Providing Thoughtful Analysis on the Housing Market
Monday, January 07, 2013
Fun With Predictors
Here is a fun predictor I use to guess near-term (i.e. 4-6 months out) price movements on the Teranet HPI. The model works by finding peak correlation between price changes and months-of-inventory, the best is shown below:
I then use a simple regression fit (I'm ignoring log fit for now) and play around with the regression window length and get minimized error post-2009 with an 8-month window. Since peak cross correlation is shifted we have the ability to "predict" price changes some time into the future, in this case 3 months ahead:
This is then translated onto a year-on-year prediction:
On the graph above I get an estimate of close to -5.5% YOY change in the March Teranet HPI. I have been calling for between -6% and -4% on the Teranet HPI in February-March of 2013.