ABS HOUSE PRICE INDEX METHODOLOGY
The ABS uses a stratification approach to control for compositional change in the sample of houses used to compile the House Price Indexes each quarter. This approach stratifies (clusters) houses according to two characteristics: the long-term level of prices for the suburb in which the house is located, and the neighbourhood characteristics of the suburb, as represented by the ABS Socio-Economic Indexes for Areas (SEIFA).
Each cluster of houses in a capital city contributes a proportion of the total value of the housing stock in that capital city. The proportion of the total value is referred to as the cluster's weight. Some clusters have a large weight; some have a small weight.
Each quarter, the clusters are re-valued by applying a price relative which is derived by comparing the current median price of the cluster to the previous median price of the cluster. The current period values of each cluster are then summed to derive the current value of the total housing stock in the capital city. Index numbers are subsequently derived from the total values.
Thus the movement of a particular index is determined by both the movements of the median prices of the clusters and the weights of the clusters in the index structure.
Low numbers of price observations can affect the reliability of the cluster medians, and therefore index movements.
For more detailed information, please refer to the Explanatory Notes in this issue, or to House Price Indexes: Concepts, Sources and Methods (cat. no. 6464.0).