Developing a House Price Index for the Netherlands: A Practical Application of Weighted Repeat Sales

This paper describes the development of a house price index that has been introduced in May 2005 in the Netherlands. This monthly index, called Woningwaarde Index Kadaster (House Price Index Kadaster), is designed to detect changes in the price of the overall stock of owner-occupied homes. Fifty-five indices are calculated: one overall index, four regional indices, twelve provincial indices and 38 indices based on combinations of region/province and dwelling type. We used Case and Shiller's geometric Weighted Repeat Sales Model to calculate monthly house price indices. We used recorded data on the sales of over five hundred thousand owner-occupied homes in the Netherlands, all representing repeat sales between January 1993 and December 2006. The accuracy of the index was determined using the 95% confidence interval. We observed that accuracy might become a problem in smaller sub amples. Revision volatility was explored by comparing the index values computed from all available data until December 2005 with the index values computed from the data available until December 2006. Our analysis showed that revision volatility does not seem to be a major problem to the index. We also explore heteroskedasticity in the Repeat Sales method but did not find conclusive evidence for the proposed heteroskedasticity. Given our target (a geometric mean index value) and the characteristics of the dataset (very large but without property characteristics) the Repeat Sales Method seems to be adequate for calculating a house price index for the Netherlands.