Spatial Dependence and House Price Index Construction

J. OF REAL ESTATE FINANCE AND ECONOMICS, Vol. 14 No. 1

Posted: 28 Feb 1997

See all articles by Ayse Can

Ayse Can

Fannie Mae Foundation

Isaac F. Megbolugbe

Federal National Mortgage Association (Fannie Mae) - Office of Housing Research

Abstract

Accurate estimation of prevailing metropolitan housing prices is important for both business and research investigations of housing and mortgage markets. This is typically done by constructing quality-adjusted house price indices from hedonic price regressions for given metropolitan areas. A major limitation of currently available indices is their insensitivity to the geographic location of dwellings within the metropolitan area. Indices are constructed based on models that do not incorporate the underlying spatial structure in housing data sets. In this paper, we argue that spatial structure, especially spatial dependence latent in housing data sets will affect the precision and accuracy of resulting price estimates. We illustrate the importance of spatial dependence in both the specification and estimation of hedonic price models. Assessments are made on the importance of spatial dependence both on parameter estimates and on the accuracy of resulting indices.

JEL Classification: R39

Suggested Citation

Can, Ayse and Megbolugbe, Isaac F., Spatial Dependence and House Price Index Construction. J. OF REAL ESTATE FINANCE AND ECONOMICS, Vol. 14 No. 1. Available at SSRN: https://ssrn.com/abstract=9230

Ayse Can

Fannie Mae Foundation ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States

Isaac F. Megbolugbe (Contact Author)

Federal National Mortgage Association (Fannie Mae) - Office of Housing Research ( email )

4000 Wisconsin Ave. NW
Washington, DC 20016
United States
202-274-5065 (Phone)
202-274-8111 (Fax)

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