Introducing the ANZ Housing Search Index; a leading gauge for dwelling prices in Australia, constructed using Google searches. The index suggests Australia’s house prices may stabilise later this year, consistent with the message sent by auction clearance rates. It is early days, however, so we aren’t getting too carried away with the signal.
Using google to forecast house prices
Google Trends, available since January 2004, provides daily and weekly reports on the volume of queries related to various industries. Significant research has shown that this data may correlate with the levels of economic activity in given industries and thus may be helpful in predicting macro indicators.
We used Google Searches to gauge the trend in dwelling prices in Australia. The rationale behind our approach is that Google searches are able to gauge “collective wisdom”, revealing sentiment towards a given market, such as housing. For example, a surge in searches on the topic of “Stamp Duties” may indicate that interest for buying a property is heating up, and so presage a rise in house prices.
Methodology
The ANZ Housing Search Index involves three steps:
- We use Google search trends in Australia since 2004 for topics that one would be most likely to search for when buying a property (“stamp duties”, “mortgage loan comparison”, “auctions today”, “moving company”, etc)
- We then standardise each index and aggregate the results into a simple sum
- We seasonally adjust the data and, due to the volatility of the underlying time series, we take the trend series.
The 3m/3m change in the ANZ Housing Search Index is able to track the quarterly change in Australian dwelling prices with some precision and with the added benefit of a three-month lead (Figure 1).
Figure 1. ANZ Housing Search Index signals some stabilisation in dwelling prices
Source: RP Data, Google, ANZ Research
The y/y change in the index can track annual shifts in housing prices, three months in advance.
Figure 2. ANZ Housing Search Index is a good lead on annual house prices
Source: RP Data, Google, ANZ Research
As illustrated in Figures 1 and 2, the ANZ Housing Search Index has been slowing throughout 2018 but it has more recently ticked higher – suggesting a jump in interest in house buying and hinting that near-term stabilisation in housing prices may be on the cards.
The very recent stabilisation of the auction clearance rate is consistent with our search indicator. In both cases, the sign of improvement is at a very early stage so we are cautious about over-interpretation. Still, these are encouraging early signs.
Conclusion
We have shown that Google Trend searches can be a useful gauge of housing prices in Australia. Indeed, rising internet searches related to homebuyers’ interests tend to signal a pick-up in dwelling prices over the three following months.
Given the relevance of trends in house prices for Australia’s economic outlook, we plan to use the ANZ Housing Search Index as an additional tool in the analysis of the housing market.
This document was prepared by ANZ Banking Group Limited
