Experts Report

The RPNZ-Rismark Indices have been independently audited by Moody’s Economy.com, which is a leading global economics research organization, and the Securities Industry Research Centre of Asia-Pacific ("SIRCA"), a not-for-profit financial services research organisation involving twenty-six collaborating universities across Australia and New Zealand. A summary of these two reports is enclosed below.

Moody’s Economy.com Report

In a 37 page report authored by two economics PhDs, Dr Daniel Melser and Dr Anthony Hughes, Moody’s Economy.com undertook an extensive review of the methodology, data and procedures used by RP Data-Rismark to construct their house price indices. The Moody’s report’s summary findings are as follows:

“The data used in the construction of the indexes are sourced from RP Data, an Australian Securities Exchange-listed housing data provider, and includes the population of sales in each city along with extensive details on housing characteristics. These data are more sophisticated, detailed and have better coverage than that used in the construction of existing housing price indexes in Australia. The high quality of the data makes it possible to implement not only median price and repeat sales indexes but also hedonic indexes, which up to this point had proved difficult to construct in Australia due to data constraints. In fact, there have not previously been any regularly published hedonic indexes made commercially available in Australia. Finally, the way in which the real-time data is collected, via real estate agents (over and above the traditional valuer-general and land titles sources), has the potential to solve many of the timeliness problems that has plagued measurement in this area.”

“The goal of RP Data-Rismark is to construct housing prices indexes with broad market coverage while controlling for compositional change. In this regard four types of indexes will be calculated using the median price, stratified price, repeat sales and hedonic methodologies. The last two of these varieties of index control best for compositional change, however, the median price index is familiar to users and has the advantage of using a high proportion of the data; for these reasons it will also be produced by RPNZ-Rismark. The stratified median price methodology better controls for compositional change and hence produces an index which should better reflect pure price change than simple median price indexes. The repeat sales indexes are constructed using the latest methods available in the literature and are similar in nature to those produced in the U.S. such as the Case-Shiller and OFHEO indexes, which we discuss further below. The introduction of such repeat sales indexes to the Australian market, using the extensive database outlined above, will considerably improve upon existing measures of housing price change in Australia which are influenced by compositional changes in the types of dwellings sold over time.”

“Perhaps the most exciting methodological development is the introduction of hedonic price indexes to the Australian market. This approach to price index construction controls for compositional change by obtaining information on housing characteristics (e.g. bedrooms, bathrooms, land size, suburb, etc.) and holding these constant across time. The preferred methodological approach adopted by Rismark is the ‘adjacent time-dummy’ method which isolates temporal change in price while conditioning on the characteristics of the houses sold. This method, and hedonic methods in general, are particularly attractive as they are able to control completely for any compositional change while potentially using all the data. The cost is that much more detailed data is required for their implementation. Through their Strategic Alliance with RPNZ, Rismark has access to arguably one of the best databases available anywhere for the construction of hedonic indexes. While we expect that the hedonic index will best control for compositional change, while also maintaining broad coverage of the data, it will be of considerable interest to see how the three types of index relate. The other indexes, because they use less data, may be able to be published on a timelier basis and serve a useful function in this regard.”

“The suite of indexes calculated by RP Data-Rismark represents a significant improvement in the quality of housing price statistics available in Australia. The use of arguably the highest quality Australian dataset and state-of-the-art index construction methodologies will result in measures of house prices that accurately represent the return on the assets in question rather than providing biased estimates that are bedeviled by compositional change and lack of market coverage. We look forward to seeing these indexes as they are released and believe that they will quickly take a central place in the macroeconomic data framework of Australia.”

SIRCA Report

Professor Alex Frino of SIRCA provided RPNZ-Rismark with an independent expert’s opinion on the veracity and integrity of the RP Data-Rismark Indices. His summary conclusions are as follows:

“RP Data-Rismark have engaged SIRCA to review the mathematical calculations and logic underlying the indices and prepare this opinion letter for the purposes of making external representations about the integrity of these indices.”

“In accordance with our Research Agreement…we have reviewed the indices. This opinion letter sets out our audit statement arising from the procedures conducted… Based on the procedures outlined above, we believe that:”

“The logic and procedures adopted conform to those established in the advanced academic literature.”

“The indices are correct given the assumptions and calculations used.”

More generally, the results of our analysis indicate that the stratified median price, hedonic and repeat-sales property price indices developed by RPNZ-Rismark represent a material improvement over the simple median price series that have historically predominated in the Australian market. In this regard, it is pleasing to see private sector organisations that are committed to undertaking sophisticated residential real estate research and advancing our otherwise crude understanding of this complex market”

You can purchase the RPNZ-Rismark Indices here, or contact one of our consultants to find out more here.