Limnios, A. C., & You, H. (2021). Can Google Trends Improve Housing Market Forecasts?

Curiosity: Interdisciplinary Journal of Research and Innovation, 2.

https://doi.org/10.36898/001c.21987

ECONOMICS

Can Google Trends Improve Housing Market Forecasts?

a
A. Christopher Limnios 1 , Hao You
1 Department of Economics, Providence College
Keywords: housing models, forecasting, google trends, internet queries
https://doi.org/10.36898/001c.21987

Curiosity: Interdisciplinary Journal of Research and Innovation

Vol. 2, 2021

We augment linear pricing models for the housing market commonly used in the
literature with Google trends data in order to assess whether or not crowd-
sourced search query data can improve the forecasting ability of the models. We
estimate both sets of models (excluding and including the search query data) in
order to assess statistical fit. We then compare various performance measures of
the augmented linear model’s out-of-sample, dynamic forecasts against a baseline
version. We find that augmenting the models to take advantage of the availability
of Google trend data does not significantly improve the forecasting performance
of the models.

Introduction
Prior to making a large purchase, many individuals perform online research.
This is certainly true for any individual interested in vacationing at a certain
locale, during a certain time of year. Taken to its logical next step, a purchaser
of a home would most certainly perform their due diligence in gathering as
much information as possible regarding the many different amenities of the
(potential) geographic location and the many dimensions of the home if a
candidate home (or set of homes) has been chosen. One of the least costly
methods of gathering information for anyone with access to the internet is the
search engine. In this paper, we exploit the vast availability of search query data
to find out if the online search behavior which preempts purchasing activity in
housing markets can improve the forecasting ability of econometric models.
We demonstrate that incorporating crowd-sourced online search query data
into models of the housing market does not improve their forecasting ability.
Relative forecasting ability here is the comparison of various performance
measures across models which include the search query data versus models
where the query data is absent in dynamic, out-of-sample forecasts.1
Google Trends is a freely available online tool provided by Google, which
has been in operation since 2006. It enables one to input search query terms
and it provides a series of data depicting the relative interest in that term by
other individuals making similar search queries. The reason we chose Google
as the search engine to provide this data is the dominating market share Google

a [email protected]

1 For readers unfamiliar with dynamic forecasting, refer to the appendix for an explanation. Examples of time series forecast performance
measures include (R.M.S.D.) root mean squared deviation, (M.A.P.E.) mean absolute percentage error, etc.
 Can Google Trends Improve Housing Market Forecasts?

Figure 1: Time series for the market shares of various search engines. The plot at the top corresponds to searches
conducted on a mobile device or a tablet, while the plot at the bottom corresponds to searches conducted on a desktop.
NOTE: the plot at the top (mobiles and tablets) has been logged, given the vast market share of Google. Source:
https://www.netmarketshare.com/

occupies in the search engine space. Figure 1 depicts the time series data for
Google’s search engine market share in comparison to a handful of other
popular search engines.
The plots in figure 1 demonstrate that the data we obtain from Google
Trends can be assumed approximately representative owing to the vast majority
of search queries on the internet performed using Google. Google’s dominance
in the market is most extreme for searches conducted from mobile devices and
from tablets. The difference between Google and the other search engines is so
vast, the top of figure 1 has been logged in order to allow for the ranking of
competing search engines.
For our readers who may not be familiar with what the information from
Google Trends looks like, as a simple example figure 2 shows the time series of
search intensity for the two 2016 presidential candidates during the time frame
leading up to the first debate.
July turned out to be a very good month for raising contributions for the
Trump campaign, while the same bode true for Clinton leading up to August.
A different (and perhaps more likely) explanation may be that the spikes in
online interest are tied to the uncovering of various scandals and the continual

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 Can Google Trends Improve Housing Market Forecasts?

Figure 2: Search query results for the 2016 election.

Note: September 26th, 2016 was the date of the first presidential debate, which shows up as a large spike in online searches conducted for
both candidates.

interparty mud-slinging which has riddled this presidential campaign cycle.

The first debate occurred on September 26th, which is likely responsible for the
concurrent spike in the online interest for both candidates around that time
period.
According to the Google Trends help page, the search query data we have
retrieved are based on two determinants of the search query: time and location.
Every data point in the Google Trends database is computed by dividing the
total searches from a specific geographic region and the time period the total
searches cover, which results in a relative popularity measure. This resulting
number is then scaled on a range from 0 to 100, with 100 representing the
most search volume within this specific geographic region during a specific
time range. This normalization of data holds significance in that when we look
at the search interests over a period of time for a specific search term, it is in fact
showing the search interests in this specific term as a proportion of all of the
search terms on all of the terms entered into Google search engine, at a specific
geographical location within a specific period of time, comparable only to this
specific search term. One reason for the normalization of the data, instead of
reporting the raw data, originates from the fact that the raw search volume back
in 2004 was lower than that in 2016, since less people were utilizing Google in
2004. Therefore, the raw data will fail to capture the relative popularity across
time.
In the earlier election example illustrated by figure 2, suppose we add two
different time series of Google Data Trends data on the search terms for
“Hillary Clinton” and “Donald Trump” into one timeframe at the same
geographic location. Then adding another fairly irrelevant search term, such
as “pumpkin” will not affect the Google Trends data because the normalized
search index for each of these three search terms are first divided by the same
denominator, namely the total search volume from the same geographical
location during the same time period, and then each data point for a specific

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 Can Google Trends Improve Housing Market Forecasts?

search term (e.g. Hillary Clinton) is normalized across all of the computed data
points of this specific term (Hillary Clinton). Therefore, we see that although
all search terms are divided by the same base, the search index for every term is
not comparable across different terms.
The housing price data we will be testing our models against is the S&P/
Case-Shiller 20-City Composite Home Price Index provided by FRED. We
then take the Metropolitan Statistical Area (MSA) city-level data on housing
sales available on Zillow’s data page and weigh the data in accordance with
the weighing scheme outlined by the Case-Shiller 20 city housing index.2 We
follow the same steps in creating the series for online search queries: Google
provides the trend data at the city-level and this allows us to to create a national
data series on Google Trends which is consistent with the weighing of our sales
data and the Case-Shiller index. Since Google Trends data is available from
January 2004 through 2016, all of our data series begin on January 2004. In
all of the empirical exercises, we split the dataset into a training period and a
(out of sample) forecast period. All of the forecasts are performed out of sample
as dynamic, one-step-ahead forecasts and evaluated using a root mean-squared
deviation metric.
We estimate a baseline linear model following previous studies in the
literature. We then re-estimate the model including the Google Trend data.
We find that adding the Google Trend data as an explanatory variable in our
baseline training/testing period insignificantly improved the performance of
the forecast, decreasing the root mean squared deviation from 6.7576 to 6.7483
(decrease of 0.14%) and decreasing the mean absolute percentage error from
96.201 to 94.565. In a robustness check, repeating the exercise with a shorter
and longer training window both deteriorate the forecast performance with the
RMSD increasing by 0.314% and the MAPE increasing from 109.75 to 111.23
for the shorter training window and the RMSD increasing by 1.425% and the
MAPE increasing from 158.68 to 161.14 for the longer training window.
Related literature
This paper builds upon and contributes to a growing body of work which
seeks to exploit and/or investigate the predictive power of online search queries
in forecasting the future values of various assets.
Beracha & Wintoki (2013) examine whether abnormal housing price
changes in a city can be predicted by abnormal search intensity for real estate
terms in that specific city. By arguing that search intensity for real estate terms
for a specific city can be treated as a proxy for housing market sentiment
for that city, Beracha and Wintoki run a regression of abnormal home price
changes on the lagged abnormal search intensity for the search terms “real
estate” and “rent” for each Metropolitan Statistical Area (MSA) in their
sample. They discover that, by using search intensity for real estate terms as a

2 The data were freely available up until 2017, when Zillow changed their policies regarding the availability of their data. The data is no longer
free; we thus chose to only include the data in this study that were freely available at the time. As a result, our raw data files span 2004 - 2016.

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 Can Google Trends Improve Housing Market Forecasts?

proxy for housing sentiment, abnormal search intensity for real estate terms in
a specific city can help predict abnormal future housing price changes. They
also find that the predictions for cities with abnormally high search intensity
outperform the predictions for cities with abnormally low real estate search
volume by as much as 8.5% over a two-year period.
Askitas (2016) creates a buyer-seller index based on the ratio of Google
Trends home “buy” queries to home “sell” queries. The index correlates with
the SP/Case-Shiller Home Price Index and makes for a fairly decent method to
now-cast home prices. Our focus is a bit different as we are testing the out-of-
sample forecasting ability with and without online query data and we are also
including both past prices and actual housing sales volumes provided by Zillow
as independent variables in our models.
Vosen & Schmidt (2011) intend to check how indicators from Google
Trend search terms perform when compared to two traditional survey-based
indicators, the University of Michigan Consumer Sentiment Index (MCSI)
and the Conference Board Consumer Confidence Index (CCI), in forecasting
private consumption. Vosen & Schmidt (2011) form a baseline model with
MA(1) process and augment the model by adding the MCSI, CCI and Google
factors into the model. They then conduct both in-sample and out-of-sample
forecasting and find consistent results in supporting Google data as the
superior data source for predicting private consumption during their testing
period from January 2005 to September 2009.
Finally, additional empirical papers which demonstrate some evidence of
the fore- and now-casting power of Google data for specific macroeconomic
variables include D’Amuri & Marcucci (2012) (forecasting the unemployment
rate), Coble & Pincheira (2017) (now-casting building permits) and Nymand-
Andersen & Pantelidis (2018) (now-casting car sales).
Empirical methodology
We estimate a simple set of time series regressions (including and excluding
the Google data) and then perform an out-of-sample forecast. We then
compare the out-of-sample forecasts with the actual Case-Shiller HPI. We then
calculate and provide several measures of forecast performance statistics to
compare the models with. For all statistical exercises, the training block spans
August of 2004 through December of 2012; we will be testing the forecasting
ability of the resulting estimated models on the remaining data which spans
January of 2013 through August of 2016. For robustness, we repeat the
exercise using a smaller (August 2004 – July 2010) and larger (August 2004 –
July 2014) training period.3

3 These results are provided in the appendix.

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 Can Google Trends Improve Housing Market Forecasts?

Table 1: Case-Shiller Assigned Index Weights

City 2000 2010

Boston 0.0528 0.0474
Chicago 0.0633 0.0599
Denver 0.0262 0.0254
Las Vegas 0.0105 0.0113
Los Angeles 0.1507 0.1547
Miami 0.0355 0.0426
New York 0.1940 0.2167
San Diego 0.0393 0.0388
San Francisco 0.0840 0.0679
Washington DC 0.0559 0.0722
Atlanta 0.0393 0.0397
Charlotte NC 0.0131 0.0151
Cleveland 0.0173 0.0138
Dallas 0.0395 0.0392
Detroit 0.0483 0.0206
Minneapolis 0.0279 0.0248
Phoenix 0.0292 0.0279
Portland OR 0.0193 0.0212
Seattle 0.0389 0.0431
Tampa 0.0148 0.0177

The 20 U.S. cities and their corresponding index weights for the Case-Shiller 20 city house price index. This study utilizes the 2010
weighing.

Data description
Case-Shiller Home Price Index
Based on the work of Karl Case, Robert Shiller and Allan Weiss, The S&P
CoreLogic Case-Shiller Home Price Index Series are “the leading measures of
U.S. residential real estate prices, tracking changes in the value of residential
real estate both nationally as well as in 20 metropolitan regions.”4 The three
major indices included in the series are Case-Shiller 20-City Composite Home
Price Index, the Case-Shiller 10-City Composite Home Price Index, and the
Case-Shiller U.S. National Home Price Index. For the purpose of our research,
which focuses on the housing market at the national level, we select the Case-
Shiller 20-City Composite Home Price Index for its coverage of 20 significant
housing markets in the U.S. at the city level.
A detailed list of the 20 cities included in the composite is presented in table
1.
In order to create the Google search query index that we use to conduct our
study, we weigh the city-level Google search query data using the exact same
weights as the Case-Shiller. Again, our aim is to remain as consistent as possible
when marrying the housing and search query data.

4 http://us.spindices.com/index-family/real-estate/sp-corelogic-case-shiller

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 Can Google Trends Improve Housing Market Forecasts?

Google Trends Data

Google Trends is a search queries database provided by Google and it has
been made available to the general public since its official launch on May
11, 2006, with data going back to as early as 2004. Google Trends provides
users with a normalized search intensity index ranging from 0 to 100, with
zero indicating no or very little search activity on a specific search term and
100 indicating the highest. Because of data normalization, the user cannot get
the exact search intensity amount outside of the context of all search queries
submitted to Google Search within a certain period of time. However, the
service does provide a convenient data source for comparing the changes in
the search intensity for a specific search term over a long period of time. In
addition, Google Trends also offers users the option to filter the data at the
national, regional or geographical level.
There have been numerous papers written which explore the predictive
power of Google Trends data with many researchers having found affirmative
results showing that Google Trends data can be utilized to predict near-future
events. For example, Choi & Varian (2012) use search engine data from Google
to forecast near-term macroeconomic indicators like automobile sales,
unemployment claims, and consumer confidence, concluding that “simple
seasonal AR models that include relevant Google Trends variables tend to
outperform models that exclude these predictors by 5% to 20%.”
To incorporate Google Trends data into our research, we aim to construct
a monthly “Google Trends Case-Shiller” search intensities index series for the
housing market. To do so, we gather, subject to data availability, Google Trends
data for search terms similar to the search semantic “[city] Real Estate Agency”,
where “[city]” is all city choices coming from the Case-Shiller 20-City
Composite Index (in table 1). We chose “Real Estate Agency” as this search
term provided the best result.
As a robustness check, we also re-ran all of the exercises with the default
Google “Real Estate” search term and again with the default Google “Real
Estate Agency” search term. The search query “Real Estate Agency” provided
better results than “Real Estate”, however both resulted in inferior results when
compared to the query including the city name.
The available data for the search terms are dated from December 2003 to
August 2016 at the monthly frequency. Then to transform these data into our
monthly “Google Trends Case-Shiller” search intensities index series, we assign
the same weighting scheme from the Case-Shiller 20-City Composite Index (in
table 1) to each city’s Google Trends index data and obtain a “Google Trends
Case-Shiller” housing search term index for all sets of data across 20 cities.

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 Can Google Trends Improve Housing Market Forecasts?

Table 2: Unit-root test results for training data period (2004:08 - 2012:12)

Variable Name ADF ( unit-root) KPSS ( no unit-root)

C.S. HPI inflation -value 0.00112 -value > .10
diff’d housing sales -value 0.02802 -value > .10
diff’d Google Trend data -value 0.01569 -value > .10

ADF and KPSS unit-root tests for all the variables considered in the estimation. All tests conducted with 12 lags as frequency of data is
monthly.

Zillow Housing Data

Founded in 2006, Zillow is an online real estate database that has more than
110 million U.S. homes, including homes for sale, homes for rent and homes
not currently on the market, on its record.5 Besides its website, Zillow also
offers mobile apps across all mainstream platforms and the popularity among
users gives Zillow first-hand data in the real estate market. Zillow releases
housing market data periodically on its website and the data are freely accessible
by the public.
In order to remain consistent with the Google Trend data, we turn to Zillow
in order to create a monthly “Housing sales - Case-Shiller” index. To do this,
we obtain the set of sales data at the city level from Zillow and assign each
city’s sales data the same weights from table 1. The resulting weighted time
series data for sales was trimmed to cover August 2004 to August 2016 at the
monthly frequency in order to accommodate the span of Google Trend data
we managed to obtain.
Preparation of Data
Prior to any transformation of the data series, all data was seasonally adjusted
using X-12 ARIMA. We define our primary variable of interest “house price
inflation” as

where is the Case-Shiller housing price composite. The remaining data,

made up of the housing sales and Google Trend data (both Case-Shiller
weighted), has been stationarized by first differences.6 Table 2 reports the results
for unit-root ADF and KPSS tests7 for all of the variables.
The test results in table 2 point out that there is no evidence (to the 3% level)
of a unit-root in any of the time series data we will be using in the econometric
exercises.

5 http://www.zillow.com/corp/About.htm
6 An HP-filtered set of time series data is not appropriate for this type of analysis; since the HP-filter is two-sided and this is an exercise in testing
forecasting ability, at the forecast point the filter would rely on data which hasn’t arrived.
7 ADF is the acronym for the Augmented Dickey-Fuller test and KPSS is the acronym for the Kwiatkowski–Phillips–Schmidt–Shin test.

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Estimation
We proceed by breaking the data set into a training block and a testing
block. The training set will cover August of 2004 through December of 2012,
and the testing data will span the remainder of the set from January 2013
through August of 2016.8 We will be formulating an AR model for the Case-
Shiller HPI, which also has differenced (Case-Shiller weighted) housing sales
and differenced (Case-Shiller weighted) Google search query data as regressors.
In order to establish a benchmark, we initially estimate a model excluding the
search query data.
Without Google
Following a battery of various combinations, the model we chose as “best”9
is

where is the Case-Shiller HPI and represents differenced (Case-Shiller

weighted) housing sales. In choosing the most parsimonious model, we
compared the results across three main criterion:
1. appropriateness of the variables chosen in line with our priors as to
what the data-generating process for housing price inflation should
look like,10
2. the model which minimizes the (negative) of the log-likelihood, while
3. eliminating all of the auto-correlation and partial auto-correlation in
the resultant residual series.

The estimation results are reported in table 3.

Both of the autoregressive lags are statistically significant at the 1% level,
hinting that aggregate real estate prices exert extreme levels of inertia;
differenced housing sales are significant at the 10% level, with sales lagged two
periods being significant at the 1% level, demonstrating that past home sales
are also indicative of current price movements. The high level of inertia in
aggregated housing markets is well known in the literature; Case & Shiller
(1989, 1990) studied the high level of persistence in the rate of change of prices,
concluding that this was one of the reasons that the housing market remains
inefficient.11

8 Robustness results using smaller and larger training windows provided in the Appendix.
9 The model we chose also takes on the same structure as in Wu & Brynjolfsson (2015).
10 For example, it is well known that housing prices exhibit a fair amount of persistence, and housing sales typically contribute to housing price
inflation with a slight lag; the resultant model fits this prior.
11 While city-wide indexes (similar to ours in the current study) exhibit persistence, forecasting excess returns at the individual house level remains
difficult due to the relatively high level of noise in individual prices.

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Table 3: Linear model for Case-Shiller price index excluding search query data, using observations 2005:08–2012:12 ( = 89)

Coefficient Std. Error p-value

1.94246 0.0267369 72.6508 0.0000***
-0.954215 0.0270895 -35.2245 0.0000***
0.867668 0.521537 1.6637 0.0962*
1.47067 0.501876 2.9304 0.0034***

Mean dependent var -2.711933 S.D. dependent var 9.319371

Mean of innovations 0.144945 S.D. of innovations 0.324190
Log-likelihood -30.65915 Akaike criterion 71.31830
Schwarz criterion 83.76148 Hannan–Quinn 76.33379

Dependent variable:
Standard errors based on Hessian
Baseline model estimates excluding Google Trend explanatory variables. Note that this is for the training period. In order to test the
forecasting capabilities, we will follow this with an estimation of a training period’s worth of observations, followed by an out-of-sample
forecast.

With Google
We follow the same procedure in isolating best econometric model when
incorporating the Google Trend data as we did in choosing the model without
the search query data (The model given by equation (2)). The resultant
regression specification is

where variables are as defined before ( is the Case-Shiller HPI, represents

differenced housing sales) and represents the differenced " Real Estate
Agency" Google search queries. This resultant model illustrates that significant
deviations in search activity manifest themselves as real movements in the
housing market approximately 3 to 4 months later.12 The estimation results are
reported in table 4.
According to the estimates in table 4, lagged prices and housing sales once
again play an important role in the pricing process, however, while online
search queries slightly improve the overall fit of the model (according to the
log-liklihood of the estimate), both coefficients on search queries are only
significant at the 16% level.
Forecasting results for both models
Figure 3 offers a visual representation of how well both models perform out
of sample. Actual data contain squares while forecasted data contain triangles.
Also included are 95 percent confidence bands on the out-of-sample forecasts.
Table 5 lists two sets (with and without the Google search query data) of
forecast performance measures.

12 According to homes.com, for the average home buyer, the process from shopping to first mortgage payment can take anywhere from 2 to 6
months. This doesn’t take into account the early online research stages conducted by most potential buyers.

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 Can Google Trends Improve Housing Market Forecasts?

Table 4: Linear model for Case-Shiller price index including search query data, using observations 2005:08–2012:12 ( = 89)

Coefficient Std. Error p-value

1.94361 0.0263326 73.8098 0.0000***
-0.955116 0.0266764 -35.8037 0.0000***
0.887928 0.516163 1.7202 0.0854*
1.60154 0.505764 3.1666 0.0015***
0.00905820 0.00639056 1.4174 0.1564
0.00889410 0.00624522 1.4241 0.1544

Mean dependent var -2.711933 S.D. dependent var 9.319371

Mean of innovations 0.146783 S.D. of innovations 0.319700
Log-likelihood -29.44803 Akaike criterion 72.89606
Schwarz criterion 90.31651 Hannan–Quinn 79.91774

Dependent variable:
Standard errors based on Hessian
Baseline model estimates including Google Trend independent variables. Note that this is for the training period. In order to test the
forecasting capabilities, we will follow this with an estimation of a training period’s worth of observations, followed by an out-of-sample
forecast.

Discussion of results
Two meaningful statistical measures presented by table 5 are the Root Mean
Squared Deviation and the Mean Absolute Percentage Error. The
root mean squared deviation , is defined as

where represents the number of observations in the out-of-sample

observations, a superscript represents “forecasted” and a superscript
represents “actual”. According to table 5, incorporating Google Trends data
into the forecast only slightly improves the deviation from 6.7576 to 6.7483,
leaving the impression that the crowd-sourced query data doesn’t really add any
value to the forecasting ability of the model.
Comparing the Mean Absolute Percentage Error in the forecasts further
corroborates the unremarkable performance of the forecast which implements
the Google Trend data over the baseline model’s forecast (96.201% baseline
compared to 94.565% for the model with Google). In order to test the
robustness of these results, we repeated the experiment utilizing a shorter
training window13 and then once again repeated the experiment utilizing a
longer training window.14 Unlike the results provided in table 5, in both

13 2005:08–2010:07 ( = 60) compared to 2005:08–2012:12 ( = 89).

14 2005:08–2014:07 ( = 108) compared to 2005:08–2012:12 ( = 89).

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Figure 3: Plot at the top illustrates the forecast for the Case-Shiller weighed housing price data in a model excluding the
search query data, while the plot at the bottom depicts the forecast including the search query data.
Both forecasts are plotted against the actual housing data. The data shown begin in 2009 while the forecasts commence January of 2013
(the testing period). Tail end of the Great Recession is banded in gray.

Table 5: Forecast Evaluation Statistics

Forecast statistic Without Google Trends With Google Trends

Mean Error 5.3079 5.1809
Mean Squared Error 45.665 45.539
Root Mean Squared Error 6.7576 6.7483
Mean Absolute Error 5.3105 5.1834
Mean Percentage Error 96.169 94.535
Mean Absolute Percentage Error 96.201 94.565
Theil’s U 18.764 18.763
Bias proportion, UM 0.61696 0.58941
Regression proportion, UR 0.32828 0.35314
Disturbance proportion, UD 0.054761 0.057449

Out-sample-forecast evaluation statistics for both linear models (2) (excluding Google Trends) and (3) (including Google Trends).

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 Can Google Trends Improve Housing Market Forecasts?

robustness checks, the performance statistics actually deteriorated when

incorporating the Google Trend data; numerical specifics provided in the
appendix.
The inefficiency of the housing market has served as a focal point in the
literature (Case & Shiller, 1990; Hjalmarsson & Hjalmarsson, 2009), so our
prior, based largely on the results from the other studies which incorporated
the search query data, was that the Google Trend data would be a promising
addition to ARIMA models used to forecast prices in the housing market.
However, the empirical tests we have conducted do not provide any proof that
the search query data aids in forecasting out-of-sample.
Concluding remarks
In this study, we have answered the research question of whether or not
incorporating Google Trends data into models of the housing market actually
improves their out-of-sample forecasting ability. The motivation for this study
comes from the present trend towards utilizing search query data in empirical
economics.
According to our results, incorporating Google Trends does not
significantly improve the models’ ability to forecast out-of-sample. While many
related papers in the literature (Beracha & Wintoki, 2013; Vosen & Schmidt,
2011) incorporate the same type of search query data in their models and
demonstrate statistical significance among the search query regressors, we took
this method one step further: does this help in any way when it comes to the
ability of these models to forecast out-of-sample? Our conclusion is that the
evidence simply does not support this.
These results motivate two follow-up research questions: why is it that
incorporating the Google Trend data deteriorate the forecasting ability, and
would different types of forecasting tests - such as a dynamic/rolling window
forecast, for example - actually provide different results/buttress support for
inclusion of the search query data? Would augmenting larger economic models
of the housing market provide different results? This is probably unlikely,
given the results of Wickens (2014), and also the reputation larger DSGE
models have when it comes to their lackluster performance in forecasting
macroeconomic data out-of-sample. A separate study involving a theoretical
model which can then be estimated in order to make empirical forecasts would
be a more appropriate venue to undertake this question; this would be one
potential future extension of this work.

Submitted: November 30, 2020 MST, Accepted: March 01, 2021 MST

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 Can Google Trends Improve Housing Market Forecasts?

Appendix
Table 6: Shorter training period model excluding search query data, using observations 2005:08–2010:07 ( = 60)

Coefficient Std. Error p-value

1.93861 0.0309645 62.6075 0.0000 ***
-0.950140 0.0313532 -30.3044 0.0000 ***
0.863954 0.798479 1.0820 0.2793
1.62196 0.745144 2.1767 0.0295 **

Mean dependent var -3.392001 S.D. dependent var 11.09176

Mean of innovations 0.181659 S.D. of innovations 0.349636
Log-likelihood -26.63520 Akaike criterion 63.27041
Schwarz criterion 73.74213 Hannan–Quinn 67.36647

Dependent variable:
Standard errors based on Hessian
Regression results for the ARIMA model, excluding the search query data, estimated on the smaller training set.

Dynamic forecasting
If we have the following sample AR(1) model

and we want to forecast for period and data for up to period is

available, we could estimate

Now assume that only the data up until period is available so that we
estimate

Then we can take our estimate for from (7) and feed this in for in (6).
The result is what we refer to as a dynamic forecast.
Shorter training window
Tables 6 and 7 show the regression results for two other combinations of
training/forecasting periods.
Table 8 contains out-of-sample performance measures for two other
combinations of training/forecasting periods.
Longer training window
Table 11 contains out-of-sample performance measures for a longer
training/shorter forecasting period.

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 Can Google Trends Improve Housing Market Forecasts?

Table 7: Shorter training period model including search query data, using observations 2005:08–2010:07 ( = 60)

Coefficient Std. Error p-value

1.94008 0.0303377 63.9493 0.0000 ***
-0.951341 0.0307151 -30.9730 0.0000 ***
0.863262 0.784364 1.1006 0.2711
1.78123 0.742587 2.3987 0.0165 **
0.0102883 0.00746323 1.3785 0.1680
0.00988686 0.00730554 1.3533 0.1759

Mean dependent var -3.392001 S.D. dependent var 11.09176

Mean of innovations 0.184155 S.D. of innovations 0.342948
Log-likelihood -25.51223 Akaike criterion 65.02445
Schwarz criterion 79.68487 Hannan–Quinn 70.75895

Dependent variable:
Standard errors based on Hessian
Regression results for the ARIMA model, including the search query data, estimated on the smaller training set.

Table 8: Forecast Evaluation Statistics for Shorter Training Period Models

Forecast statistic Without Google Trends With Google Trends

Mean Error 5.2065 5.2188
Root Mean Squared Error 6.212 6.2315
Mean Absolute Error 5.2236 5.2346
Mean Percentage Error 62.769 61.734
Mean Absolute Percentage Error 109.75 111.23
Theil’s U 3.643 3.7613
Bias proportion, UM 0.70247 0.70139
Regression proportion, UR 0.055623 0.043614
Disturbance proportion, UD 0.24191 0.25499

Forecast results for both models, estimated on the smaller training set.

Table 9: Longer training period model excluding search query data, using observations 2005:08–2014:07 ( = 108)

Coefficient Std. Error p-value

1.93508 0.0273901 70.6488 0.0000 ***
-0.946772 0.0277233 -34.1508 0.0000 ***
0.739370 0.524836 1.4088 0.1589
1.38938 0.507060 2.7401 0.0061 ***

Mean dependent var -0.236358 S.D. dependent var 10.05906

Mean of innovations 0.121155 S.D. of innovations 0.338406
Log-likelihood -40.70586 Akaike criterion 91.41173
Schwarz criterion 104.8224 Hannan–Quinn 96.84926

Dependent variable:
Standard errors based on Hessian
Regression results for the ARIMA model, excluding the search query data, estimated on the larger training set.

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 Can Google Trends Improve Housing Market Forecasts?

Table 10: Longer training period model including search query data, using observations 2005:08–2014:07 ( = 108)

Coefficient Std. Error p-value

1.93631 0.0270034 71.7061 0.0000 ***
-0.947812 0.0273293 -34.6811 0.0000 ***
0.766475 0.521171 1.4707 0.1414
1.53325 0.510828 3.0015 0.0027 ***
0.00952374 0.00639631 1.4889 0.1365
0.00996920 0.00629178 1.5845 0.1131

Mean dependent var -0.236358 S.D. dependent var 10.05906

Mean of innovations 0.121963 S.D. of innovations 0.333903
Log-likelihood -39.28663 Akaike criterion 92.57325
Schwarz criterion 111.3482 Hannan–Quinn 100.1858

Dependent variable:
Standard errors based on Hessian
Regression results for the ARIMA model, including the search query data, estimated on the larger training set.

Table 11: Forecast Evaluation Statistics for Longer Training Period Models

Forecast statistic Without Google Trends With Google Trends

Mean Error 8.1574 8.2821
Root Mean Squared Error 9.1038 9.2335
Mean Absolute Error 8.1574 8.2821
Mean Percentage Error 158.64 161.14
Mean Absolute Percentage Error 158.68 161.14
Theil’s U 39.555 40.126
Bias proportion, UM 0.80237 0.80454
Regression proportion, UR 0.19611 0.19398
Disturbance proportion, UD 0.0015246 0.00148

Forecast results for both models, estimated on the larger training set.

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