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The Housing Price Forecasting and the Outbreak of the Financial Crisis: Evidence of the Arima Model

2010; RELX Group (Netherlands); Linguagem: Inglês

10.2139/ssrn.1610330

1556-5068

Yi‐Chi Chen, William Yu,

Insurance and Financial Risk Management

This paper examines the out-of-sample forecasting performance of the S&P/Case-Shiller Home Price Index by a simple ARIMA model. We find that the model failed to predict the housing bubble burst. However, the model has successfully predicted declining prices since 2006:6; therefore, the magnitude of the loss of mortgage-related securities could have been reduced if the model’s prediction had been considered. The model predicted extremely pessimistic one-year-ahead prices in 2008:2, 2008:3, and 2008:9, explaining the timeline of the collapse of Bear Stearns and Lehman Brothers as well as the subsequent global financial meltdown.