Accuracy of Regional Single-Family Housing Start Forecasts

This article extends earlier research on the predictability of residential construction activity in regional housing markets. This category of forecasts is used in numerous banking, government, utility, and retail applications. To analyze forecast accuracy, quarterly frequency data are assembled from previously published econometric forecasts for Florida and its six largest metropolitan economies. The sample simulation covers the period between the first quarter of 1985 and the second quarter of 1996 and includes all three business cycle phases: expansion, recession, and recovery.Forecasts for single-family starts are compared with univariate time series and random-walk alternatives. Results indicate that structural model forecasts of regional housing construction are comparatively less reliable than forecasts for nonagricultural employment. Moreover, single-family starts in Florida do not perform as well against the two benchmarks as multifamily counterparts do for the same housing markets. Modelers should possibly consider increasing coverage to include other variables as a means of improving the reliability of residential construction forecasts.