C A L I F O R N I A A S S O C I A T I O N O F R E A LT O R SR E A L E S T A T E V O I C E S S Y M P O S I U M

STUART A. GABRIEL Arden Realty Chair & Professor of Finance, UCLA Anderson School of Management

Fear and Loathing in the Housing Market: Evidence from Search Query Data

* http://www.anderson.ucla.edu/Documents/areas/fac/finance/foreclosure_fear_root.pdf

INTRODUCTION

» Mortgage distress was endemic to the recent cr is is » Such distress can dampen house prices, induce

episodes of pessimism among consumers and investors, and wreak havoc on the macroeconomy and fi nancial markets

» Standard measures of investor fear or sentiment either did not focus on housing and mortgage markets or were characterized by l imited sampling, low frequency, lags in dissemination, or lack of predict ive power» VIX Index» Consumer Sentiment» ABX Indices

» Paucity of information was str iking given leading role of housing in the global downturn

RESEARCH APPROACH

» Use Google search data to construct and test of a new Housing Distress Index (HDI) » Google is most popular search engine in US

» Substantial search frequency: large sample of mi l l ions of households

» Al lows us to specify/aggregate search frequency into an index

» Data is freely avai lable and easi ly accessed» Data is real-t ime

» Focus on internet search queries that include a housing-related keyword and a signal of distress (e.g. “foreclosure help” or mortgage assistance”)

» When a user enters a search term such as “mortgage foreclosure help”, she divulges her concern about mortgage fai lure or foreclosure

SCIENT IF IC L ITERATURE

» The l i terature using Google search data is large and growing rapidly Among appl ications of search query data: » Racial animus in voting and chi ld abuse

(Stephens-Davidowitz, (2011))» Spread of infl uenza in US (Ginsburg, 2009)» Stock market attention and consumer sentiment

(Da, Engleberg, and Gao (2011 and 2012)) » International home bias and attention al location

(Mondria, Zu, Zhang (2010)) » Construction of leading indicators (Arola and

Galan (2012)) and (McLaren and Shanbhoge (2011))

» Query indices and a 2008 downturn: Israel i data (Bank of Israel (2009))

HDI CONSTRUCTION

» Combine housing or mortgage related keyword with a signal of distress

» Start with the “mortgage help” and “foreclosure help” search terms» During 2012, well after the height of the crisis,

these terms were queried 594,000 and 266,400 times, respectively

» Google trends reports similar queries » Sum the Google search frequencies from these

queries to build the HDI» Assess robustness of index to other search terms » Seasonally adjust the HDI using the X12

algorithm» Standardize the HDI to have zero mean and unit

variance and use its fi rst diff erence in predictive analysis

GOOGLE SEARCHES FOR “MORTGAGE ASS ISTANCE”

HDI SEARCH TERMS

HDI AND THE CASE-SHILLER

HDI AND “BAD T IME TO BUY DUE TO UNCERTAIN FUTURE”

THE HDI AND THE V IX

THE HDI , FORECLOSURES AND DEL INQUENCIES

THE ABX INDICES

PREDICT IVE EFFECTS OF THE NEW HOUSING DISTRESS INDEX

» The HDI is h ighly correlated with negative housing market sentiment» Correlat ion between the HDI and “now is a bad t ime

to buy owing to UncertainFuture” is 0.74» Yet the HDI behaves diff erently over the sample

period and predicts negative housing market sentiment

» The HDI stat ist ical ly predicts key housing and behavioral indicators, including» Negative consumer sentiment, ABX Indices,

foreclosures, del inquencies, the VIX Index, and national and MSA-specifi c house pr ice returns

» Results are wel l -condit ioned » HDI provides new information and captures a

dimension of household behavior not previously observed in the l i terature

PREDICT IVE EFFECTS OF THE NEW HOUSING DISTRESS INDEX

» Increases in the HDI predict a decrease in housing returns» Like the VIX and stock returns [Whaley (2000)

and Szado (2009)], the relationship between the HDI and housing returns is asymmetric and most pronounced during t imes of crisis

» HDI also leads to larger drop in future housing returns in low price momentum and high volati l i ty local housing markets

» Like the VIX, the HDI is more a barometer of fear associated with housing market implosion than a measure of agent exuberance during a period of market upturn

CONCLUSIONS

» Google search query data provides new, t imely ins ights re housing distress

» The HDI predicts nat ional and local housing returns, negat ive housing market sent iment, the VIX index, the ABX indices, and foreclosures

» Predict ive eff ects are stronger dur ing t imes of cr is is , for volat i le housing markets, and for housing markets in distress

» The HDI captures a new dimension of household behavior» The HDI behaves diff erent ly over the sample per iod

compared to other behavioral indicators» Housing and Macro Indicators account for l i t t le var iat ion in

the HDI» Housing Distress Index may be interpreted as a fear gauge

for the housing market» HDI matches anecdotal accounts of housing fear over the

sample per iod» HDI is h ighly correlated with and predicts negat ive

consumer housing sent iment, the ABX Indices, and the VIX index