IDEAS home Printed from https://ideas.repec.org/a/kap/jrefec/v48y2014i3p522-545.html
   My bibliography  Save this article

House Price Index Construction in the Nascent Housing Market: The Case of China

Author

Listed:
  • Jing Wu
  • Yongheng Deng
  • Hongyu Liu

Abstract

Most existing house price index construction methods are developed mainly based on transaction data from the secondary housing market, and are not necessarily suitable for the nascent housing markets where a predominant portion of housing transactions are new units. Using the booming market in China as an example, we evaluate and compare the performances of three most common house price measurement methods in the newly-built housing sector, including the simple average method without quality adjustment, the matching approach with the repeat sales modeling framework, and the hedonic modeling approach. Our analyses suggest that the simple average method fails to account for the substantial complex-level quality changes over time of sales during our sample period, and the matching model fails to control for the effect of developers’ pricing behaviors when adopted in the newly-built sector, hence both are downward biased. Based on this finding, we apply a hedonic method, which allows us to control for both quality changes over time of sales and developers’ pricing behaviors, to 35 major newly-built housing markets and provide the first multi-city constant-quality house price index in China. The new index reveals that the current Chinese housing market is facing a greater risk of mispricing than reported by the existing official metrics. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Jing Wu & Yongheng Deng & Hongyu Liu, 2014. "House Price Index Construction in the Nascent Housing Market: The Case of China," The Journal of Real Estate Finance and Economics, Springer, vol. 48(3), pages 522-545, April.
    • Handle: RePEc:kap:jrefec:v:48:y:2014:i:3:p:522-545
    DOI: 10.1007/s11146-013-9416-1
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11146-013-9416-1
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11146-013-9416-1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mr. Giovanni Dell'Ariccia & Mr. Pau Rabanal & Mr. Christopher W. Crowe & Ms. Deniz O Igan, 2011. "Policies for Macrofinancial Stability: Options to Deal with Real Estate Booms," IMF Staff Discussion Notes 2011/002, International Monetary Fund.
    2. Yongheng Deng & John Quigley, 2008. "Index Revision, House Price Risk, and the Market for House Price Derivatives," The Journal of Real Estate Finance and Economics, Springer, vol. 37(3), pages 191-209, October.
    3. Case, Bradford & Quigley, John M, 1991. "The Dynamics of Real Estate Prices," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 50-58, February.
    4. Yongheng Deng & Randall Morck & Jing Wu & Bernard Yeung, 2011. "Monetary and Fiscal Stimuli, Ownership Structure, and China's Housing Market," NBER Working Papers 16871, National Bureau of Economic Research, Inc.
    5. Christian Dreger & Yanqun Zhang, 2010. "Is There a Bubble in the Chinese Housing Market?," Discussion Papers of DIW Berlin 1081, DIW Berlin, German Institute for Economic Research.
    6. Kiel, Katherine A & Zabel, Jeffrey E, 1997. "Evaluating the Usefulness of the American Housing Survey for Creating House Price Indices," The Journal of Real Estate Finance and Economics, Springer, vol. 14(1-2), pages 189-202, Jan.-Marc.
    7. Ashvin Ahuja & Lillian Cheung & Gaofeng Han & Nathan Porter & Wenlang Zhang, 2010. "Are House Prices Rising Too Fast in China?," Working Papers 1008, Hong Kong Monetary Authority.
    8. K. Chau & S. Wong & C. Yiu, 2005. "Adjusting for Non-Linear Age Effects in the Repeat Sales Index," The Journal of Real Estate Finance and Economics, Springer, vol. 31(2), pages 137-153, September.
    9. Karl E. Case & Robert J. Shiller, 1987. "Prices of single-family homes since 1970: new indexes for four cities," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 45-56.
    10. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-137, March.
    11. Anglin, Paul M & Rutherford, Ronald & Springer, Thomas M, 2003. "The Trade-Off Between the Selling Price of Residential Properties and Time-on-the-Market: The Impact of Price Setting," The Journal of Real Estate Finance and Economics, Springer, vol. 26(1), pages 95-111, January.
    12. Donald Haurin, 1988. "The Duration of Marketing Time of Residential Housing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(4), pages 396-410, December.
    13. Shing-Yi Wang, 2011. "State Misallocation and Housing Prices: Theory and Evidence from China," American Economic Review, American Economic Association, vol. 101(5), pages 2081-2107, August.
    14. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1233-1260.
    15. Nagaraja, Chaitra H. & Brown, Lawrence D. & Wachter, Susan M., 2010. "House Price Index Methodology," Working Papers 11-04, University of Pennsylvania, Wharton School, Weiss Center.
    16. Eric Clapham & Peter Englund & John M. Quigley & Christian L. Redfearn, 2006. "Revisiting the Past and Settling the Score: Index Revision for House Price Derivatives," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(2), pages 275-302, June.
    17. McMillen, Daniel P., 2008. "Changes in the distribution of house prices over time: Structural characteristics, neighborhood, or coefficients?," Journal of Urban Economics, Elsevier, vol. 64(3), pages 573-589, November.
    18. Donald R. Haurin & Patric H. Hendershott, 1991. "House Price Indexes: Issues and Results," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 259-269, September.
    19. Thomas G. Thibodeau, 1989. "Housing Price Indexes from the 1974–1983 SIMSA Annual Housing Surveys," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(1), pages 100-117, March.
    20. Xiangzheng Deng & Jikun Huang & Scott Rozelle & Emi Uchida, 2010. "Economic Growth and the Expansion of Urban Land in China," Urban Studies, Urban Studies Journal Limited, vol. 47(4), pages 813-843, April.
    21. Wu, Jing & Gyourko, Joseph & Deng, Yongheng, 2012. "Evaluating conditions in major Chinese housing markets," Regional Science and Urban Economics, Elsevier, vol. 42(3), pages 531-543.
    22. Bradford Case & Henry O. Pollakowski & Susan M. Wachter, 1991. "On Choosing Among House Price Index Methodologies," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 286-307, September.
    23. Dorsey, Robert E. & Hu, Haixin & Mayer, Walter J. & Wang, Hui-chen, 2010. "Hedonic versus repeat-sales housing price indexes for measuring the recent boom-bust cycle," Journal of Housing Economics, Elsevier, vol. 19(2), pages 75-93, June.
    24. Leung, Tin Cheuk & Tsang, Kwok Ping, 2013. "Anchoring and loss aversion in the housing market: Implications on price dynamics," China Economic Review, Elsevier, vol. 24(C), pages 42-54.
    25. Mr. Ashvin Ahuja & Lillian Cheung & Gaofeng Han & Mr. Nathan Porter & Wenlang Zhang, 2010. "Are House Prices Rising Too Fast in China?," IMF Working Papers 2010/274, International Monetary Fund.
    26. R. Carter Hill & J. R. Knight & C. F. Sirmans, 1997. "Estimating Capital Asset Price Indexes," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 226-233, May.
    27. Northcraft, Gregory B. & Neale, Margaret A., 1987. "Experts, amateurs, and real estate: An anchoring-and-adjustment perspective on property pricing decisions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 39(1), pages 84-97, February.
    28. Giovanni Dell'Ariccia & Pau Rabanal & Christopher W. Crowe & Deniz O Igan, 2011. "Policies for Macrofinancial Stability; Options to Deal with Real Estate Booms," IMF Staff Discussion Notes 11/02, International Monetary Fund.
    29. Fred A. Forgey & Ronald C. Rutherford & Thomas M. Springer, 1996. "Search and Liquidity in Single‐Family Housing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(3), pages 273-292, September.
    30. Gouriéroux, Christian & Laferrère, Anne, 2009. "Managing hedonic housing price indexes: The French experience," Journal of Housing Economics, Elsevier, vol. 18(3), pages 206-213, September.
    31. Deng, Yongheng & McMillen, Daniel P. & Sing, Tien Foo, 2012. "Private residential price indices in Singapore: A matching approach," Regional Science and Urban Economics, Elsevier, vol. 42(3), pages 485-494.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Diewert, W. Erwin & Nishimura , Kiyohiko & Shimizu, Chihiro & Watanabe, Tsutomu, 2014. "Residential Property Price Indexes for Japan: An Outline of the Japanese Official RPPI," Economics working papers erwin_diewert-2014-17, Vancouver School of Economics, revised 27 Mar 2014.
    2. Deng, Yongheng & McMillen, Daniel P. & Sing, Tien Foo, 2012. "Private residential price indices in Singapore: A matching approach," Regional Science and Urban Economics, Elsevier, vol. 42(3), pages 485-494.
    3. McMillen, Daniel P., 2003. "The return of centralization to Chicago: using repeat sales to identify changes in house price distance gradients," Regional Science and Urban Economics, Elsevier, vol. 33(3), pages 287-304, May.
    4. Shimizu, Chihiro & Nishimura, Kiyohiko G. & Watanabe, Tsutomu, 2016. "House prices at different stages of the buying/selling process," Regional Science and Urban Economics, Elsevier, vol. 59(C), pages 37-53.
    5. Deng, Yongheng & Girardin, Eric & Joyeux, Roselyne, 2018. "Fundamentals and the volatility of real estate prices in China: A sequential modelling strategy," China Economic Review, Elsevier, vol. 48(C), pages 205-222.
    6. Deng, Yongheng & McMillen, Daniel P. & Sing, Tien Foo, 2014. "Matching indices for thinly-traded commercial real estate in Singapore," Regional Science and Urban Economics, Elsevier, vol. 47(C), pages 86-98.
    7. Ghysels, Eric & Plazzi, Alberto & Valkanov, Rossen & Torous, Walter, 2013. "Forecasting Real Estate Prices," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 509-580, Elsevier.
    8. Jiang, Liang & Phillips, Peter C.B. & Yu, Jun, 2015. "New methodology for constructing real estate price indices applied to the Singapore residential market," Journal of Banking & Finance, Elsevier, vol. 61(S2), pages 121-131.
    9. Bourassa, Steven C. & Hoesli, Martin & Sun, Jian, 2006. "A simple alternative house price index method," Journal of Housing Economics, Elsevier, vol. 15(1), pages 80-97, March.
    10. Wu, Guiying Laura & Feng, Qu & Li, Pei, 2015. "Does local governments’ budget deficit push up housing prices in China?," China Economic Review, Elsevier, vol. 35(C), pages 183-196.
    11. Liang Peng, 2020. "Benchmarking Local Commercial Real Estate Returns: Statistics Meets Economics," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(4), pages 1004-1029, December.
    12. Wang, Ferdinand T. & Zorn, Peter M., 1997. "Estimating House Price Growth with Repeat Sales Data: What's the Aim of the Game?," Journal of Housing Economics, Elsevier, vol. 6(2), pages 93-118, June.
    13. Wu, Jing & Gyourko, Joseph & Deng, Yongheng, 2016. "Evaluating the risk of Chinese housing markets: What we know and what we need to know," China Economic Review, Elsevier, vol. 39(C), pages 91-114.
    14. Cannaday, Roger E. & Munneke, Henry J. & Yang, Tyler T., 2005. "A multivariate repeat-sales model for estimating house price indices," Journal of Urban Economics, Elsevier, vol. 57(2), pages 320-342, March.
    15. Robert Hill & Radoslaw Trojanek, 2020. "House Price Indexes for Warsaw: An Evaluation of Competing Methods," Graz Economics Papers 2020-08, University of Graz, Department of Economics.
    16. Alex Minne & Marc Francke & David Geltner & Robert White, 2020. "Using Revisions as a Measure of Price Index Quality in Repeat-Sales Models," The Journal of Real Estate Finance and Economics, Springer, vol. 60(4), pages 514-553, May.
    17. Zhang, Lei & Yi, Yimin, 2017. "Quantile house price indices in Beijing," Regional Science and Urban Economics, Elsevier, vol. 63(C), pages 85-96.
    18. Iris Claus & Les Oxley & Jie Chen & Xuehui Han, 2014. "The Evolution Of The Housing Market And Its Socioeconomic Impacts In The Post-Reform People'S Republic Of China: A Survey Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 28(4), pages 652-670, September.
    19. Arthur Korteweg & Morten Sorensen, 2012. "Estimating Loan-to-Value and Foreclosure Behavior," NBER Working Papers 17882, National Bureau of Economic Research, Inc.
    20. Zhou, Zhengyi, 2016. "Overreaction to policy changes in the housing market: Evidence from Shanghai," Regional Science and Urban Economics, Elsevier, vol. 58(C), pages 26-41.

    More about this item

    Keywords

    House price index; Hedonic method; Quality change; Nascent housing market; C43; C81; R31;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jrefec:v:48:y:2014:i:3:p:522-545. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.