The Hierarchical Repeat Sales Model for GranularCommercial Real Estate and Residential Price Indices

This paper concerns the estimation of granular property price indices incommercial real estate and residential markets. We specify and apply a repeat salesmodel with multiple stochastic log price trends having a hierarchical additive struc-ture: One common log price trend and cluster specific log price trends in deviationfrom the common trend.

Moreover, we assume that the error terms potentially have aheavy tailed (t) distribution to effectively deal with outliers. We apply the hierarchi-cal repeat sales model on commercial properties in the Philadelphia/Baltimore regionand on residential properties in a small part of Amsterdam. The results show thatthe hierarchical repeat sales model provides reliable indices on a very detailed levelbased on a small number of observations. The estimated degrees of freedom for thet-distribution is small, largely rejecting the commonly made assumption of normalityof the error term... Read more >>