Journal
MANAGEMENT SCIENCE
Volume 66, Issue 4, Pages 1563-1583Publisher
INFORMS
DOI: 10.1287/mnsc.2018.3258
Keywords
housing sentiment; house price forecastability; partial least squares; dynamic model averaging
Funding
- Danish Council of Independent Research [DFF 4003-00022]
- CREATES, Center for Research in Econometric Analysis of Time Series - Danish National Research Foundation [DNRF78]
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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.
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