Francke, M. and van de Minne, A. (2017). The Hierarchical Repeat Sales Model for Granular Commercial Real Estate and Residential Price Indices Journal of Real Estate Finance and Economics, 55(4):511--532.

This paper concerns the estimation of granular property price indices in commercial real estate and residential markets. We specify and apply a repeat sales model with multiple stochastic log price trends having a hierarchical additive structure: One common log price trend and cluster specific log price trends in deviation from the common trend. Moreover, we assume that the error terms potentially have a heavy tailed (t) distribution to effectively deal with outliers. We apply the hierarchical repeat sales model on commercial properties in the Philadelphia/Baltimore region and on residential properties in a small part of Amsterdam. The results show that the hierarchical repeat sales model provides reliable indices on a very detailed level based on a small number of observations. The estimated degrees of freedom for the t-distribution is small, largely rejecting the commonly made assumption of normality of the error term.