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A Spatial Model of Housing Returns and Neighborhood Substitutability

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  • William N. Goetzmann

    ()
    (Yale University, School of Management)

  • Matthew I. Spiegel

    ()
    (School of Management)

Abstract

This paper provides a method for estimating housing indicesat the local level. It develops a "distance-weightedrepeat-sale" procedure to exploit the factor structure ofthe error-covariance matrix in the repeat-sales model. Adistance function defined in characteristic andgeographical space provides weights for the generalizedleast-squares model, and allows the use all of the repeated-sales in a metropolitan area to measure returns for thespecific neighborhood of interest. We use distance-weightedrepeat-sales to estimate return indices for all zip codes inthe San Francisco Bay area over the period 1980 through1994. When distance is defined in terms of socio-economiccharacteristics, we find that median household income is thesalient variable explaining covariance of neighborhoodhousing returns. Racial composition and educationalattainment, while significant, are much less influential.Zip-code level indices often deviate dramatically from thecity-wide index, depending upon income levels. This hasimplications for investors and lenders. Our resultsindicate that rates of return may vary considerably within ametropolitan area. Thus, simply using broad metropolitanarea indices as a proxy for capital appreciation within aspecific neighborhood may not be justified.

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Bibliographic Info

Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm64.

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Date of creation: 06 Jun 1997
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Handle: RePEc:ysm:somwrk:ysm64

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Web page: http://icf.som.yale.edu/
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  1. repec:asg:wpaper:1044 is not listed on IDEAS
  2. James Hansen, 2006. "Australian House Prices: A Comparison of Hedonic and Repeat-sales Measures," RBA Research Discussion Papers rdp2006-03, Reserve Bank of Australia.
  3. Eichholtz, Piet & Straetmans, Stefan & Theebe, Marcel, 2012. "The Amsterdam rent index: The housing market and the economy, 1550–1850," Journal of Housing Economics, Elsevier, vol. 21(4), pages 269-282.
  4. Song Shi & Martin Young & Bob Hargreaves, 2010. "House Price-Volume Dynamics: Evidence from 12 Cities in New Zealand," Journal of Real Estate Research, American Real Estate Society, vol. 32(1), pages 75-100.
  5. Cannaday, Roger E. & Munneke, Henry J. & Yang, Tyler T., 2005. "A multivariate repeat-sales model for estimating house price indices," Journal of Urban Economics, Elsevier, vol. 57(2), pages 320-342, March.
  6. McMillen, Daniel P., 2003. "The return of centralization to Chicago: using repeat sales to identify changes in house price distance gradients," Regional Science and Urban Economics, Elsevier, vol. 33(3), pages 287-304, May.
  7. Lin, Emily Y., 2001. "Information, Neighborhood Characteristics, and Home Mortgage Lending," Journal of Urban Economics, Elsevier, vol. 49(2), pages 337-355, March.
  8. Goodman, Allen C. & Thibodeau, Thomas G., 2003. "Housing market segmentation and hedonic prediction accuracy," Journal of Housing Economics, Elsevier, vol. 12(3), pages 181-201, September.
  9. William Goetzmann & Matthew Spiegel, 2000. "The Policy Implications of Portfolio Choice in Underserved Mortgage Markets," Yale School of Management Working Papers ysm161, Yale School of Management, revised 01 Mar 2001.
  10. Susin, Scott, 1999. "Rent Vouchers and the Price of Low-Income Housing," Berkeley Program on Housing and Urban Policy, Working Paper Series qt67d5x29s, Berkeley Program on Housing and Urban Policy.
  11. Susin, Scott, 2002. "Rent vouchers and the price of low-income housing," Journal of Public Economics, Elsevier, vol. 83(1), pages 109-152, January.
  12. Hany Guirguis & Christos Giannikos & Randy Anderson, 2004. "The US Housing Market: Asset Pricing Forecasts Using Time Varying Coefficients," The Journal of Real Estate Finance and Economics, Springer, vol. 30(1), pages 33-53, October.
  13. Daniel P. McMillen, 2002. "The center restored: Chicago's residential price gradient reemerges," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 2-11.

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