The Dynamics of Location in Home Price

Posted: 17 Feb 2004

See all articles by Alan E. Gelfand

Alan E. Gelfand

Duke University - Decision Sciences

Mark D. Ecker

University of Northern Iowa - Department of Mathematics

John R. Knight

University of the Pacific - Eberhardt School of Business

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law

Abstract

It is well established that house prices are dynamic. It is also axiomatic that location influences such selling prices, motivating our objective of incorporating spatial information in explaining the evolution of house prices over time. In this paper, we propose a rich class of spatio-temporal models under which each property is point referenced and its associated selling price modeled through a collection of temporally indexed spatial processes. Such modeling includes and extends all house price index models currently in the literature, and furthermore permits distinction between the effects of time and the effects of location.

We study single family residential sales in two distinct submarkets of a metropolitan area and further categorize the data into single-transaction and multiple-transaction observations. We find the spatial component is very important in explaining house price. Moreover, the relative homogeneity of homes within the submarket and the frequency with which homes sell affects the pattern of variation across space and time. Differences between single sale and repeat sale data are evident. The methodology is applicable to more general capital asset pricing when location is anticipated to be influential.

Keywords: geostatistical modelingk hedonic models, index construction, spatio-temporal process

Suggested Citation

Gelfand, Alan E. and Ecker, Mark D. and Knight, John Ross and Sirmans, C. F., The Dynamics of Location in Home Price. Available at SSRN: https://ssrn.com/abstract=487563

Alan E. Gelfand (Contact Author)

Duke University - Decision Sciences ( email )

Durham, NC 27708-0120
United States
919-668-5229 (Phone)
919-684-8594 (Fax)

Mark D. Ecker

University of Northern Iowa - Department of Mathematics ( email )

Cedar Falls, IA 50614
United States

John Ross Knight

University of the Pacific - Eberhardt School of Business ( email )

3601 Pacific Avenue
Stockton, CA 95219
United States
209-946-2637 (Phone)
209-946-2586 (Fax)

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law ( email )

Tallahasse, FL 32306
United States
850 644-4076 (Phone)

HOME PAGE: http://www.cob.fsu.edu/rmi

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