EFA 2012 Copenhagen Meetings Paper
33 Pages Posted: 24 May 2012 Last revised: 20 Mar 2016
Date Written: March 19, 2016
We examine U.S. housing price forecastability using principal component analysis (PCA), partial least squares (PLS), and sparse PLS (SPLS). We incorporate information from a large panel of 128 economic time series and show that macroeconomic fundamentals have strong predictive power for future movements in housing prices. We find that (S)PLS models systematically dominate PCA models. (S)PLS models also generate significant out-of-sample predictive power over and above the predictive power contained by the price-rent ratio, autoregressive benchmarks, and regression models based on small datasets.
Keywords: House prices, Forecasting, Partial least squares, Principal components, Macroeconomic factors
JEL Classification: C53, E3, G1
Suggested Citation: Suggested Citation
Bork, Lasse and Møller, Stig Vinther, Housing Price Forecastability: A Factor Analysis (March 19, 2016). EFA 2012 Copenhagen Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2065343 or http://dx.doi.org/10.2139/ssrn.2065343