A House Price Index (HPI) measures the change in prices of residential properties or houses, both old and new, bought by households. The choice of methodology for measuring house prices is largely dependent on the nature of data available in a region or country. Nigeria is one of the countries without a reliable housing database. However, advancement in digital technology have made it possible to source for data and construct indices at national, state and town levels. We will be exploring various methods in constructing house price indices by using data from our real estate database.
REIC will launch the REIC INDEX in the summer of 2016. By measuring price changes, the growth rates of house price indices track house price inflation. Investors are guided on timing of investment; property owners are able to make better decisions on whether to hold off selling property till price appreciates or sell immediately before price drops sharply.
Typically, house price indices are computed quarterly or monthly and is computed using different methods. House Price Indices go beyond being a mere housing indicator; it can be used to reveal economic performance of different regions by measuring the rate of property transactions. The buying of residential property can be linked to increase in wealth and consumer spending. Commercial property movements are indicative of high level of business activity in a particular location. Unoccupied homes and empty office complexes can serve as early warning signals and inform government on polices to stimulate aggregate demand. Stable prices mean that demand and supply of houses are falling into balance, therefore tracking the trend in home prices is a fundamental tool in creating policies and adjusting price shifts.
Prices are usually unpredictable and house bubbles and bursts are undesirable effects of dramatic events such as hyperinflation, wars and financial crisis. It is important for home owners to understand the price determinants behind home ownership. A price index can boost or deflate investor and consumer confidence and with a national house price index, governments can predict financial crisis better and make adjustments in policies and stabilize the economy.