Uncovering the Demand for Housing Using Internet Search Volume
One challenge in evaluating the demand for goods and services is the timing of data releases. With most data series, there generally is some lag between the current time and the most recent data available. This is particularly true in the housing market, where supply is potentially constrained and can be slow to respond to increased demand. As an alternative, we attempt to gauge housing 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. 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 we consider is “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. 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. 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. Again search volumes provide additional insight beyond the standard transactions data. Consider the similarities and differences in the search volumes for “real estate agent” and “mortgage broker.” 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.
Another subgroup that can also be teased out of the Google Trends data is first-time home buyers. General concerns have been expressed recently over the difficulty young people are having finding affordable housing in areas with better upward social mobility (Chetty et al. (2014)). Potentially worrisome for youth and the housing market going forward is a possible decline in first-time home buyers, reflected in search volumes for the terms “first home” and “mortgage calculator.” While the reasoning for “first home” is clear, we also looked at “mortgage calculator” because first-time home buyers may be credit constrained and therefore likely to use a mortgage calculator. Searches for these terms are currently much lower than they were before the crisis, suggesting a possible decline in first-time home purchases.
“Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States” (2014) Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez, working paper.