Forecasting the Prices and Rents for Flats in Large German Cities

35 Pages Posted: 3 May 2012

See all articles by Konstantin A. Kholodilin

Konstantin A. Kholodilin

German Institute for Economic Research (DIW Berlin)

Andreas Mense

FAU Erlangen-Nürnberg

Date Written: April 25, 2012

Abstract

In this paper, we make multi-step forecasts of the monthly growth rates of the prices and rents for flats in 26 largest German cities. Given the small time dimension, the forecasts are done in a panel-data format. In addition, we use panel models that account for spatial dependence between the growth rates of housing prices and rents. Using a quasi out-of-sample forecasting exercise, we find that both pooling and accounting for spatial effects helps to substantially improve the forecast performance compared to the benchmark models estimated for each of the cities separately. In addition, a true out-of-sample forecasting of the growth rates of flats' prices and rents for the next six months is done. It shows that in most cities both prices and rents for flats are going to increase. In some cities, the average monthly growth rate even exceeds 1%, which is a very strong increase compared to the overall price level increase of about 2% per year.

Keywords: Housing prices, housing rents, forecasting, dynamic panel model, spatial autocorrelation, German cities

JEL Classification: C21, C23, C53

Suggested Citation

Kholodilin, Konstantin A. and Mense, Andreas, Forecasting the Prices and Rents for Flats in Large German Cities (April 25, 2012). DIW Berlin Discussion Paper No. 1207. Available at SSRN: https://ssrn.com/abstract=2050397 or http://dx.doi.org/10.2139/ssrn.2050397

Konstantin A. Kholodilin (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Andreas Mense

FAU Erlangen-Nürnberg ( email )

Findelgasse 7
Nürnberg, 90402
Germany

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