Conform or Resist? Spatio-Temporal Spillover Effects of Surrounding Apartment Transactions in a Boom and a Recession

Abstract

As the transaction price of a comparable property in the local housing market is one the most accessible references for sellers and buyers, a change in a house price may result in spillover effects on future transactions of neighbouring properties. Given the dynamics on the real estate market, we can observe asymmetric effects, with those spillover effects being more pronounced in a rising market rather than in a falling market. This paper examines this hypothesis by comparing the spatio-temporal dependence in house prices during a boom and a recession period. Using data on 30,541 apartment transactions from Seoul, South Korea, this study finds that neighbouring property values are eight times more likely to spill over onto future transactions in a rising housing market as opposed to a falling one. We apply a spatio-temporal autoregressive model, rather than a spatial model, to control for spurious spatial relations that future transactions exert influence on past transitions. We show that accounting for unidirectional temporal relations improves the application of spatial econometrics in a hedonic house price model.

Keywords: Hedonic House Price Model, Spatio-Temporal Autoregressive Model, Spatial Spillover Effects, Transaction Apartment Data, Boom and Recession

JEL Classification: C21, D12, E32, R15, R21, R31