Forecasting the US housing market

Roy Kouwenberg and Remco Zwinkels ()

International Journal of Forecasting, 2014, vol. 30, issue 3, 415-425

Abstract: The recent housing market boom and bust in the United States illustrates that real estate returns are characterized by short-term positive serial correlation and long-term mean reversion to fundamental values. We develop an econometric model that includes these two components, but with weights that vary dynamically through time depending on recent forecasting performances. The smooth transition weighting mechanism can assign more weight to positive serial correlation in boom times, and more weight to reversal to fundamental values during downturns. We estimate the model with US national house price index data. In-sample, the switching mechanism significantly improves the fit of the model. In an out-of-sample forecasting assessment the model performs better than competing benchmark models.

Keywords: Real estate market; Price forecasting; Smooth transition models; Error correction models; Combining forecasts (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (40)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:30:y:2014:i:3:p:415-425

DOI: 10.1016/j.ijforecast.2013.12.010

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