicRolling hedonic


2 years


2014/11/18 page.

The Selection of Data Sources for the Construction of Housing Price Indexes: Mick Silver (2014).

• Are house prices different depending on the stages of the buying/selling process?

• We address this question by comparing the distributions of prices collected at different stages of the buying/selling process, including:

• (1) initial asking prices listed on a magazine or website, • (2) asking prices at which an offer is made by a buyer, • (3) contract prices reported by realtors after mortgage

approval, • (4) contract prices from registry prices.



2014/11/18 page.

Price distributions: Price densities for P1, P2, P3, and P4

13

0.00

0.05

0.10

0.15

0.20

0.25

4.50

4.75

5.00

5.25

5.50

5.75

6.00

6.25

6.50

6.75

7.00

7.25

7.50

7.75

8.00

8.25

8.50

8.75

9.00

9.25

9.50

9.75

10.0

0

10.2

5

10.5

0

P1P2P3P4

log P


The distribution of transaction prices, P3 and P4 differs substantially from that of asking prices, P1 and P2.


2014/11/18 page.

House purchase timeline

14

House placed on market

Offer made

Asking price in magazine dataset (P1)

Final asking price in magazine dataset (P2)

Mortgage approved

Contracts exchanged Completion of sale with Land Registry or REINS

Transaction price in realtor dataset (P3)

Transaction registered with Land Registry

Transaction price survey based on Land Registry

Transaction price in registry dataset (P4)

Timing of events in real estate

transaction process

Real estate price information

10 weeks

15.5 weeks

5.5 weeks


There is a time lag around 30 weeks, between P1 and P4.


2014/11/18 page.

Fluctuations in the price ratio and the interval for P1 and P2

15

35

40

45

50

55

60

65

70

75

80 0.950

0.955

0.960

0.965

0.970

0.975

0.980

0.985

0.990

0.995

2005

07

2005

10

2006

01

2006

04

2006

07

2006

10

2007

01

2007

04

2007

07

2007

10

2008

01

2008

04

2008

07

2008

10

2009

01

2009

04

2009

07

2009

10

Inte

rval

[day

s]

Pric

e rat

io

Price ratio (Left scale)

Interval (Right scale, Inverted)

0.00

0.05

0.10

0.15

0.20

0.25

2005

07

2005

10

2006

01

2006

04

2006

07

2006

10

2007

01

2007

04

2007

07

2007

10

2008

01

2008

04

2008

07

2008

10

2009

01

2009

04

2009

07

2009

10

Hedonic index for P1Hedonic index for P2



2014/11/18 page. 16

Hedonic indexes estimated using repeat-sales samples



2014/11/18 page.

Densities for relative prices

17

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

[0.6

5, 0

.70)

[0.7

0, 0

.75)

[0.7

5, 0

.80)

[0.8

0, 0

.85)

[0.8

5, 0

.90)

[0.9

0, 0

.95)

[0.9

5, 1

.00)

[1.0

0, 1

.05)

[1.0

5, 1

.10)

[1.1

0, 1

.15)

[1.1

5, 1

.20)

[1.2

0, 1

.25)

[1.2

5, 1

.30)

[1.3

0, 1

.35)

[1.3

5, 1

.40)

[1.4

0, 1

.45)

[1.4

5, 1

.50)

P1/P4

P2/P4

P3/P4



2014/11/18 page.

3. Overall conclusions: Lessons from Shiller and Silver

• Q1: How do property prices affect the economic system or thefinancial system?

• →Robert Shiller (2014)

• Q2: Do the different methods lead to different estimates of property price changes? If the methods do generate different results, which method should be chosen.

• Q3: Which data source should be used for property price indexes?

• →Mick Silver (2014) & Robert Shiller (1987, 1989)


Documents

Real Estate Prices—Availability, Importance, and New Developments · 2018. 4. 10. · CPI rent Selling price index 3 Expenditures for housing services: 26.4% ... 200507 200510 200601