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 2012-11, The George Washington University, Institute for International Economic Policy.
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