Real Estate is `somewhat` forecastable

BrianPersaud

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Sep 27, 2007
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Toronto
#1
According to Robert Shiller, statistical studies of forecasting models for home prices show that roughly half of the variability of home prices can be predicted one year ahead.

In the US (I`ll explore this for Canada as well)...you will have just as much luck proving that cities with good feng shui will cause an increase in prices then as you would with building costs, population, or interest rates (see chart here).


The home price index that Shiller uses is a national index, therefore it doesn`t take into account Regional booms that result from the building of infrastructure (services for new land, community centre, schools etc), attracting of new employers (a manufacturing plant) or the addition of better transportation (rail, canals, highways subways).

Moral of the story: study more than just one fundamental when looking to see where home prices are going
 

Clint775

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Oct 21, 2007
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#2
Gosh golly gee, Batman, your moral sounds like what Don preachs (no slight against you intended). It`s funny how many times I keep finding that recurring theme. I think I might actually have to pay attention to Don at the next REIN workshop.


In all seriousness, in the final analysis, the more you try to find ways to understand the market, the more you start to appreciate what Don provides us with, month in and month out.

Thanks DON!!

Clint



QUOTE (BrianPersaud @ Oct 24 2009, 10:14 AM) According to Robert Shiller, statistical studies of forecasting models for home prices show that roughly half of the variability of home prices can be predicted one year ahead.

In the US (I`ll explore this for Canada as well)...you will have just as much luck proving that cities with good feng shui will cause an increase in prices then as you would with building costs, population, or interest rates (see chart here).


The home price index that Shiller uses is a national index, therefore it doesn`t take into account Regional booms that result from the building of infrastructure (services for new land, community centre, schools etc), attracting of new employers (a manufacturing plant) or the addition of better transportation (rail, canals, highways subways).

Moral of the story: study more than just one fundamental when looking to see where home prices are going
 

KieranTrass

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Nov 23, 2009
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Auckland New Zealand
#3
Yes, the direction of real estate prices are predictable! The key is having the right context to apply the vast amount of economic data & often biased information to. For me that context has been understanding real estate cycles. In fact, I have spent the last 20 years researching and writing about cycles in my home country of New Zealand and other developed nations around the world. Through that journey, I developed a technique to track real estate cycles which is primarily based on your morale of the story: `study more than just one fundamental when looking to see where home prices are going.` I like to think of a real estate cycle like a jig saw puzzle, where the puzzle pieces represent various bits of economic data, known as `Key Drivers` of the cycle. Without knowing what the picture on the box looks like, it can become very difficult to try and piece the puzzle together. However, when we understand the context of the cycle it becomes the `picture on the box` and lets you know where we are in the cycle and what actions we should be taking as an investor without getting mislead by one or two key drivers.



If you are interested in learning more about real estate cycles, here are some links to get you started:



1. Robert Campbell (no relation to Don) `Book is called Timing The Real Estate Market. I Have read some of his stuff and I find it very well presented. Robert covers 17 US markets. http://www.realestatetiming.com/

2. Recent Interview with Don Campbell and myself, on the topic of real estate cycles. Link on myreinspace: http://myreinspace.com/announcements/Announcements/123-13051-Turn_Back_The_Real_Estate_Clock.html

3. Link to my latest book called the Housing Bubble: http://www.amazon.ca/Housing-Bubble-Kieran...4835&sr=8-1





Something that may also be of interest to readers of this post is that Canada now has a similar index to the Case Shiller Home Price Index for the US. It is called the Teranet ` National Bank Composite House Price Index and can be found here: http://www.housepriceindex.ca/

This index uses a similar process to the Case-Shiller index. It uses what is known as the repeat sales methodology which provides a higher degree of accuracy than the MLS average or median price. I created a similar index in New Zealand after getting frustrated with the constant bias that was behind the numbers being reported by the real estate industry.



Until next,



Kieran Trass.