The impact of house price index specification levels on the risk profile of housing corporations

Asset Liability Management (ALM) for housing corporations is based on stochastic
scenario models for important risk and return drivers such as interest and inflation rates,
construction costs and sales prices of houses. Given the situation of the housing corporation
(current real estate portfolio, asset management strategy, loan portfolio, etc.), these
variables directly influence the risk and return profile of these organizations at both short
and long horizons. The scenario characteristics are usually based on long term historical
time series of relevant indices. For sales prices of houses, different indices exist with
different specification levels. House price indices are available at both a national and a
local level. And different house price indices can be used for different house types (from
apartments to detached houses). In this paper we analyze the impact of the choice of the
specification level of house price indices on the risk - return profile of housing
corporations. And we draw some conclusions on the optimal specification level.
Keywords: house price indices, risk analysis, risk management