Scott Sambucci, Market Analytics

Altos ResearchFebruary 2011 | San Diego, CA

PREDICTING THE HOUSING MARKET WITH BUYER & SELLER PSYCHOLOGY

PREDICTIVE ANALYTICS INNOVATION SUMMIT

WHO, WHAT, WHERE, WHEN, WHY & HOW

• Altos Research

• Real-time housing market analytics

• 200+ metros, 20,000 zip codes

• Not what happened but what is happening & what will happen

• Wisdom of crowds

• Using Active Market to forecast future market activity

TODAY’S ACTIVE MARKET SIGNALS FUTURE TRANSACTION PRICES

Price reduced$398,000

Inventory 69

Neighbor home listed$409,000

Deal closed$389,000

Transaction Recorded

Buyer financing fails,Property relisted

$394,000

March May July Sept Nov Jan

Closed transaction = 1 data point, months too lateActive Market = 9 months of pricing, price changes, supply and demand, leading indicators

Offer made$391,000

Home listed$429,000

Inventory 49

APPLICATIONS OF REAL-TIME ANALYTICS

• Current Market Conditions & Property Valuation Changes

• Future Housing Market Prices

• Consumer Sentiment

• Financial Market Movements

• Housing Policy & Affordability Implications

3507 ARCLIGHT COURT,FT MYERS, FL

3507 ARCLIGHT COURT, FORT MYERS, FL

SELLER RESPONSE TO MARKET DEMAND:LISTING PRICE HISTORY - 3204 TRAWLER PLACE

MIAMI CONDOS: MARKET IMPROVED IN 2009?

Did values really move higher when

the actives knew the market was weak?

DEVELOPING A FORWARD VALUATION MODEL™:ENSEMBLE OF REGRESSION TREES WITH VARIABLE IMPORTANCE• Non-parametric

• Capture non-linearity & variable interactions

• Embarrassingly parallel

• Train quickly using the cloud

• Bootstrap holdouts

• Use all of our data for training

• Information gain feature selection

• Most important active market statistics

• How entropic is the distribution of the dependent variable with each variable, and then without?

• Modified ARCH model – hybrid of transaction and active market prices

BENCHMARK MODEL RESULTS• Average change in median price over the period was -0.53%

• Second pass, multivariate OLS regression. Modelhad R2 = 29.4%, and mean absolute error (MAE) = 0.60%• This error completely swamps the signal, but why?

• Residuals (errors) show bias and extreme non-linearity:

-2.0%-1.5%-1.0%-0.5%0.0%0.5%1.0%1.5%2.0%2.5%3.0%

ALTOS LPI™ TIME-SERIES RESULTSOut-of-Sample-Out-of-Time results for Mesa, AZ:

11-D

ec

16-D

ec

21-D

ec

26-D

ec

31-D

ec5-J

an10

-Jan15

-Jan20

-Jan25

-Jan30

-Jan4-F

eb9-F

eb

14-Feb

19-Feb

24-Feb

1-Mar

6-Mar

11-M

ar

16-M

ar

21-M

ar

26-M

ar

31-M

ar5-A

pr

10-Apr

15-Apr

20-Apr

25-Apr

30-Apr

5-May

10-M

ay

15-M

ay

20-M

ay

25-M

ay

30-M

ay4-J

un9-J

un14

-Jun

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

Change in Median Price (+3M)

Forecast Change in LPI (+3M)

FVM™ IN-SAMPLE SCATTERPLOT

San Mateo, CA 94401 / Single-family-home / All Quartile / 6M

x-axis is +6M change in LPI, y-axis is forecast +6M change in LPI

-10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

FVM™ OUT-OF-SAMPLE SCATTERPLOT

San Mateo, CA 94401 / Single-family-home / All Quartile / 6M

x-axis is +6M change in LPI, y-axis is forecast +6M change in LPI

-10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

POLICY IMPLICATIONS:2009-2010 FIRST-TIME HOMEBUYER TAX CREDIT

GAMBLING IN LAS VEGAS? SHOCKING…

DECLINING HOUSING DEMAND

MACROECONOMIC INFORMATION GAIN:CONSUMER SENTIMENT & HOUSING

CONSUMER CONFIDENCE & HOME PRICES: 2010

S&P 500 VS HOME PRICES JAN 2008 – NOV 2010

1-Jan

-08

1-Feb

-08

1-Mar-

08

1-Apr-0

8

1-May

-08

1-Jun-08

1-Jul-0

8

1-Aug-08

1-Sep

-08

1-Oct-

08

1-Nov-0

8

1-Dec

-08

1-Jan

-09

1-Feb

-09

1-Mar-

09

1-Apr-0

9

1-May

-09

1-Jun-09

1-Jul-0

9

1-Aug-09

1-Sep

-09

1-Oct-

09

1-Nov-0

9

1-Dec

-09

1-Jan

-10

1-Feb

-10

1-Mar-

10

1-Apr-1

0

1-May

-10

1-Jun-10

1-Jul-1

0

1-Aug-10

1-Sep

-10

1-Oct-

10

1-Nov-1

0500.00

600.00

700.00

800.00

900.00

1,000.00

1,100.00

1,200.00

1,300.00

1,400.00

1,500.00

$325,000

$335,000

$345,000

$355,000

$365,000

$375,000

$385,000

$395,000

$405,000

$415,000

S&P 500 Active Prices

S&P 500 VS. HOME PRICES: MOST RECENT 6 MONTHS

AFFORDABILITY MEASURES: “CAPITA PER INVENTORY”

50 100 150 200 250 300 350 400 450 500 550 $-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000 f(x) = 1408.09308751914 x + 10121.9273527503R² = 0.737013300503559

2011-02-18 50 100 150 200 250 300 350 400

$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

f(x) = 1642.89086843538 x + 115986.573286277R² = 0.684094088497661

9/26/08

AFFORDABILITY: CAPITA PER INVENTORY

50 100 150 200 250 300 350 400 450 500 550 $-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000 f(x) = 1408.09308751914 x + 10121.9273527503R² = 0.737013300503559

2011-02-18 50 100 150 200 250 300 350 400

$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

f(x) = 1642.89086843538 x + 115986.573286277R² = 0.684094088497661

9/26/08

Detroit

New York; San Diego

San DiegoNew York

DC

Detroit

DC

Cleveland

Cleveland

Miami

Miami

CONTACT

Scott Sambucci, VP Market Analytics

Altos Research

www.altosresearch.com

(415) 931-7942

scott@altosresearch.com

http://blog.altosresearch.com

@scottsambucci