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"Ripple Effects" and Forecasting Home Prices in Los Angeles, Las Vegas, and Phoenix

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Author Info
Rangan Gupta (University of Pretoria)
Stephen M. Miller (University of Connecticut and University of Nevada, Las Vegas)

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Abstract

We examine the time-series relationship between housing prices in Los Angeles, Las Vegas, and Phoenix. First, temporal Granger causality tests reveal that Los Angeles housing prices cause housing prices in Las Vegas (directly) and Phoenix (indirectly). In addition, Las Vegas housing prices cause housing prices in Phoenix. Los Angeles housing prices prove exogenous in a temporal sense and Phoenix housing prices do not cause prices in the other two markets. Second, we calculate out-of-sample forecasts in each market, using various vector autoregessive (VAR) and vector error-correction (VEC) models, as well as Bayesian, spatial, and causality versions of these models with various priors. Different specifications provide superior forecasts in the different cities. Finally, we consider the ability of theses time-series models to provide accurate out-of-sample predictions of turning points in housing prices that occurred in 2006:Q4. Recursive forecasts, where the sample is updated each quarter, provide reasonably good forecasts of turning points.

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Publisher Info
Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2009-05.

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Length: 38 pages
Date of creation: Jan 2009
Date of revision: Jun 2009
Handle: RePEc:uct:uconnp:2009-05

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Related research
Keywords: Ripple effect; housing prices; forecasting;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
R31 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Housing Supply and Markets

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  5. Meen, Geoffrey, 2002. "The Time-Series Behavior of House Prices: A Transatlantic Divide?," Journal of Housing Economics, Elsevier, vol. 11(1), pages 1-23, March. [Downloadable!] (restricted)
  6. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
  7. Rangan Gupta & Moses m. Sichei, 2006. "A Bvar Model For The South African Economy," South African Journal of Economics, Economic Society of South Africa, vol. 74(3), pages 391-409, 09. [Downloadable!] (restricted)
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  8. David E. Rapach & Jack K. Strauss, 2007. "Forecasting real housing price growth in the Eighth District states," Regional Economic Development, Federal Reserve Bank of St. Louis, issue Nov, pages 33-42. [Downloadable!]
  9. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. James H. Stock & Mark W. Watson, 2003. "Forecasting Output and Inflation: The Role of Asset Prices," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 788-829, September.
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  11. Robert B. Litterman, 1984. "Above-average national growth in 1985 and 1986," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall. [Downloadable!]
  12. Rangan Gupta, 2006. "FORECASTING THE SOUTH AFRICAN ECONOMY WITH VARs AND VECMs," South African Journal of Economics, Economic Society of South Africa, vol. 74(4), pages 611-628, December. [Downloadable!] (restricted)
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