How well did leading indicators forecast the South African house price deflation caused by the recent global sub-prime crisis

Laing, Fredl (2012-12)

Thesis (MBA)--Stellenbosch University, 2012.


The use of leading indicators provides a valuable method to predict changes in macro-economic variables. However, the accuracy of the various models using leading indicators is a topic of constant debate. This study aimed to identify whether leading indicator models predicting residential house price changes performed as well during the recent global financial crisis (fourth quarter 2007 to second quarter 2012) as during the period directly before the crisis. Several potential drivers of the South African property market were identified with the help of previous studies on this topic. Following that, a quantitative analysis was done and single leading indicator models were built using regression analysis to evaluate the importance of each independent variable. This information was used to create a composite leading index for the South African housing market. The accuracy of these models were then compared to predict the changes in house prices during the period preceding the recent global economic crisis.It was found that the ability of these leading indicator models to predict house price changes during the recent global economic crisis decreased significantly.

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