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mush32

What Are The Key Factors That Should Be Put Into A Housing Price Model

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Hi

I'm a university student and i'm trying to work out what factors should be put into the perfect house price model? I can think of interest rates, consumer confidence etc. But am struggling for other ideas. Any suggestions?

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Guest DissipatedYouthIsValuable
Hi

I'm a university student and i'm trying to work out what factors should be put into the perfect house price model? I can think of interest rates, consumer confidence etc. But am struggling for other ideas. Any suggestions?

Admit that your university is really a polytechnic.

I'm sure the girth of Kirsty Allsopp's **** will be a variable.

Edited by DissipatedYouthIsValuable

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The list of influencing factors is endless, like most things in economica because, at the end of the day, the sole driving factor is what people are willing to do and if think you can create a perfect model of human behaviour you're very much deluded.

Edited by jon211

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The list of influencing factors is endless, like most things in economica because, at the end of the day, the sole driving factor is what people are willing to do and if think you can create a perfect model of human behaviour you're very much deluded.

i dont for a second think i can create a perfect model, just trying to work out if there's anything else i can suggest that should be accounted for. It just seems that timing is key when predicting future house prices as many commentators would tell u. I've also tried to prove that there will be a crash in the market. but as i'm not using econometrics it's a bit harder.

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Short-term: (<5 years horizon)

Credit-limit + interest rate => "Is the first month payment affordable"

Throw in some +ve feedback for herd/momentum/sheeple crowd modelling

Greed/fear feedback factors will have different strengths (fear>greed)

Long-term: (>5 years)

Post-tax household income => "Are all payments affordable long-term"

Throw in some -ve feedback for this (mean reversion always wins).

I think that sort of model will show slow ramps up, fast ramp down and unltimately mean-reversion.

If you want to actually make it accurate, then the last little detail is to predict all human behavioural responses to unexpected events :)

VMR

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A plot of broad money supply against HP's would reveal a lot.

Then you have to wonder what enabled broad money supply to grow so much - loose lending and the growth in securitisation. All those plotted on a graph would give a god indication of what has been going on. Maximum lending multiples and average LTV's would show similar trends.

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Over what period, and what geographical are you looking to model this?

For periods longer than a year (which is the minimum in my view), I would look at it in terms of rates of change and do the following:

Start with average earnings change. This is absolutely key. The attached graph shows house prices adjusted for average earnings. In normal cycles, the series mean-reverts to 4 from limits of about 3 and 5 times earnings. (From 2002, of course we have had a bubble driven by leveraged speculation facilitated in turn by ever cheaper credit conditions.) Then adjust by change in the size of the labour force (this covers any impact from immigration and no. of salaries per household).

Once you have this adjusted average earnings measure, I would adjust and back-correlate (choosing the best lags of course) by the following factors in order:

Change in unemployment

Change in nominal interest rates

Change in real rates

Change in mortgage lending

Change in BTL mortgage lending

Not an easy proposition, so good luck and let us know how you got on.

UK_HP_v_Av_Earnings2.JPG

post-10259-1204199895_thumb.jpg

Edited by Extradry Martini

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Yes rental yields would certainly be worth a look, but intuitively I wouldn't think that they play a part except over the very long term...

Good to see you back. What's your view of where we are now?

Peter.

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  • 293 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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