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The Role Of Price Expectations In The U.K. Market Housing

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  • Gareth Thomas
  • David Bywaters

Abstract

The objective of this paper is to show the role of survey data published by Royal Institution of Chartered Surveyors (RICS) in forecasting subsequent U.K. house prices, three months ahead. Both the Halifax and the Nationwide indices are used to test the performance of the RICS survey based on bounded rationality. Bounded rationality means that various agents, such as buyers, sellers, estate agents and chartered surveyors, play differing rÙles in the overall formulation of expectations of prices. An S-shaped logistic effect with a diffusion path of expectations from surveyors to other agents is assumed. The empirical analysis makes use of the forwarding-looking price expectations data published by Royal Institution of Chartered Surveyors (RICS) with the actual observations produced by Mortgage lenders, the Halifax and the Nationwide. The study provides econometric evidence for the validity of the logistic formulation and shows that bounded rationality can explain the predictions of agents. The conclusions from this paper is that the logistic function is a superior approximation to the true data generating process compared with the earlier standard Anderson/Pesaran/Thomas approach. An adjustment to the survey is used, which achieves perfect symmetry with ëupí and ëdowní versions of the data, which is also tested.

Suggested Citation

  • Gareth Thomas & David Bywaters, 2010. "The Role Of Price Expectations In The U.K. Market Housing," ERES eres2010_018, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2010_018
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2010-018
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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