A Spatial Model of Housing Returns and Neighborhood Substitutability
AbstractThis 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 InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm64.
Date of creation: 06 Jun 1997
Date of revision:
Other versions of this item:
- Goetzmann, William N & Spiegel, Matthew, 1997. "A Spatial Model of Housing Returns and Neighborhood Substitutability," The Journal of Real Estate Finance and Economics, Springer, vol. 14(1-2), pages 11-31, Jan.-Marc.
- William N. Goetzmann and Matthew Spiegel., 1995. "A Spatial Model of Housing Returns and Neighborhood Substitutability," Research Program in Finance Working Papers RPF-253, University of California at Berkeley.
- R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General
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- 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.
- 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.
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- Liang Peng, 2012. "Repeat Sales Regression on Heterogeneous Properties," The Journal of Real Estate Finance and Economics, Springer, vol. 45(3), pages 804-827, October.
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