Implicit Hedonic Pricing Using Mortgage Payment Information

Posted: 18 Mar 2017

See all articles by R. Kelley Pace

R. Kelley Pace

Louisiana State University - E.J. Ourso College of Business Administration

Shuang Zhu

Kansas State University - Department of Finance

Date Written: March 16, 2017

Abstract

Hedonic pricing, estimating the value of housing characteristics through the use of transactions data, is one of the most common tasks performed by real estate researchers. However, transaction frequency varies over time, locations and other factors. In contrast, two-thirds of homeowners have mortgages that they pay each month. This manuscript explores the use of mortgage payment data as an alternative or supplemental means to derive the value of housing characteristics. Insofar as price affects default and housing characteristic values determine price, housing characteristic values affect default. The implicit housing characteristic values come from parameter values that fit observed patterns of payments and defaults. We find a strong correlation (0.74-0.92) between the transaction-based and the implicit approaches. In addition, the Monte Carlo simulation indicates that the mortgage based pricing model has potential to help reveal housing market information especially during low sales activity and/or high default rate situations.

Keywords: Mortgage; Mortgage Default; Latent Index; Implicit Prices; Hedonic House Price

Suggested Citation

Pace, R. Kelley and Zhu, Shuang, Implicit Hedonic Pricing Using Mortgage Payment Information (March 16, 2017). Journal of Real Estate Finance and Economics, Vol. 54, No. 3, 2017. Available at SSRN: https://ssrn.com/abstract=2934608

R. Kelley Pace

Louisiana State University - E.J. Ourso College of Business Administration ( email )

Department of Finance
2164 B Patrick F. Taylor Hall
Baton Rouge, LA 70803-6308
United States
(225)-578-6256 (Phone)
(225)-578-9065 (Fax)

HOME PAGE: http://www.spatial-statistics.com

Shuang Zhu (Contact Author)

Kansas State University - Department of Finance ( email )

Manhattan, KS 66506
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
124
PlumX Metrics