IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Forecasting the U.S. Real House Price Index

  • Vasilios Plakandaras

    ()

    (Department of Economics, Democritus University of Thrace, Greece)

  • Rangan Gupta

    ()

    (Department of Economics, University of Pretoria)

  • Periklis Gogas

    ()

    (Department of Economics, Democritus University of Thrace, Greece)

  • Theophilos Papadimitriou

    ()

    (Department of Economics, Democritus University of Thrace, Greece)

The 2006 sudden and immense downturn in U.S. House Prices sparked the 2007 global financial crisis and revived the interest about forecasting such imminent threats for economic stability. In this paper we propose a novel hybrid forecasting methodology that combines the Ensemble Empirical Mode Decomposition (EEMD) from the field of signal processing with the Support Vector Regression (SVR) methodology that originates from machine learning. We test the forecasting ability of the proposed model against a Random Walk (RW) model, a Bayesian Autoregressive and a Bayesian Vector Autoregressive model. The proposed methodology outperforms all the competing models with half the error of the RW model with and without drift in out-of-sample forecasting. Finally, we argue that this new methodology can be used as an early warning system for forecasting sudden house prices drops with direct policy implications.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201418.

as
in new window

Length: 25 pages
Date of creation: May 2014
Date of revision:
Handle: RePEc:pre:wpaper:201418
Contact details of provider: Postal: PRETORIA, 0002
Phone: (+2712) 420 2413
Fax: (+2712) 362-5207
Web page: http://www.up.ac.za/economics

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Papadimitriou, Theophilos & Gogas, Periklis & Stathakis, Efthimios, 2014. "Forecasting energy markets using support vector machines," Energy Economics, Elsevier, vol. 44(C), pages 135-142.
  2. Rangan Gupta & Alain Kabundi & Stephen M. Miller, 2009. "Forecasting the US Real House Price Index: Structural and Non-Structural Models with and without Fundamentals," Working Papers 200927, University of Pretoria, Department of Economics.
  3. KOROBILIS, Dimitris, 2011. "Hierarchical shrinkage priors for dynamic regressions with many predictors," CORE Discussion Papers 2011021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Ricardo M. Sousa & António Afonso, 2008. "The Macroeconomic Effects of Fiscal Policy," NIPE Working Papers 22/2008, NIPE - Universidade do Minho.
  5. Stephen M. Miller & Luis Filipe Martins & Rangan Gupta, 2014. "A Time-Varying Approach of the US Welfare Cost of Inflation," Working Papers 2014-474, Department of Research, Ipag Business School.
  6. Rangan Gupta & Faaiqa Hartley, 2011. "The Role of Asset Prices in Forecasting Inflation and Output in South Africa," Working Papers 201115, University of Pretoria, Department of Economics.
  7. Robert B. Litterman, 1985. "Forecasting with Bayesian vector autoregressions five years of experience," Working Papers 274, Federal Reserve Bank of Minneapolis.
  8. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
  9. Matteo Iacoviello & Stefano Neri, 2007. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," Boston College Working Papers in Economics 659, Boston College Department of Economics, revised 23 Oct 2009.
  10. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University.
  11. Das, Sonali & Gupta, Rangan & Kabundi, Alain, 2009. "Could we have predicted the recent downturn in the South African housing market?," Journal of Housing Economics, Elsevier, vol. 18(4), pages 325-335, December.
  12. Agnello, Luca & Schuknecht, Ludger, 2009. "Booms and busts in housing markets: determinants and implications," Working Paper Series 1071, European Central Bank.
  13. repec:taf:applec:44:y:2012:i:34:p:4439-4454 is not listed on IDEAS
  14. Rubio, Ginés & Pomares, Héctor & Rojas, Ignacio & Herrera, Luis Javier, 2011. "A heuristic method for parameter selection in LS-SVM: Application to time series prediction," International Journal of Forecasting, Elsevier, vol. 27(3), pages 725-739, July.
  15. Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," Berkeley Program on Housing and Urban Policy, Working Paper Series qt28d3s92s, Berkeley Program on Housing and Urban Policy.
  16. A. Quang Do & G. Grudnitski, 1993. "A Neural Network Analysis of the Effect of Age on Housing Values," Journal of Real Estate Research, American Real Estate Society, vol. 8(2), pages 253-264.
  17. Afonso, António & Sousa, Ricardo M., 2011. "What are the effects of fiscal policy on asset markets?," Economic Modelling, Elsevier, vol. 28(4), pages 1871-1890, July.
  18. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2003. "Do financial variables help forecasting inflation and real activity in the euro area?," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1243-1255, September.
  19. Rangan Gupta & Sonali Das, 2008. "Predicting Downturns in the US Housing Market: A Bayesian Approach," Working Papers 200821, University of Pretoria, Department of Economics.
  20. James McGibany & Farrokh Nourzad, 2004. "Do lower mortgage rates mean higher housing prices?," Applied Economics, Taylor & Francis Journals, vol. 36(4), pages 305-313.
  21. Hui Zou & Trevor Hastie, 2005. "Regularization and variable selection via the elastic net," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 67(2), pages 301-320.
  22. Peter Abelson & Roselyne Joyeux & George Milunovich & Demi Chung, 2005. "Explaining House Prices in Australia: 1970-2003," The Economic Record, The Economic Society of Australia, vol. 81(s1), pages S96-S103, 08.
  23. Bertrand Candelon & Jameel Ahmed & Stefan Straetmans, 2014. "Predicting and Capitalizing on Stock Market Bears in the U.S," Working Papers 2014-409, Department of Research, Ipag Business School.
  24. Stevenson, Simon, 2000. "A Long-Term Analysis of Regional Housing Markets and Inflation," Journal of Housing Economics, Elsevier, vol. 9(1-2), pages 24-39, March.
  25. Rapach, David E. & Strauss, Jack K., 2009. "Differences in housing price forecastability across US states," International Journal of Forecasting, Elsevier, vol. 25(2), pages 351-372.
  26. Furkan Emirmahmutoglu & Mehmet Balcilar & Nicholas Apergis & Beatrice D. Simo-Kengne & Tsangyao Chang & Rangan Gupta, 2014. "Causal relationship between asset prices and output in the US: Evidence from state-level panel Granger causality test," Working Papers 201411, University of Pretoria, Department of Economics.
  27. Goodness C. Aye & Stephen M. Miller & Rangan Gupta & Mehmet Balcilar, 2014. "Forecasting US Real Private Residential Fixed Investment Using a Large Number of Predictors," Working Papers 2014-465, Department of Research, Ipag Business School.
  28. Aurelie SANNAJUST, 2014. "Impact of the World Financial Crisis to SMEs: The determinants of bank loan rejection in Europe and USA," Working Papers 2014-327, Department of Research, Ipag Business School.
  29. Irfan Akbar Kazi & Hakimzadi Wagan, 2014. "Are emerging markets exposed to contagion from U.S.: Evidence from stock and sovereign bond markets," Working Papers 2014-058, Department of Research, Ipag Business School.
  30. Rubio, Ginés & Pomares, Héctor & Rojas, Ignacio & Herrera, Luis Javier, 2011. "A heuristic method for parameter selection in LS-SVM: Application to time series prediction," International Journal of Forecasting, Elsevier, vol. 27(3), pages 725-739.
  31. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  32. Heni Boubaker & Nadia Sghaier, 2014. "On the dynamic dependence between US and other developed stock markets: An extreme-value time-varying copula approach," Working Papers 2014-094, Department of Research, Ipag Business School.
  33. Sonali Das & Rangan Gupta & Alain Kabundi, 2011. "Forecasting regional house price inflation: a comparison between dynamic factor models and vector autoregressive models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 30(2), pages 288-302, March.
  34. Khandani, Amir E. & Kim, Adlar J. & Lo, Andrew W., 2010. "Consumer credit-risk models via machine-learning algorithms," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2767-2787, November.
  35. Theophilos Papadimitriou & Periklis Gogas & Maria Matthaiou & Efthymia Chrysanthidou, 2014. "Yield curve and Recession Forecasting in a Machine Learning Framework," Working Paper Series 32_14, The Rimini Centre for Economic Analysis.
  36. Edward E. Leamer, 2007. "Housing IS the Business Cycle," NBER Working Papers 13428, National Bureau of Economic Research, Inc.
  37. Beltratti, Andrea & Morana, Claudio, 2010. "International house prices and macroeconomic fluctuations," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 533-545, March.
  38. Spencer, David E., 1993. "Developing a Bayesian vector autoregression forecasting model," International Journal of Forecasting, Elsevier, vol. 9(3), pages 407-421, November.
  39. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  40. Moghtaderi, Azadeh & Flandrin, Patrick & Borgnat, Pierre, 2013. "Trend filtering via empirical mode decompositions," Computational Statistics & Data Analysis, Elsevier, vol. 58(C), pages 114-126.
  41. Periklis Gogas & Theophilos Papadimitriou & Elvira Takli, 2013. "Comparison of simple sum and Divisia monetary aggregates in GDP forecasting: a support vector machines approach," Economics Bulletin, AccessEcon, vol. 33(2), pages 1101-1115.
  42. Case, Karl E. & Mayer, Christopher J., 1996. "Housing price dynamics within a metropolitan area," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 387-407, June.
  43. 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.
  44. Jerome H. Friedman & Trevor Hastie & Rob Tibshirani, . "Regularization Paths for Generalized Linear Models via Coordinate Descent," Journal of Statistical Software, American Statistical Association, vol. 33(i01).
  45. Topel, Robert H & Rosen, Sherwin, 1988. "Housing Investment in the United States," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 718-40, August.
  46. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
  47. Zemcik, Petr & Mikhed, Vyacheslav, 2009. "Do House Prices Reflect Fundamentals? Aggregate and Panel Data Evidence," ERES eres2009_275, European Real Estate Society (ERES).
  48. James H. Stock & Mark W. Watson, 2001. "Forecasting Output and Inflation: The Role of Asset Prices," NBER Working Papers 8180, National Bureau of Economic Research, Inc.
  49. Mikhed, Vyacheslav & Zemcík, Petr, 2009. "Do house prices reflect fundamentals? Aggregate and panel data evidence," Journal of Housing Economics, Elsevier, vol. 18(2), pages 140-149, June.
  50. Luca Agnello & Ricardo M. Sousa, 2010. "Fiscal Policy and Asset Prices," NIPE Working Papers 25/2010, NIPE - Universidade do Minho.
  51. Stelios Bekiros & Alessia Paccagnini, 2014. "Forecasting the US Economy with a Factor-Augmented Vector Autoregressive DSGE model," Working Papers 2014-183, Department of Research, Ipag Business School.
  52. Öğüt, Hulisi & Doğanay, M. Mete & Ceylan, Nildağ Başak & Aktaş, Ramazan, 2012. "Prediction of bank financial strength ratings: The case of Turkey," Economic Modelling, Elsevier, vol. 29(3), pages 632-640.
  53. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
  54. Adams, Zeno & Füss, Roland, 2010. "Macroeconomic determinants of international housing markets," Journal of Housing Economics, Elsevier, vol. 19(1), pages 38-50, March.
  55. G. Donald Jud & Dan T. Winkler, 2002. "The Dynamics of Metropolitan Housing Prices," Journal of Real Estate Research, American Real Estate Society, vol. 23(1/2), pages 29-46.
  56. Karl E. Case & Robert J. Shiller, 1990. "Forecasting Prices and Excess Returns in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(3), pages 253-273.
  57. Nghiep Nguyen & Al Cripps, 2001. "Predicting Housing Value: A Comparison of Multiple Regression Analysis and Artificial Neural Networks," Journal of Real Estate Research, American Real Estate Society, vol. 22(3), pages 313-336.
  58. Wendy Nyakabawo & Stephen M. Miller & Mehmet Balcilar & Sonali Das & Rangan Gupta, 2014. "Temporal Causality between House Prices and Output in the U. S.: A Bootstrap Rolling-Window Approach," Working Papers 2014-476, Department of Research, Ipag Business School.
  59. Rangan Gupta, 2013. "Forecasting house prices for the four census regions and the aggregate US economy in a data-rich environment," Applied Economics, Taylor & Francis Journals, vol. 45(33), pages 4677-4697, November.
  60. Rangan Gupta & Christian K. Tipoy & Sonali Das, 2009. "Could We Have Predicted the Recent Downturn in Home Sales of the Four US Census Regions?," Working Papers 200926, University of Pretoria, Department of Economics.
  61. Hui Zou & Trevor Hastie, 2005. "Addendum: Regularization and variable selection via the elastic net," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 67(5), pages 768-768.
  62. Wolfgang Härdle & Yuh-Jye Lee & Dorothea Schäfer & Yi-Ren Yeh, 2009. "Variable selection and oversampling in the use of smooth support vector machines for predicting the default risk of companies," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(6), pages 512-534.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pre:wpaper:201418. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rangan Gupta)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.