Using Housing Futures in Mortgage Research

23 Pages Posted: 19 Apr 2011

See all articles by Shuang Zhu

Shuang Zhu

Kansas State University - Department of Finance

R. Kelley Pace

Louisiana State University - E.J. Ourso College of Business Administration

Walter A. Morales

Commonwealth Advisors LLC; Louisiana State University, Baton Rouge - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: April 18, 2011

Abstract

Expectations in housing prices play an important role in real estate research. Despite its importance, obtaining a reasonable proxy for such expectation is a challenge. The existing literature in mortgage research either does not include proxies of housing expectations in empirical models or uses proxies such as the past year appreciation or time series forecasts.

This paper proposes to use the transaction prices of housing futures contracts as an alternative proxy. As an example, we compare the performances of four different proxies for expectations in explaining borrower mortgage default behavior. The results show that the futures based proxy outperforms other measures by having the highest regression model fit as well as being the only measure that shows a significant negative effect on mortgage default behavior. In addition, the paper shows that futures contain additional information that is not present in the past housing prices.

Keywords: housing futures, real estate futures, housing expectation, house price expectation, mortgage default

Suggested Citation

Zhu, Shuang and Pace, R. Kelley and Morales, Walter A., Using Housing Futures in Mortgage Research (April 18, 2011). Available at SSRN: https://ssrn.com/abstract=1815251 or http://dx.doi.org/10.2139/ssrn.1815251

Shuang Zhu (Contact Author)

Kansas State University - Department of Finance ( email )

Manhattan, KS 66506
United States

R. Kelley Pace

Louisiana State University - E.J. Ourso College of Business Administration ( email )

Department of Finance
2164 B Patrick F. Taylor Hall
Baton Rouge, LA 70803-6308
United States
(225)-578-6256 (Phone)
(225)-578-9065 (Fax)

HOME PAGE: http://www.spatial-statistics.com

Walter A. Morales

Commonwealth Advisors LLC ( email )

Baton Rouge, LA 70801
United States

Louisiana State University, Baton Rouge - Department of Finance ( email )

2163 CEBA
Baton Rouge, LA 70803
United States

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