Search and Predictability of Prices in the Housing Market
63 Pages Posted: 22 Mar 2021 Last revised: 24 Jun 2021
Date Written: February 26, 2021
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.
Keywords: Internet search, housing markets, housing demand, forecasting, inelastic housing supply.
JEL Classification: C10, E17, G10, R3
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