Machine Learning Predictions of Housing Market Synchronization across US States: The Role of Uncertainty

Rangan Gupta, Hardik Marfatia (), Christian Pierdzioch and Afees Salisu
Additional contact information
Hardik Marfatia: Department of Economics, Northeastern Illinois University, 5500 N St Louis Ave, BBH 344G, Chicago, IL 60625, USA

No 202077, Working Papers from University of Pretoria, Department of Economics

Abstract: We analyze the role of macroeconomic uncertainty in predicting synchronization in housing price movements across all the United States (US) states plus District of Columbia (DC). We first use a Bayesian dynamic factor model to decompose the house price movements into a national, four regional (Northeast, South, Midwest, and West), and state-specific factors. We then study the ability of macroeconomic uncertainty in forecasting the comovements in housing prices, by controlling for a wide-array of predictors, such as factors derived from a large macroeconomic dataset, oil shocks, and financial market-related uncertainties. To accommodate for multiple predictors and nonlinearities, we take a machine learning approach of random forests. Our results provide strong evidence of forecastability of the national house price factor based on the information content of macroeconomic uncertainties over and above the other predictors. This result also carries over, albeit by a varying degree, to the factors associated with the four census regions, and the overall house price growth of the US economy. Moreover, macroeconomic uncertainty is found to have predictive content for (stochastic) volatility of the national factor and aggregate US house price. Our results have important implications for policymakers and investors.

Keywords: Machine learning; Random forests; Bayesian dynamic factor model; Forecasting; Housing markets synchronization; United States (search for similar items in EconPapers)
JEL-codes: C22 C32 E32 Q02 R30 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2020-08
New Economics Papers: this item is included in nep-big, nep-cmp, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Machine Learning Predictions of Housing Market Synchronization across US States: The Role of Uncertainty (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202077

Access Statistics for this paper

More papers in Working Papers from University of Pretoria, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Rangan Gupta ().