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Forecasting Dynamic Investment Timing under the Cyclic Behavior in Real Estate

Author

Listed:
  • Changha Jin

    (Department of Real Estate, J. Mack Robinson College of Business, Georgia State University, P.O. Box 4020, Atlanta, Georgia 30302-4020)

  • Terry V. Grissom

    (School of the Built Environment, The University of Ulster, Jordanstown Campus, Shore Road, Newtownabbey Co. Antrim. UK BT 37)

Abstract

This paper applies the Hodrck-Prescott (HP) filter to forecast short-term residential real estate prices under cyclical movements. We separate the trend component from the cyclical component. We show that each regional residential market reacts not only to previous price movements, but also that these regional markets react to previous shocks under Auto Regressive Integrated Moving Average (ARIMA) modeling. Using the S&P Case-Shiller Home Price Index, we compare our forecast to index values from the Chicago Mercantile Exchange (CME) Housing Futures and Options. Our study identifies possible systematic errors from the different price adjustments reflecting current market situations.

Suggested Citation

  • Changha Jin & Terry V. Grissom, 2008. "Forecasting Dynamic Investment Timing under the Cyclic Behavior in Real Estate," International Real Estate Review, Global Social Science Institute, vol. 11(2), pages 105-125.
    • Handle: RePEc:ire:issued:v:11:n:02:2008:p:105-125
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    References listed on IDEAS

    as
    1. Jim Clayton, 1996. "Rational Expectations, Market Fundamentals and Housing Price Volatility," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(4), pages 441-470, December.
    2. Glenn R. Mueller, 1999. "Real Estate Rental Growth Rates at Different Points in the Physical Market Cycle," Journal of Real Estate Research, American Real Estate Society, vol. 18(1), pages 131-150.
    3. Stephen A. Pyhrr & Waldo L. Born & James R. Webb, 1990. "Development of a Dynamic Investment Strategy under Alternative Inflation Cycle Scenarios," Journal of Real Estate Research, American Real Estate Society, vol. 5(2), pages 177-194.
    4. Karl E. Case & Robert J. Shiller, 2003. "Is There a Bubble in the Housing Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 299-362.
    5. Dennis R. Capozza & Patric H. Hendershott & Charlotte Mack & Christopher J. Mayer, 2002. "Determinants of Real House Price Dynamics," NBER Working Papers 9262, National Bureau of Economic Research, Inc.
    6. Witold Witkiewicz, 2002. "The Use of the HP-filter in Constructing Real Estate Cycle Indicators," Journal of Real Estate Research, American Real Estate Society, vol. 23(1/2), pages 65-88.
    7. Dennis R. Capozza & Charlotte Mack & Patric H. Hendershott & Christopher J. Mayer, 2002. "The Determinants of House Price Dynamics," ERES eres2002_106, European Real Estate Society (ERES).
    8. John M. Clapp & Carmelo Giaccotto, 2002. "Evaluating House Price Forecasts," Journal of Real Estate Research, American Real Estate Society, vol. 24(1), pages 1-26.
    9. Gordon W. Crawford & Michael C. Fratantoni, 2003. "Assessing the Forecasting Performance of Regime‐Switching, ARIMA and GARCH Models of House Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(2), pages 223-243, June.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. David Gray, 2015. "Hidden Properties of Irish House Price Vintages," Housing Studies, Taylor & Francis Journals, vol. 30(8), pages 1317-1353, November.

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    More about this item

    Keywords

    Real estate investment; Real estate cycle; residential housing futures contract; Real estate risk hedging;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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