Using Housing Futures in Mortgage Research

Posted: 2 Dec 2013

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: December 2, 2013

Abstract

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

This paper proposes to use the transaction prices of Case-Shiller housing futures as an alternative "forward-looking" proxy. As an example, we compare the performances of four different expectation proxies in explaining mortgage default behavior. The loan level analysis shows that the futures based expectation proxy outperforms other proxies by having the highest regression model fit and being the only proxy that shows a significant negative effect on mortgage default behavior, as theory suggests. Out of sample predictions also show that futures have better prediction accuracy than other proxies. In addition, the paper shows that futures contain additional information that is not present in the backward-looking proxies.

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 (December 2, 2013). Journal of Real Estate Finance and Economics, Vol. 48, No. 1, 2014, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2362471

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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