Housing price forecastability: A factor analysis
AbstractWe examine US housing price forecastability using a common factor approach based on a large panel of 122 economic time series. We find that a simple three-factor model generates an explanatory power of about 50% in one-quarter ahead in-sample forecasting regressions. The predictive power of the model stays high at longer horizons. The estimated factors are strongly statistically signi?cant according to a bootstrap resampling method which takes into account that the factors are estimated regressors. The simple three-factor model also contains substantial out-of-sample predictive power and performs remarkably well compared to both autoregressive benchmarks and computational intensive forecast combination models.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2012-27.
Date of creation: 25 May 2012
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Web page: http://www.econ.au.dk/afn/
House prices; Forecasting; Factor model; Principal components; Macroeconomic factors; Factor forecast combination; Bootstrap;
Find related papers by JEL classification:
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-13 (All new papers)
- NEP-FOR-2012-06-13 (Forecasting)
- NEP-URE-2012-06-13 (Urban & Real Estate Economics)
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- Paul E. Carrillo & Erik Robert De Wit & William D. Larson, 2012. "Can Tightness in the Housing Market Help Predict Subsequent Home Price Appreciation? Evidence from the U.S. and the Netherlands," Working Papers, The George Washington University, Institute for International Economic Policy 2012-11, The George Washington University, Institute for International Economic Policy.
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