Are real house prices likely to decline by 47 percent?
Mankiw and Weil have estimated a demographically-driven real house price equation on annual data from the 1947-87 period and used it to forecast real house prices over the 1988-2007 period. The result is their infamous 47 percent real decline. Their equation really only fits data from the 1950s and 1960s. Not only is the post 1970 fit poor, but the cumulative in-sample forecast for the 1970-87 period is off by a factor of four. While real house prices seem more likely to decline than increase over the next two decades, the most likely decline is 10 to 15 percent, not 47 percent.
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- Henderson, J. Vernon & Ioannides, Yannis M., 1989. "Dynamic aspects of consumer decisions in housing markets," Journal of Urban Economics, Elsevier, vol. 26(2), pages 212-230, September.
- Haurin, Donald R. & Lee, Kyubang, 1989. "A structural model of the demand for owner-occupied housing," Journal of Urban Economics, Elsevier, vol. 26(3), pages 348-360, November.
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