Real Estate Forecasts – 1

Nationally, housing prices peaked in 2014, as the following Case-Shiller chart shows.

CS2014

The Case Shiller home price indices have been the gold standard and the focus of many forecasting efforts. A key feature is reliance on the “repeat sales method.” This uses data on properties that have sold at least twice to capture the appreciated value of each specific sales unit, holding quality constant.

The following chart shows Case-Shiller (C-S) house indexes for four MSA’s (metropolitan statistical areas) – Denver, San Francisco, Miami, and Boston.

CScities

The price “bubble” was more dramatic in some cities than others.

Forecasting Housing Prices and Housing Starts

The challenge to predictive modeling is more or less the same – how to account for a curve which initially rises, and then falls (in some cases dramatically), “stabilizes” and begins to climb again, although with increased volatility, again as long term interest rates rise. 

Volatility is a feature of housing starts, also, when compared with growth in households and the housing stock, as highlighted in the following graphic taken from an econometric analysis by San Francisco Federal Reserve analysts.

SandDfactorshousingThe fluctuations in housing starts track with drivers such as employment, energy prices, prices of construction materials, and real mortgage rates, but the short term forecasting models, including variables such as current listings and even Internet search activity, are promising.

Companies operating in this space include CoreLogic, Zillow and Moody’s Analytics. The sweet spot in all these services is to disaggregate housing price forecasts more local levels – the county level, for example.

Finally, in this survey of resources, one of the best housing and real estate blogs is Calculated Risk.

I’d like to post more on these predictive efforts, their statistical rationale, and their performance.

Also, the Federal Reserve “taper” of Quantitative Easing (QE) currently underway is impacting long term interest rates and mortgage rates.

The key question is whether the US housing market can withstand return to “normal” interest rate conditions in the next one to two years, and how that will play out.

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