A new approach for constructing home price indices: The pseudo repeat sales model and its application in China

The present paper tests the ps-RS method using a large-scale micro transaction data set of new home sales from January 2006 to June 2011 (444,596 observations) in Chengdu, Sichuan Province, China. The resulting complex-based ps-RS index essentially parallels the hedonic index, suggesting that the hedonic index is not superior to that version of the ps-RS index in terms of systematic results. The phase-based ps-RS index has a lower growth trend and the building-based version lower still, indicating omitted variables relating to the physical quality of the units are not well controlled for in the hedonic, and suggesting that the building-based version of the ps-RS index provides the greatest control for such quality differences. Building-based ps-RS indices with different distance metric thresholds are almost the same. Compared to the hedonic, the ps-RS provides a smoother index indicating less random estimation error (or “noise”).