Modelling and Forecasting Property Types’ Price Changes and Correlations within the City of Manchester, UK

Abstract

Most of the research done on real estate markets to date has concentrated on aggregate real estate price indices and correlations between regional properties assets. Previous research also shows that the residential real estate market is less studied compared to commercial real estate despite figures showing huge potential growth in the residential real estate market. This paper covers residential real estate markets by property types (flats, terraced, semi-detached, and detached) within the city of Manchester, UK. The paper covers their time series properties as well as their correlations. The data period is divided into estimation sample from 1995 to 2011 and forecasting sample from 2011 to 2013.The highest risk per one percent of return as indicated by the coefficient of variation is for detached properties followed by terraced, flats and semi-detached properties. Property types correlations show that the highest correlation is between the most expensive properties, detached and semi-detached and the next highest correlations are between the less expensive, terraced and flats due to the close substitution of those property types. The price decline for detached property took year to show positive price change while for flats and terraced properties it only took a quarter to show a positive price changes.