247 – Forecasting
What Unemployment Data Can Tell Us About House Prices: Stabilizing a Strong but Unstable Connection
Vladimir Ladyzhets
Lincoln Financial Group
It is well known that long periods of high unemployment have a significant adverse effect on real estate prices. However, the connection between unemployment and house price is very unstable. It varies significantly for different historical periods and, if no stabilizing technique is applied, the unemployment-based house price estimates produced by regression models fitted into different historical periods are vastly different and cannot be considered reliable for practical purposes. We have developed a method for building robust models for calculating unemployment-based house price estimates under given unemployment scenarios. This method was employed to build a library of unemployment-to-house price index models which includes a nationwide model and 20 MSA level models that encompass all areas covered by the Case-Shiller Indices.
