Collateral Analytics (CA), a provider of automated valuation solutions and real estate analytic products, has developed a new home price model that uses long-run factors and short-run market conditions to predict prices one year ahead.
The company says long-run factors consist of key drivers such as local employment and the affordable price, which, in turn, is driven by interest rates and household income.
Short-run market conditions incorporate factors related to the recent sales and current set of property listings on the market, such as the months of remaining inventory and the number of foreclosure sales relative to regular sales.
CA says the most important long-run factor is the gap between the level of prices and the level predicted by employment and the affordable price. Assuming everything else is equal, price growth will slow as this gap increases.
The three short-run factors in the new CA Home Price Model include the months of remaining inventory, CA's proprietary index of local market conditions and the ratio of foreclosure sales to total sales.
The new short-term indicators are also beneficial in that they can better identify the important inflection points in individual real estate markets.
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