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201416 Pap

201416 Pap

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Published by TBP_Think_Tank
201416 Pap
201416 Pap

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Published by: TBP_Think_Tank on Mar 05, 2014
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06/06/2014

 
Finance and Economics Discussion SeriesDivisions of Research & Statistics and Monetary AffairsFederal Reserve Board, Washington, D.C.Using Data on Seller Behavior to Forecast Short-run House PriceChangesElliot Anenberg and Steven Laufer
2014-16
NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminarymaterials circulated to stimulate discussion and critical comment. The analysis and conclusions set forthare those of the authors and do not indicate concurrence by other members of the research staff or theBoard of Governors. References in publications to the Finance and Economics Discussion Series (other thanacknowledgement) should be cleared with the author(s) to protect the tentative character of these papers.
 
Using Data on Seller Behavior to Forecast Short-runHouse Price Changes
Elliot Anenberg Steven LauferFederal Reserve Board Federal Reserve BoardJanuary 29, 2014
Abstract
We construct a new “list-price index” that accurately reveals trends in house pricesseveral months before existing sales price indices like Case-Shiller. Our index is basedon the repeat-sales approach but for recent months uses
 listings 
 data, which are avail-able essentially in real time, instead of 
 transactions 
 data, which become available withsignificant lags. Our index methodology is motivated by a simple model of the home-selling problem that shows how listings variables such as the list price and marketingtime help predict the final sales price. In a sample of three large MSAs over the years2008-2012, our index (i) accurately forecasts the Case-Shiller index several months inadvance, (ii) outperforms forecasting models that do not use listings data, and (iii)outperforms the market’s expectation as inferred from prices on Case-Shiller futurecontracts.
elliot.anenberg@frb.gov. steven.m.laufer@frb.gov. Both authors are members of the staff of the Boardof Governors of the Federal Reserve System, Washington DC. We thank participants at the 2013 AnnualMeeting of the Urban Economics Association, our Board colleagues, Pat Bayer, Moshe Buchinsky, IngridEllen, Ed Kung, and Karen Pence for their helpful comments. All remaining errors are our own. The analysisand conclusions set forth are those of the authors and do not indicate concurrence by other members of theresearch staff or the Board of Governors.
1
 
1 Introduction
Changes in house prices have important consequences for the real economy as they affectboth households’ wealth and their ability to borrow. Unlike the prices of other assets, suchas stocks and bonds, which are available almost instantaneously, house price indices arereported with lags of 
 several months 
. This delay is a significant information friction withmeasurable effects on important economic variables. We show, for example, that a releaseof the Case-Shiller house price index has an immediate effect on the stock prices of homebuilding companies, despite the fact that this release contains information about housingmarket conditions from several months earlier.
1
If the stock market is not able to overcomethe reporting delays associated with house prices, it seems likely that individual homeowners,policy makers, lenders, etc. are as well, suggesting that this information friction may havemuch broader effects on financial markets and real economic activity.This delay in house price reporting emerges because once a buyer and seller have foundeach other and agreed on a sale price, there is little incentive for either party to publicizethe negotiated price. Even once the sale price is disclosed (by law) at the closing, which istypically a couple months following the sale agreement, there is another delay of a coupleadditional months before the public record becomes available.
2
In contrast, before a contractis signed, the seller has a strong incentive to broadcast the current offering price, both as anadvertisement that the house is for sale as well as a signal to potential buyers of the likely priceat which the house can be purchased.
3
Thus, information on listing prices is disseminatedon internet platforms such as Multiple Listing Services (MLS) in essentially real time. Onsuch forums, when a sale agreement is reached, the listing is removed immediately. By usinginformation on the list prices of homes that are delisted, we can potentially learn about the
1
The Case-Shiller index, developed by Bailey et al. [1963] and modified by Case and Shiller [1987] andCase and Shiller [1989], is the most widely followed measure of U.S. house price trends. The index iscalculated using repeated transactions of the same house so as not to be distorted by changes in the mix of homes sold over time.
2
For example, the Case-Shiller house price index summarizing sales prices that close in month
 t
 is notreleased until the end of month
 t
 + 2.
3
See Chen and Rosenthal [1996] for a discussion of the role of listing prices as a commitment device forsellers.
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