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A New Index of Housing Sentiment

39 Pages Posted: 11 Nov 2016 Last revised: 31 Aug 2017

Lasse Bork

Aalborg University - Department of Business and Management

Stig Vinther Møller

University of Aarhus - CREATES

Thomas Quistgaard Pedersen

University of Aarhus - CREATES

Date Written: August 30, 2017

Abstract

We propose a new measure for housing sentiment and show that it accurately tracks expectations about future house price growth rates. We construct the housing sentiment index using partial least squares on household survey responses to questions about buying conditions for houses. We find that housing sentiment explains a large share of the time-variation in house prices during both boom and bust cycles and it strongly outperforms several macroeconomic variables typically used to forecast house prices.

Keywords: housing sentiment, house price forecastability, partial least squares, dynamic model averaging

JEL Classification: C53, E3, G1

Suggested Citation

Bork, Lasse and Møller, Stig Vinther and Pedersen, Thomas Quistgaard, A New Index of Housing Sentiment (August 30, 2017). Available at SSRN: https://ssrn.com/abstract=2867855 or http://dx.doi.org/10.2139/ssrn.2867855

Lasse Bork

Aalborg University - Department of Business and Management ( email )

Aalborg, DK-9220
Denmark
+45 9940 2707 (Phone)

HOME PAGE: http://personprofil.aau.dk/profil/123645?lang=en

Stig Møller

University of Aarhus - CREATES ( email )

Nordre Ringgade 1
Aarhus, DK-8000
Denmark

Thomas Pedersen (Contact Author)

University of Aarhus - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

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