What Can We Learn from Hedonic Models When Housing Markets are Dominated by Foreclosures?

Posted: 11 Oct 2013

See all articles by N. Edward Coulson

N. Edward Coulson

Pennsylvania State University, College of the Liberal Arts - Department of Economic; National Bureau of Economic Research (NBER)

Jeffrey E. Zabel

Tufts University - Department of Economics

Date Written: June 2013

Abstract

Hedonic property value models have been frequently used to value environmental amenities because markets for these goods usually do not exist. Typically, researchers cite Rosen’s (1974) seminal work, which allows one to interpret functions of the hedonic regression coefficients as the marginal willingness to pay for the environmental good. A key assumption needed for the Rosen result to hold is market equilibrium. Recent years have witnessed extreme circumstances — such as wild swings in housing prices, high levels of mortgage default, and, most significantly, high levels of foreclosure — in which this assumption is unlikely to hold. In this article, we address the issue of how we interpret the coefficient estimates for environmental goods in hedonic property value models when markets are dominated by foreclosures. We then focus on housing market conditions when interpreting the hedonic literature on (airport) noise, Superfund sites, air quality, and flood risk.

Suggested Citation

Coulson, N. Edward and Zabel, Jeffrey E., What Can We Learn from Hedonic Models When Housing Markets are Dominated by Foreclosures? (June 2013). Annual Review of Resource Economics, Vol. 5, Issue 1, pp. 261-279, 2013. Available at SSRN: https://ssrn.com/abstract=2339055 or http://dx.doi.org/10.1146/annurev-resource-091912-151759

N. Edward Coulson (Contact Author)

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States
814-863-0625 (Phone)
814-863-4775 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Jeffrey E. Zabel

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-2318 (Phone)
617-627-3917 (Fax)

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