RBNZ and REINZ introduce new house price inflation measure (Update 1)

The Reserve Bank of New Zealand (RBNZ) and the Real Estate Institute of New Zealand (REINZ) announced they had developed a stratified housing price measure to provide a "timely" reading of house price inflation in New Zealand that avoided being skewed by sales in particular sectors. (Update 1 includes REINZ comments.) The new measure uses monthly data supplied by the REINZ, and produces results close to QV's quarterly index, but in a quicker time-frame, the RBNZ said. There will be indexes for Auckland, Wellington and the rest of the North Island, Christchurch and the rest of the South Island. There will also be a REINZ Monthly Residential Section Price Index. The RBNZ has released a discussion paper, titled 'Developing stratified housing price measures for New Zealand', which says the new "measure produces estimates of housing price inflation that accord closely with the accurate but less timely figures obtained from the QV Quarterly House Price Index." The RBNZ worked with the REINZ to come up with the stratification measure which the REINZ will release each month. The first release will be on August 14. "(T)he current monthly REINZ median housing price is timely, but changes in the mix of properties sold each month can make it difficult to identify residential property price trends," RBNZ Assistant Governor John McDermott said. "A changing proportion of more (or less) expensive housing being actually sold in one month can move the median sale price even if the market prices for all properties have not changed," McDermott said. "The REINZ housing price index is put together using a technique known as stratification; basically it is an average of sale prices for common groups," the RBNZ said. "Obtaining timely signals on housing prices are important for analysis of the New Zealand economy. Given their close historical linkage with household consumption, changes in housing prices can provide a useful gauge of household demand conditions. This more timely measure of housing price movements will allow the Bank to identify housing market trends more quickly." "The REINZ Monthly Housing Price Index is a new development and is based on detailed suburb-level data. Future improvements, including updating comparison periods, investigating complementary data sources, and the introduction of new regional areas will be introduced periodically." REINZ President Mike Elford said the new measure will take their current analysis a step further. "Because our information is based on medians, if there is a significant change in a particular housing bracket it can skew the result. For example, if an unusually high number of homes in the $1 million-plus bracket were sold in one month, the median price could rise overall, even if the price for most mid-range homes remained the same," Elford said. We welcome your insight and comments below. The link to the full paper is above.