Has the Housing Market Hit Bottom?

• Activity Number: 423
• Type: Contributed
• Date/Time: Tuesday, August 3, 2010 : 2:00 PM to 3:50 PM
• Sponsor: Business and Economic Statistics Section
• Author(s): Kristen Elizabeth Gulledge*+ and Emily Wisner
• Companies: North Carolina State University and North Carolina State University
• Keywords: Housing Market ; Monte-Carlo Simulations ; ARIMA Models

Abstract

As the economy faces a dramatic recession, many economists believe that the housing market is key in predicting when the economy will rebound. Therefore, we have attempted to predict future trends in the housing market using three models to predict when home prices will hit bottom using the Case-Shiller Index along with per capita income data and 30 year mortgage rate data that was obtained from the Federal Reserve Bank of St. Louis. Integrated auto-regressive moving average models were calculated and used to create Monte-Carlo simulations. The simulations were used to answer probability questions about future home prices. Intervention analysis was utilized to account for effects of the first-time home buyers' credit implemented by the government to stimulate the market. Overall, the models indicate that the downward trend in home prices has slowed greatly if not vanished all together.