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A New Index of Housing Sentiment

Lasse Bork, Stig V. Møller () and Thomas Q. Pedersen ()
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Stig V. Møller: Department of Economics and Business Economics, Aarhus University, DK-8210 Aarhus, Denmark
Thomas Q. Pedersen: Department of Economics and Business Economics, Aarhus University, DK-8210 Aarhus, Denmark

Management Science, 2020, vol. 66, issue 4, 1563-1583

Abstract: We propose a new measure for housing sentiment and show that it accurately tracks expectations of 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.

Keywords: housing sentiment; house price forecastability; partial least squares; dynamic model averaging (search for similar items in EconPapers)
Date: 2020
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https://doi.org/10.1287/mnsc.2018.3258 (application/pdf)

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Working Paper: A New Index of Housing Sentiment (2016) Downloads
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