Buyer behaviour and price expectations: a spatial analysis of the Athens residential market

Purpose:This paper examines the price setting behaviour over time and space in the Athens residential market. In periods of house price inflation asking prices are often based upon the last observed highest selling price achieved for a similar property in the same micro-location. However, in a falling market, prices may be rigid downwards and less sensitive to the most recent transaction prices, weakening spatial effects. Furthermore, the paper considers whether future price expectations affect price setting behaviour. Design/methodology/approach: The paper employs a dataset of approximately 24,500 property values from 2007 until 2014 in Athens incorporating characteristics and locational variables. The authors begin by estimating a baseline hedonic price model using property characteristics, neighbourhood amenities and location effects. Following this, a spatio-temporal autoregressive (STAR) model is estimated. Running separate models, the authors account for spatial dependence from historic valuations, contemporaneous peer effects and expectations effects. Findings: The initial STAR model shows significant spatial and temporal effects, the former remaining important in a falling market contrasting with previous literature findings. In the second STAR model, whilst past sales effects remain significant although smaller, contemporaneous and price expectations effects are also found to be significant, the latter capturing anchoring and slow adjustment heuristics in price setting behaviour. Research limitations/implications: As valuations used in the database are based upon comparable sales, then in the recessionary periods covered in the dataset, finding comparables may have become more difficult, and hence this, in turn, may have impacted on valuation accuracy. Practical implications: In addition to past effects, contemporaneous transactions and expected future values need to be taken in consideration in analysing spatial interactions in housing markets. These factors will influence housing markets in different cities and countries. Social implications: The information content of property valuations should more carefully consider the relative importance of different components of asking prices. Originality/value: This is the first paper to use transactions data over a period of falling house prices in Athens and to consider current and future values in addition to past values in a spatio-temporal context