Cleveland Fed researchers see searches tracking market metrics
A new study of Internet search terms related to housing reveals some surprising facts about housing demand.
Three researchers at the Federal Reserve Bank of Cleveland – Rawley Heimer, Daniel Kolliner and Timothy Stehulak – found that as relates to housing, they could gauge some degree of demand by using data on the volume of searches done on words and phrases in Google.
“Data on search volume is available through Google Trends, and it indicates the popularity of the words used in Google’s search engine. One advantage of this data over other sources is that it is instantaneous, so it can provide a measure of current demand,” they write. “Another advantage is that because we can see specifically which terms people are searching for, we can gain additional insight beyond what prices and transactions can tell us. For instance, popular search terms could say something about specific market segments, which current price or sales volume cannot.”
The first Google Trends term they considered was “real estate agent.”
“We reason that people searching for a real estate agent are those who are interested in purchasing a home. We argue that the search-volume index for this term is a good indicator of housing demand because it closely tracks the Case-Shiller Home Price Index from 2007-2013, where it appears that supply and demand are balanced,” they write.
A look at the periods in which the series diverge may provide additional insight into the housing market.
“In 2004, for example, prior to the housing crisis, the search-volume index for ‘real estate agent’ drastically exceeded the home-price index. Moving forward in time, the discrepancy narrowed, showing that it took a few years for prices to fully catch up to the demand implied by the search volume. From then, the two indexes trended closely until around 2014 when the gap widened again,” they write. “Although both indexes have been trending upward, growth in demand has been lagging behind the Case-Shiller index. This gap between demand and home prices may imply that home prices are currently overvalued.”
“Another term we consider is ‘mortgage broker.’ Search volume for this term appears to be a good measure of housing demand because it does a nice job of capturing the seasonality in the demand for homes, as measured by existing home sales. Note that search volume for ‘real estate agent’ does as well. All three data series decline at the same time each year,” they write. “Again search volumes provide additional insight beyond the standard transactions data.”
Consider, they write, the similarities and differences in the search volumes for “real estate agent” and “mortgage broker.”
They note that while the two appear to have a narrow gap before the recession, “mortgage broker” appears to diverge from “real estate agent” following the recession.
“This drop in searches for ‘mortgage broker’ could indicate that income-constrained home buyers are going to constitute a smaller fraction of home sales going forward. We reason that income-constrained borrowers, who are more sensitive to the size of their mortgage payments and need the lowest mortgage payment possible, are those more likely to use a mortgage broker,” they write.