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Can Tightness in the Housing Market Help Predict Subsequent Home Price Appreciation? Evidence from the U.S. and the Netherlands

Author

Listed:
  • Paul E. Carrillo

    (Department of Economics/Institute for International Economic Policy, George Washington University)

  • Erik Robert De Wit

    (University of Amsterdam)

  • William D. Larson

    (George Washington University)

Abstract

This paper assesses the predictive power of variables that measure market tightness, such as seller's bargaining power and sale probabilities, on future home prices. Theoretical insights from a stylized search-and-matching model illustrate that such indicators can be associated with subsequent home price appreciation. The empirical analysis employs data on all residential units offered for sale through a real estate broker in the Netherlands and a large suburb in the Washington, DC area. Individual records are used to construct a quarterly home price index, an index that measures seller's bargaining power, and (quality adjusted) home sale probabilities. Using conventional time-series models we show that current sale probabilities and bargaining power can significantly reduce home price appreciation forecast errors.

Suggested Citation

  • Paul E. Carrillo & Erik Robert De Wit & William D. Larson, 2012. "Can Tightness in the Housing Market Help Predict Subsequent Home Price Appreciation? Evidence from the U.S. and the Netherlands," Working Papers 2012-11, The George Washington University, Institute for International Economic Policy.
    • Handle: RePEc:gwi:wpaper:2012-11
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    File URL: http://www.gwu.edu/~iiep/assets/docs/papers/Carrillo_IIEPWP2012-11.pdf
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    References listed on IDEAS

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    Cited by:

    1. Dorinth W. van Dijk & Marc K. Francke, 2018. "Internet Search Behavior, Liquidity and Prices in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 46(2), pages 368-403, June.

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    More about this item

    Keywords

    Forecasting; Home prices; Bargaining power; Time on the market; Information asymmetries;
    All these keywords.

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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