The purpose of this paper has been to explore the nature of housing price differences in Istanbul Metropolitan Area. Recent studies on urban housing markets have widely accepted the existence and significance of housing sub-markets. This study investigates spatial distribution of housing prices in Istanbul by taking into consideration property and sub-market characteristics to identify localized factors. Conditions to construct a robust Local House Price Index for Istanbul also examined. Hedonic Regression models employed using ordinary least squares (OLS) to estimate house price. Especially in Istanbul house prices are highly spatially correlated the weight matrix approach employed to handle this problem. Findings of this study suggests that recently introduced Mortgage Law in Turkish banking system strongly needs House Price Indices (HPI) to be studied deeply in different market segments sub-market characteristics and local factors.