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The Forecasting Capacity of Housing Price Expectations

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Author Info

  • Eddie C. M. Hui

    ()
    (The Hong Kong Polytechnic University)

  • Joe T. Y. Wong

    (The Hong Kong Polytechnic University)

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    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.

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    File URL: http://www.umac.mo/fba/irer/papers/past/vol12n1_pdf/03.pdf
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    Bibliographic Info

    Article provided by Asian Real Estate Society in its journal International Real Estate Review.

    Volume (Year): 12 (2009)
    Issue (Month): 1 ()
    Pages: 39-61

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    Handle: RePEc:ire:issued:v:12:n:01:2009:p:39-61

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    Postal: Asia Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA
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    Web page: http://www.asres.org/

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    Postal: Asian Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA
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    Web: http://www.asres.org/

    Related research

    Keywords: Price expectations; Forecastability; Housing market; Hong Kong;

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    References

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    1. 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.
    2. 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.
    3. 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.
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