Persistence and Predictability in UK House Price Movements

Posted: 4 Dec 2013

See all articles by Felix Schindler

Felix Schindler

Steinbeis University Berlin - Center for Real Estate Studies; ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management

Date Written: December 3, 2013

Abstract

This paper extends the analysis of predictability and persistence of inflation-adjusted house price movements in the UK housing market both on a regional level across 13 regions and on a nationwide level. Applying a univariate time series approach, the results from the quarterly transaction-based Nationwide Building Society indices from 1974 to 2009 provide empirical evidence for a high persistence of house price movements. In addition to conducting parametric and non-parametric tests, we provide technical trading strategies as a robustness check to compare predictability across markets and to test whether or not the detected persistence can also be used for detecting turning points in the market. The empirical findings from the technical trading strategies support the results from the statistical tests. Moving average-based trading strategies perform extremely well in the southern region, while trading strategies are less profitable for the northern regions and Wales. Thus, from an investors' perspective, there are excess real returns from moving average-based strategies compared to a buy-and-hold strategy for most regional markets. From a household perspective, the findings support the importance of derivative markets where households could hedge their risk exposure from being homeowner.

Keywords: Housing market; Times series model; Predictability; Persistence

JEL Classification: C22, C53, G14, R30

Suggested Citation

Schindler, Felix, Persistence and Predictability in UK House Price Movements (December 3, 2013). Journal of Real Estate Finance and Economics, Vol. 48, No. 1, 2014, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2362966

Felix Schindler (Contact Author)

Steinbeis University Berlin - Center for Real Estate Studies ( email )

Berlin
Germany

ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management ( email )

Postfach 103443
Mannheim, D-68034
Germany

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