Forecasting Washington State's Housing Market: A Comparative Analysis of Time Series Models and Economic Indicators
Abstract
This study examines Washington State's housing market by analyzing the relationship between new private housing units authorized by building permits and various economic indicators. Initially, an Ordinary Least Squares regression model was employed, which indicated significant autocorrelation in the residuals, as identified by the Durbin-Watson statistic. To address the autocorrelation and non-stationarity detected through the Augmented Dickey-Fuller and Ljung-Box tests, we employed differencing followed by ARIMA and Holt-Winters Exponential Smoothing models. The Holt-Winters model, in particular, proved more effective, showing lower prediction errors and providing a more accurate forecast, thus emerging as the preferred method for forecasting in this market context.
References
- Unemployment rate in Washington. FRED. (2023, October 24). https://fred.stlouisfed.org/series/WAUR
- All-transactions house price index for Seattle-Bellevue-kent, WA (MSAD). FRED. (2023a, August 29). https://fred.stlouisfed.org/series/ATNHPIUS42644Q
- Labor force participation rate for Washington. FRED. (2023b, November 17). https://fred.stlouisfed.org/series/LBSNSA53
- High-propensity business applications: Total for all Naics in Washington. FRED. (2023b, November 13). https://fred.stlouisfed.org/series/BAHBATOTALSAWA
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