Can Tightness in the Housing Market Help Predict Subsequent Home Price Appreciation? Evidence from the U.S. and the Netherlands
Paul E. Carrillo
George Washington University - Department of Economics
Erik R. De Wit
University of Amsterdam - Finance Group; Tinbergen Institute
William D. Larson
Government of the United States of America - Bureau of Economic Analysis (BEA); George Washington University - Research Program on Forecasting
April 5, 2014
This paper assesses the predictive power of variables that measure market tightness, such as seller's bargaining power and sale probabilities, on future home prices. Theoretical insights from a stylized search-and-matching model illustrate that such indicators can be associated with subsequent home price appreciation. The empirical analysis employs listings data on residential units offered for sale through a real estate broker in the Netherlands and for certain U.S. regions. Individual records are used to construct quarterly home price indices, an index that measures seller's bargaining power, and (quality adjusted) home sale probabilities. Using conventional time-series models we show that current sale probabilities and bargaining power can significantly reduce home price appreciation forecast errors and help to predict turning points in local area housing markets. The measures and approaches in this paper help to demonstrate ways in which researchers and practitioners can leverage listings data to gain knowledge about the current and future state of the housing market.
Number of Pages in PDF File: 51
Keywords: Forecasting, Home prices, Bargaining power, Time on the market, Information asymmetries
JEL Classification: R30, C50working papers series
Date posted: August 31, 2012 ; Last revised: April 10, 2014
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