We use a finite mixture model to identify latent submarkets from household demographics that estimates a separate hedonic regression equation for each submarket. The method is a relatively robust empirical tool to extract submarkets from demographic information with far less effort than suspected. This method draws from latent class models to group observations in a straightforward, data-driven manner. Additionally, the unique information about each submarket is easily derived and summarized. Results are also shown to more convincingly sort submarkets than a prior study in the same area that used more comprehensive data.

Authors: Eric Belasco, Michael C. Farmer, and Clifford A. Lipscomb

Originally published in the Journal of Real Estate Research, Vol. 34, No. 4 (2012).

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