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A new index of housing sentiment

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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. History: Accepted by Tyler Shumway, finance. Funding: Financial support was received from the Danish Council of Independent Research [Grant DFF 4003-00022] and CREATES, Center for Research in Econometric Analysis of Time Series [Grant DNRF78], funded by the Danish National Research Foundation.

Original languageEnglish
JournalManagement Science
Pages (from-to)1563-1583
Number of pages21
Publication statusPublished - Apr 2020

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