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House Price Indices: Does Measurement Matter?

Mick Silver - September 2011

A key factor in understanding the global recession is movements in residential property price indexes (RPPIs). However, more than one national RPPI is often compiled and disseminated for a country, each differing in methodology and results. The main methodological issues are considered with three case studies: the United Kingdom, the United States and the Russian Federation.

The significance of a housing bust 
The October 2009 Report to the G-20 Finance Ministers and Central Bank Governors on the Financial Crisis and Information Gaps[2] argues that data on dwellings and their associated price changes are critical ingredients for financial stability policy analysis. The six major banking crises in advanced countries since the mid–1970s were all associated with a housing bust (Reinhart and Rogoff, 2009). Claessens, Kose, and Terrones (2008, page 25) also find that “..recessions associated with house price busts are on average over a quarter longer than those without busts. Moreover, output declines (and corresponding cumulative losses) are typically much larger in recessions with busts, 2.2 (3.7) percent versus 1.5 (2.3) percent in those without busts. These sizeable differences also extend to the other macroeconomic variables, including consumption, investment and the unemployment rate.”[3] 

However, an understanding of deviations from equilibrium prices in housing markets requires reliable and, for international comparisons, consistently-measured, residential property price indices (RPPIs)—hereafter the terms RPPIs and house prices indexes (HPIs) are used interchangeably. RPPIs ma...

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