Can Listings Be Used to Predict Home Prices?

Posted: March 4, 2014 in California Real Estate News, National Real Estate News

Selling a home can take months, a big reason why home prices are among the most lagging of economic indicators. But thanks to the growing volumes of price and listing data collected by web sites and real estate agents — data that are available several months before final sale prices get logged by the county recorder — economists in both the public and private sector are striving to produce real-time price indices like the ones available for more liquid assets like stocks.

The basic idea behind using real estate listings to predict final sales prices is both old and simple. If there are a lot of homes on the market and they aren’t selling very fast, the final sales prices are likely to go down. Vice versa if supply is tight and sales are swift. But as economists blend the standard listing information with other data about sellers, they are vastly improving their predictions for what final sales prices will be.

This could potentially help home buyers, real-estate agents and home builders — or anyone betting on housing stocks — get an earlier read on where prices are going.

Take this Federal Reserve working paper, which was released in January and constructs an index of listing prices that predicts the Case-Shiller home price index several months in advance. A similar idea underlies this paper, lead authored by economist Paul Carrillo at George Washington University, which uses a measure of market tightness to predict home prices in the future.

“The idea is that changes in the speed at which real estate sells almost mechanically is going to tell you something about what’s going to happen with home prices,” says Mr. Carrillo.

These papers come on top of similar efforts by real estate companies like Zillow and Trulia that incorporate listing trends into their price forecasts.

Unlike stocks or commodities, real estate can’t be easily traded because each home is a little different. Sales can take months to complete and record, and while sellers advertise prices during listing they have little motivation to publicize the final price. But since prices are for most part a reflection of the local economy and housing supply, the initial rush of listing information gives a pretty good idea of where prices are headed.

This goes beyond just the overall supply of homes. Take the Fed paper, which was authored by Fed economists Elliot Anenberg and Steven Laufer. Like the Case-Shiller home price index the paper strives to predict, the economists’ listings price index calculates prices using different transactions on the same house.

In addition to the raw supply of listing, the economists fine-tune their model using data from how long the listing has been on the market, and a history of recent price changes on the same house. A house that lingers on the market, for instance, is more likely to fall in price. Meantime, a seller that has lowered the price is perceived to be more eager to sell than a seller who lets their house linger on the market without discounting it.

“Rather than taking the list price at face value, we know it’s just an offering price, and we correct for that difference,” says Mr. Laufer.


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