| RP Data-Rismark Home Value Index Methodology |
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The hedonic-regression is a method that attempts to overcome the issue of compositional bias associated with median price measures. The premise for this lies in hedonic theory which suggests that the value of a composite good – such as a house – is the sum of its components. Thus, by decomposing the sample of houses into their various structural and location attributes, the differences in these qualitative factors across houses can be controlled. The term hedonic was first applied to this concept by Court (1939) who employed a similar multivariate regression technique to evaluate automobile pricing. Colwell and Dilmore (1999) identify even earlier applications of the technique. Waugh (1928), for example, models price movements in agricultural produce via a multiple regression model. The first academic applications of the hedonic technique to housing were made by Griliches (1971) and Rosen (1974). |