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Forecasting Canadian mortgage rates

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  • Perry Sadorsky

Abstract

Mortgage rates are one of the important drivers of the housing market. While there is a literature looking at the pass-through effect from Central Bank rates to mortgage rates, there is less known about how useful Central Bank rates are for forecasting mortgage rates. This article uses a selection of models (ARIMA, ARIMAX, BATS, state space error, trend seasonal (ETS), Holt Winter, random walk, simple exponential smoothing (SES), OLS and VAR) to forecast Canadian 5-year conventional mortgage rates. Based on RMSE, regression-based approaches like ARIMAX or OLS that use Central Bank rates to forecast mortgage rates are preferred when it comes to forecasting Canadian mortgage rates 6 or 12 months into the future, respectively.

Suggested Citation

  • Perry Sadorsky, 2016. "Forecasting Canadian mortgage rates," Applied Economics Letters, Taylor & Francis Journals, vol. 23(11), pages 822-825, July.
    • Handle: RePEc:taf:apeclt:v:23:y:2016:i:11:p:822-825
    DOI: 10.1080/13504851.2015.1111981
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