Department of Economics and Business Economics

Housing price forecastability: A factor analysis

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    Submitted manuscript, 416 KB, PDF document

We examine US housing price forecastability using a common factor approach based on a large panel of 122 economic time series. We find that a simple three-factor model generates an explanatory power of about 50% in one-quarter ahead in-sample forecasting regressions. The predictive power of the model stays high at longer horizons. The estimated factors are strongly statistically signi…cant according to a bootstrap resampling method which takes into account that the factors are estimated regressors. The simple three-factor model also contains substantial out-of-sample predictive power and performs remarkably well compared to both autoregressive benchmarks and computational intensive forecast combination models.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages44
Publication statusPublished - 4 Jun 2012
SeriesCREATES Research Papers
Number2012-27

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