DP15875 Search and Predictability of Prices in the Housing Market

Author(s): Stig Møller, Thomas Pedersen, Erik Christian Montes Schütte, Allan Timmermann
Publication Date: March 2021
Keyword(s): Forecasting, Housing Demand, housing markets, inelastic housing supply, Internet search
JEL(s): C10, E17, G10, R3
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15875

We develop a new housing seach index (HSI) extracted from online search activity on a limited set of keywords related to the house buying process. We show that HSI has strong predictive power for subsequent changes in house prices, both in-sample and out-of-sample, and after controlling for the effect of commonly used predictors. Compared to the stock market, online search has much stronger predictive power over house prices and its effect also lasts longer. Variation in housing search is a particularly strong predictor of subsequent price changes in markets with inelastic housing supply and high speculation.