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A New Index of Housing Sentiment

Author

Listed:
  • Lasse Bork

    () (Aalborg University)

  • Stig V. Møller

    () (Aarhus University and CREATES)

  • Thomas Q. Pedersen

    () (Aarhus University and CREATES)

Abstract

We propose a new measure for housing sentiment and show that it accurately tracks expectations about future house price growth rates. We construct the housing sentiment index using partial least squares on household survey responses to questions about buying conditions for houses. We ?find that housing sentiment explains a large share of the time-variation in house prices during both boom and bust cycles and it strongly outperforms several macroeconomic variables typically used to forecast house prices.

Suggested Citation

  • Lasse Bork & Stig V. Møller & Thomas Q. Pedersen, 2016. "A New Index of Housing Sentiment," CREATES Research Papers 2016-32, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:create:2016-32
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    File URL: ftp://ftp.econ.au.dk/creates/rp/16/rp16_32.pdf
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    1. repec:eee:jimfin:v:74:y:2017:i:c:p:88-114 is not listed on IDEAS

    More about this item

    Keywords

    Housing sentiment; house price forecastability; partial least squares; dynamic model averaging;

    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

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