Neighborhood Housing Prices: The Precise Distinction of Homogeneous Submarkets based on Chow and Wald Tests

Neighborhood Housing Prices: The Precise Distinction of Homogeneous Submarkets based on Chow and Wald Tests

This paper examines differences in housing prices among neighborhoods by means of hedonic housing price equations. For the Dallas area, the oommonly made assumption of a single housing market across the entire metroplex is soundly rejected, but the precise distinction of homogeneous submarkets or neighborhoods depends on the estimation strategy, in particular whether one properly accounts for heteroskedasticity. While this paper uses the housing price equation to define neighborhoods, there in no suggestion that we believe there is a uniquely defined concept of a neighborhood. There are other social and spatial concepts of neighborhoods with diffrtent boundaries that are far more relevant to other behavioral models and to other policy issues, where a housing neighborhood simply would not be informative and therefore would not apply: one may think of schooling, health care provision, crime, social cohesion, job markets, etc, Whenever such neighborhoods are determined by statistical procedures, induding regression analysis, the insights gained in this paper apply. J.E.L. Classification Number: R10.R21 Keywords:Housing prices, Neighborhoods, Heteroskedasticity