This graph shows the increase as a fraction of the original when new sales price in two neighboring developments in our city since the beginning of 2015. The green dots are in our development and the red dots in the neighboring development, which was built by the same developer a year earlier:
The final red dot is the recent AUD 1.3 million sale. Using the increase above the initial price automatically adjusts for the different characteristics of each house sold. I only include free-standing houses. Our development also has row townhouses.
Prices are trending up over time in both developments but clearly houses are selling for greater premia in the neighboring development. By an average of 19%. But I think this is just because it was built earlier. When we use a logarithmic y-axis the two trendlines are almost parallel:
Therefore, I think it is valid to include the two developments in one model and just include a dummy variable for the neighboring development. Based on the analysis our house would be worth AUD 970k.
3 comments:
It's fun to include an estimated house price when tracking estimated NW each month (love to see a $100K 'paper profit'). But of course its all a moot point unless you intend to downsize and realize some of the home equity (putting some of the home value into super after age 65 when the kids have left home is on our radar. Or possibly using the revamped pension loan scheme to mitigate longevity risk if necessary).
And which of the 'dots' in the chart might end up being close to your house sale price is anyone's guess. Perhaps use the sd of the log-linear regression equation to put max/min likely house price estimates into your monthly NW? But I've never seen as NW put as a 'range', even though there is obviously some uncertainty built into nearly all NW calculations.
The premia difference between the two developments might also be due to the fact that your development includes townhouses, while the earlier development didn't. That could make your development 'less desireable', so that free standing houses are relatively cheaper in your development compared to the other development. Either way the dummy variable would account for the offset in the two best fit lines.
I was feeling like I made a bad decision buying here as prices had risen less than in the city as a whole. So, this makes me feel a bit better :) BTW I don't include our house in calculations of investment performance, though it is in net worth. There is increasing uncertainty in my net worth estimate as I increase investments in private equity, art etc.
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