How Would You Incorporate Mortgage Payments, Interest Rates, And Inflation Into A Spatial Hedonic Model? (Cross-Sectional Data)

Hi everyone,

I’m currently working on my master’s thesis, where I’m exploring housing affordability through a spatial hedonic model. My data includes cross-sectional property transactions for three towns, but I’m trying to push the boundaries by incorporating mortgage payments, interest rates, and even inflation into the model—something that’s not typically done with this kind of analysis.

The goal is to capture more than just property price determinants; I want to reflect how financing conditions (e.g., mortgage rates) impact housing affordability spatially. However, since I’m limited to cross-sectional data, I’m trying to think creatively about how to do this while staying within the bounds of spatial econometric methods.

Here’s what I’ve been considering:

Mortgage Payments: Calculating the monthly payments based on property values and prevailing mortgage rates and using these as an alternative measure of affordability in the hedonic model. Interest Rates: Exploring whether I can create interaction terms to see how amenities (e.g., proximity to urban centers or parks) are valued differently under varying interest rate conditions. Inflation: I’m wondering if adjusting housing prices or mortgage payments for inflation would be valuable, or if there’s a better way to represent the impact of inflation on affordability.

Question for the community: How would you approach incorporating mortgage payments, interest rates, and inflation into a spatial hedonic model given the limitation of cross-sectional data? Any creative methods or existing papers you can point me to?

I’d love to hear from anyone who’s tackled a similar problem or just has ideas on how to make this work. Thanks in advance for your input—let’s push the field of housing affordability research forward together!

TL;DR: Working on housing affordability with a spatial hedonic model using cross-sectional data. Need ideas on how to creatively incorporate mortgage payments, interest rates, and inflation into the model. Thoughts?