Exploring the Case for Expert-defined Housing Submarket Boundaries

Although there are numerous good reasons for real estate analysts to construct housing submarkets, there is little clarity about how this might best be done in practice. The existing literature offers a variety of techniques based on principal components analysis, cluster analysis and other statistical procedures. This paper asks whether, given their market expertise and their role in disseminating information and shaping search patterns and bid formation, real estate agents might over a less data intensive method of submarket construction. The empirical research is based on an experiment that compares the performance of submarket boundaries constructed in consultation with agents with those identified using standard statistical methods for partitioning housing data. The analysis uses data on 2,175 transactions that took place in Istanbul, Turkey between November 2006 and March 2007. The results do not imply the absolute superiority of any single method but they do suggest that expert-defined boundaries tend to perform at least as well as alternative construction techniques. Importantly this suggests that this cost-effective method might help remove one constraint that has limited the adoption of submarkets by real estate analysts and planners in emerging markets context where rich datasets are not readily available.