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The Forecasting Capacity of Housing Price Expectations

Author

Listed:
  • Eddie C. M. Hui

    (The Hong Kong Polytechnic University)

  • Joe T. Y. Wong

    (The Hong Kong Polytechnic University)

Abstract

This study captures the essential elements of the price expectations of market participants in a rising market. Adopting a forward-looking approach, this paper explores the effectiveness of expectations as an indicator of forthcoming housing price changes in Hong Kong. Examination of the quarterly survey data from December 2003 to September 2007 indicates that both homeowners and non-homeowners tend to overestimate the probability of future housing price increases yet underestimate its volatility. This adds weight to the argument that market participants are generally not rational in the prediction of price movement. Homeowners, investors and potential home buyers have more or less the same level of confidence about the future market outlook. Like non-owners, they expect higher prices. The number of correct forecasts exceeds incorrect forecasts, suggesting that overall price expectations are fairly close to realization. It can be broadly concluded that the aggregate price expectations in the long run can be an appropriate forecasting tool for future market performance.

Suggested Citation

  • Eddie C. M. Hui & Joe T. Y. Wong, 2009. "The Forecasting Capacity of Housing Price Expectations," International Real Estate Review, Global Social Science Institute, vol. 12(1), pages 39-61.
    • Handle: RePEc:ire:issued:v:12:n:01:2009:p:39-61
    as

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    References listed on IDEAS

    as
    1. Jim Clayton, 1996. "Rational Expectations, Market Fundamentals and Housing Price Volatility," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(4), pages 441-470, December.
    2. Douglas B. Diamond, 1980. "Taxes, Inflation, Speculation and the Cost of Homeownership," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 8(3), pages 281-298, September.
    3. Jim Clayton, 1998. "Further Evidence on Real Estate Market Efficiency," Journal of Real Estate Research, American Real Estate Society, vol. 15(1), pages 41-58.
    4. Karl E. Case, 1986. "The market for single-family homes in the Boston area," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 38-48.
    5. Karl E. Case & Robert J. Shiller, 1990. "Forecasting Prices and Excess Returns in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(3), pages 253-273, September.
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    Cited by:

    1. Simon K.C. Cheung, 2017. "A Localized Model for Residential Property Valuation: Nearest Neighbor with Attribute Differences," International Real Estate Review, Global Social Science Institute, vol. 20(2), pages 221-250.

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    More about this item

    Keywords

    Price expectations; Forecastability; Housing market; Hong Kong;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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