'Ripple Effects' and Forecasting Home Prices in Los Angeles, Las Vegas, and Phoenix

The Annals of Regional Science, 48(3), June 1012

45 Pages Posted: 23 Jan 2009 Last revised: 19 Apr 2015

See all articles by Rangan Gupta

Rangan Gupta

University of Pretoria - Department of Economics

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Date Written: October 27, 2010

Abstract

We examine the time-series relationship between house prices in Los Angeles, Las Vegas, and Phoenix. First, temporal Granger causality tests reveal that Los Angeles house prices cause house prices in Las Vegas (directly) and Phoenix (indirectly). In addition, Las Vegas house prices cause house prices in Phoenix. Los Angeles house prices prove exogenous in a temporal sense and Phoenix house prices do not cause prices in the other two markets. Second, we calculate out-of-sample forecasts in each market, using various vector autoregessive (VAR) and vector error-correction (VEC) models, as well as Bayesian, spatial, and causality versions of these models with various priors. Different specifications provide superior forecasts in the different cities. Finally, we consider the ability of these time-series models to provide accurate out-of-sample predictions of turning points in house prices that occurred in 2006:Q4. Recursive forecasts, where the sample is updated each quarter, provide reasonably good forecasts of turning points.

Keywords: Ripple effect, Housing prices, Forecasting

JEL Classification: C32, R31

Suggested Citation

Gupta, Rangan and Miller, Stephen M., 'Ripple Effects' and Forecasting Home Prices in Los Angeles, Las Vegas, and Phoenix (October 27, 2010). The Annals of Regional Science, 48(3), June 1012, Available at SSRN: https://ssrn.com/abstract=1331558

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

Stephen M. Miller (Contact Author)

University of Nevada, Las Vegas - Department of Economics ( email )

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
44
Abstract Views
466
PlumX Metrics