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Using Images as Covariates: Measuring Curb Appeal with Deep Learning (2403.19915v1)

Published 29 Mar 2024 in econ.GN, cs.CV, and q-fin.EC

Abstract: This paper details an innovative methodology to integrate image data into traditional econometric models. Motivated by forecasting sales prices for residential real estate, we harness the power of deep learning to add "information" contained in images as covariates. Specifically, images of homes were categorized and encoded using an ensemble of image classifiers (ResNet-50, VGG16, MobileNet, and Inception V3). Unique features presented within each image were further encoded through panoptic segmentation. Forecasts from a neural network trained on the encoded data results in improved out-of-sample predictive power. We also combine these image-based forecasts with standard hedonic real estate property and location characteristics, resulting in a unified dataset. We show that image-based forecasts increase the accuracy of hedonic forecasts when encoded features are regarded as additional covariates. We also attempt to "explain" which covariates the image-based forecasts are most highly correlated with. The study exemplifies the benefits of interdisciplinary methodologies, merging machine learning and econometrics to harness untapped data sources for more accurate forecasting.

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Authors (3)
  1. Ardyn Nordstrom (2 papers)
  2. Morgan Nordstrom (1 paper)
  3. Matthew D. Webb (9 papers)

Summary

  • The paper demonstrates that using multiple deep learning image encoders improves real estate price prediction by effectively capturing curb appeal.
  • It combines methodologies like OLS regression, neural networks, and a hybrid convolution model to integrate image features with structured data.
  • The study underscores the potential of merging unstructured image data with traditional econometric approaches for more accurate economic forecasts.

Enhancing Real Estate Price Prediction Models Using Deep Learning on Images

Introduction

In the field of empirical economics, the integration of unstructured data such as images into traditional econometric models represents a significant methodological advancement. This paper, titled "Using Images as Covariates: Measuring Curb Appeal with Deep Learning," explores the efficacy of utilizing deep learning techniques to incorporate information contained within images of residential properties as covariates in forecasting models for real estate pricing. The paper utilizes a diverse array of image classifiers including ResNet-50, VGG16, MobileNet, and Inception V3, alongside panoptic segmentation to enrich standard hedonic models typically employed in real estate price prediction. This novel integration aims to capture the nuanced visual attributes of properties, which are often unaccounted for in structured data yet hold substantial influence on buyer perception and, consequently, property values.

Methodological Overview

Encoding Image Data

The methodology introduced in this paper revolves around converting raw image data of properties into structured data that can be incorporated into econometric models. Using a set of advanced deep learning models—namely, ResNet-50, VGG16, MobileNet, and Inception V3—images are encoded to extract relevant features. This paper marks a notable divergence from traditional practices by employing multiple encoders to capture a broader spectrum of image characteristics, an approach that previous literature, such as the work by Compiani (2023), highlights but does not extensively explore in the context of real estate price modeling.

Predictive Models Utilized

The paper outlines three distinct approaches to integrating the encoded image data for the purpose of forecasting property prices:

  • Ordinary Least Squares (OLS) Regression: A traditional econometric model enhanced with LASSO penalization to accommodate the high dimensionality of the encoded image data.
  • Neural Networks: Tailored neural networks designed to process and predict prices directly from the combination of structured property characteristics and image-based features.
  • Hybrid Convolution Model: A novel amalgamation of neural network predictions based solely on image data with OLS regressions incorporating structured property data. This model seeks to leverage the strengths of both data types to enhance predictive accuracy.

Evaluation of Image Data's Contribution

To quantify the added value of image data, the paper juxtaposes the predictive performance of models utilizing only traditional structured property data against those incorporating image encodes. This comparison is instrumental in establishing the extent to which visual attributes of properties contribute to enhancing the accuracy of price predictions.

Results and Implications

The empirical results reinforce the premise that integrating image data can substantially enhance the predictive power of econometric models for real estate pricing. Notably, models utilizing multiple encoders to interpret image data markedly outperformed those relying on a singular encoder or solely on structured property characteristics. This finding underlines the multifaceted nature of visual appeal in real estate and its significant, albeit previously underappreciated, impact on property valuation.

Specifically, the hybrid convolution model, which synthesizes neural network-derived insights from image data with structured data in an OLS framework, demonstrated a noteworthy improvement in prediction accuracy. This improvement underscores the potential of leveraging deep learning to capture and quantify the nuanced visual factors that influence property values, a domain traditionally dominated by subjective human assessment.

Future Directions and Theoretical Considerations

This paper's exploration into the use of deep learning for encoding image data in econometric models opens several avenues for future research. The approach's applicability to other forms of unstructured data, such as satellite imagery or social media content, presents an exciting frontier for further exploration. Moreover, the implications of this research extend beyond the practical field of enhancing real estate price predictions, suggesting a broader potential for deep learning to uncover previously inaccessible insights in various economic contexts.

The convergence of econometrics and machine learning, as demonstrated in this paper, not only yields practical tools for improved prediction models but also prompts a reevaluation of theoretical frameworks underlying economic analysis in the age of big data. The ability to integrate and interpret unstructured data within econometric models challenges traditional notions of data usability and paves the way for a more nuanced understanding of economic phenomena.

Conclusion

In conclusion, the integration of image data through deep learning into econometric models represents a significant advancement in the field of real estate economics. By effectively capturing and quantifying the visual nuances of properties, this methodology sets a new standard for predictive modeling accuracy. The paper's findings herald a promising era of interdisciplinary approaches to economic research, where the fusion of traditional econometric methods with innovative machine learning techniques can unlock deeper insights and foster a more comprehensive understanding of complex economic dynamics.