Can Tightness in the Housing Market Help Predict Subsequent Home Price Appreciation? Evidence from the United States and the Netherlands

43 Pages Posted: 4 Aug 2015

See all articles by Paul E. Carrillo

Paul E. Carrillo

George Washington University - Department of Economics

Erik R. de Wit

University of Amsterdam - Finance Group; Tinbergen Institute

William D. Larson

Federal Housing Finance Agency

Date Written: Fall 2015

Abstract

This article assesses the predictive power of variables that measure market tightness, such as seller's bargaining power and sale probabilities, on future home prices. Theoretical insights from a stylized search‐and‐matching model illustrate that such indicators can be associated with subsequent home price appreciation. The empirical analysis employs listings data on residential units offered for sale through a real estate broker in the Netherlands and for certain U.S. regions. Individual records are used to construct quarterly home price indices, an index that measures seller's bargaining power and (quality‐adjusted) home sale probabilities. Using conventional time‐series models we show that current sale probabilities and bargaining power can significantly reduce home price appreciation forecast errors and help to predict turning points in local area housing markets. The measures and approaches in this article help to demonstrate ways in which researchers and practitioners can leverage listings data to gain knowledge about the current and future state of the housing market.

Suggested Citation

Carrillo, Paul E. and de Wit, Erik R. and Larson, William D., Can Tightness in the Housing Market Help Predict Subsequent Home Price Appreciation? Evidence from the United States and the Netherlands (Fall 2015). Real Estate Economics, Vol. 43, Issue 3, pp. 609-651, 2015. Available at SSRN: https://ssrn.com/abstract=2639430 or http://dx.doi.org/10.1111/1540-6229.12082

Paul E. Carrillo (Contact Author)

George Washington University - Department of Economics ( email )

Monroe Hall Suite 340
2115 G Street NW
Washington, DC 20052
United States

Erik R. De Wit

University of Amsterdam - Finance Group ( email )

Roetersstraat 11
1018 WB Amsterdam
Netherlands
+31205255414 (Phone)
+31205255285 (Fax)

HOME PAGE: http://www.abs.uva.nl/pp/edewit

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

HOME PAGE: http://www.tinbergen.nl

William D. Larson

Federal Housing Finance Agency ( email )

400 7th Street SW
Washington, DC 20552
United States

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