The historical price index of a residential area, or simply any collection of residential objects, is defined as the average estimated price per square meter in the collection at each time. The underlying estimate of individual housing objects is carried out using methods developed by Invector allowing both higher updating frequency and greater prediction accuracy than is usually the case. By contrast, the official housing index for Iceland is an average of sales, which tends to misrepresent the price evolution of real estate types and locations where turnover is relatively low, as information on the price evolution of such assets will be underrepresented in the sample with respect to its population proportion. By publishing these estimates, Invector wants to draw attention to the fact that it is questionable to draw conclusions regarding the state of the housing market as a whole based on a sales weighted index, as housing categories with the biggest turnover may represent a small proportion of total housing and their price evolution can be very different from the whole. This problem does not arise within the framework of Invector's price indices since they include the entire population of houses for any category or location, and always reflect the correct composition and price evolution of the market. As a corollary, using Invector's methods it is possible to calculate monthly price indices for any group of houses, however small, regardless of the frequency of actual sales within that group. Should the frequency be low the methods will still provide the best estimate for individual or aggregated houses, but the scarcity of information will be reflected in higher estimation uncertainty, as measured by the estimation standard error.
Invector is a start-up company offering innovative statistical analysis of asset prices as a subscription service to financial institutions since 2012. To know more, visit www.invector.eu.