Property data and analytics specialist CoreLogic
has unveiled the next generation of Hedonic Home Value Index to provide greater insights into the Australian housing market on both a national and granular scale.
The upgraded Index will be used for the first time on 1 September and published on the first business day of every month after that.
It formulates a ‘value’ figure for each property using key attributes such as land area, number of bedrooms, bathrooms and car spaces, adding recent local sales figures. The Index is designed to measure pure returns and exclude value added from renovation and new construction.
Estimated capital gains will be based on the change in the overall value of a consistent housing portfolio over each monthly time period.
“CoreLogic spends more than $20m each year in acquiring, cleaning and matching disparate data sources in order to compile the most comprehensive database on property sales and attributes in Australia,” said CoreLogic head of research Tim Lawless
“Hedonic regression is a statistical technique which allows us to determine a property’s value based on its component parts, and not just on local market movements. This allows for a far more accurate measurement of capital gain or capital loss that can benefit buyers, sellers, lenders and real estate professionals alike.”
CoreLogic CEO Lisa Claes
noted that Australians “punch way above our weight” when it comes to property.
“Residential property in Australia is the Jupiter in the solar system of asset classes,” she said at CoreLogic’s Home Indices Launch in Sydney yesterday (28 August).
“Given its criticality to the economic wellbeing of Australians as an asset class, it’s vital that we have sophisticated instruments available to measure the value and movement of the Australian housing market and we believe that our indices are one such instrument.”
The major shift in the new Index is the move away from looking at median price and onto a more attribute-based ‘value’ for each property. This was a way to eliminate “compositional bias”, which can create an artificial skewing of the statistics, Lawless said.
One example of this bias were the first home buyers grants in 2009 which encouraged a large spike in FHBs and a resultant increase in the number of homes being sold at the lower end of the spectrum, he said. This would have pulled down the median price and offered an artificially lower reading of market performance.
“With our hedonic index, because we’re including every single property across the whole portfolio, you won’t find that compositional bias creep into the methodology.”
This latest upgrade is the latest in an evolution that started 11 years ago when the Hedonic Home Value Index was launched in 2006. It aligns CoreLogic’s methodology with global best practices including those endorsed by the European Commission and International Monetary Fund.
The Index has also been audited internally and externally, results of which will be published in a new whitepaper and on the CoreLogic website and FAQ section.
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