A spatial analysis for the real estate market applications.

The importance of location effect on prices is recognized by real estate literature. This paper proposes a spatial analysis of prices, but also of asset liquidity. In particular we introduce a new approach to measure the relative improvement in price and asset liquidity prediction when the location is known, as opposed to when the location is unknown. As a first application we considered a simplified model, where the location is represented through geographical submarkets. We applied the model to an Italian case study, where real estate markets are divided into geographical submarkets according to the law. We investigated location effect on selling price and asking price, that in Italy is often used for appraisal purposes. We find empirical evidence of the Italian submarket impact on house prices. By contrast, we show that the liquidity of the market, proxied by the time on the market and the discount ratio, is not associated with geographical submarkets.