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Modeling Spatially Interdependent Mortgage Decisions

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  • Shuang Zhu
  • R. Pace

Abstract

House price regression residuals often display spatial dependence but historically mortgage models, which employ house prices, assume independence and use only the own borrower/loan characteristics. This manuscript uses a spatial probit model to investigate spatial dependence among the disturbances and the effect of borrower/loan characteristics from nearby properties on own default propensity. We find that allowing spatial dependence in the disturbances greatly improve the predictive accuracy of a probit default model, and that spillovers from risky neighbor characteristics have statistically significant and material effects on own payment default propensity. In addition, measurement of spatial effects can improve policy analysis. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Shuang Zhu & R. Pace, 2014. "Modeling Spatially Interdependent Mortgage Decisions," The Journal of Real Estate Finance and Economics, Springer, vol. 49(4), pages 598-620, November.
    • Handle: RePEc:kap:jrefec:v:49:y:2014:i:4:p:598-620
    DOI: 10.1007/s11146-013-9419-y
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    1. Medina-Olivares, Victor & Calabrese, Raffaella & Dong, Yizhe & Shi, Baofeng, 2022. "Spatial dependence in microfinance credit default," International Journal of Forecasting, Elsevier, vol. 38(3), pages 1071-1085.
    2. Chomsisengphet, Souphala & Kiefer, Hua & Liu, Xiaodong, 2018. "Spillover effects in home mortgage defaults: Identifying the power neighbor," Regional Science and Urban Economics, Elsevier, vol. 73(C), pages 68-82.
    3. Juan-Gabriel Gonzalez-Morales & Marina Checa-Olivas & Rafael Cano-Guervos, 2021. "Impact of Evictions and Tourist Apartments on the Residential Rental Market in Spain," Sustainability, MDPI, vol. 13(13), pages 1-13, July.
    4. Pace, R. Kelley & Zhu, Shuang, 2019. "The influence of house, seller, and locational factors on the probability of sale," Journal of Housing Economics, Elsevier, vol. 43(C), pages 72-82.
    5. R. Kelley Pace & Shuang Zhu, 2017. "Implicit Hedonic Pricing Using Mortgage Payment Information," The Journal of Real Estate Finance and Economics, Springer, vol. 54(3), pages 387-402, April.
    6. R. Kelley Pace & Shuang Zhu, 2016. "Inferring Price Information from Mortgage Payment Behavior: a Latent Index Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 53(2), pages 246-267, August.
    7. Calabrese, Raffaella & Crook, Jonathan, 2020. "Spatial contagion in mortgage defaults: A spatial dynamic survival model with time and space varying coefficients," European Journal of Operational Research, Elsevier, vol. 287(2), pages 749-761.

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