The Time-Series Properties on Housing Prices: A Case Study of the Southern California Market

Journal of Real Estate Finance and Economics, April 2012

62 Pages Posted: 10 Mar 2009 Last revised: 29 Mar 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: December 28, 2009

Abstract

We examine the time-series relationship between housing prices in eight Southern California metropolitan statistical areas (MSAs). First, we perform cointegration tests of the housing price indexes for the MSAs, finding seven cointegrating vectors. Thus, the evidence suggests that one common trend links the housing prices in these eight MSAs, a purchasing power parity finding for the housing prices in Southern California. Second, we perform temporal Granger causality tests revealing intertwined temporal relationships. The Santa Anna MSA leads the pack in temporally causing housing prices in six of the other seven MSAs, excluding only the San Luis Obispo MSA. The Oxnard MSA experienced the largest number of temporal effects from other MSAs, six of the seven, excluding only Los Angeles. The Santa Barbara MSA proved the most isolated in that it temporally caused housing prices in only two other MSAs (Los Angels and Oxnard) and housing prices in the Santa Anna MSA temporally caused prices in Santa Barbara. Third, we calculate out-of-sample forecasts in each MSA, using various vector autoregressive (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 MSAs. Finally, we consider the ability of theses time-series models to provide accurate out-of-sample predictions of turning points in housing prices that occurred in 2006:Q4. Recursive forecasts, where the sample is updated each quarter, provide reasonably good forecasts of turning points.

Keywords: Housing prices, Forecasting

JEL Classification: C32, R31

Suggested Citation

Gupta, Rangan and Miller, Stephen M., The Time-Series Properties on Housing Prices: A Case Study of the Southern California Market (December 28, 2009). Journal of Real Estate Finance and Economics, April 2012. Available at SSRN: https://ssrn.com/abstract=1352768 or http://dx.doi.org/10.2139/ssrn.1352768

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

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