Forecasting Canadian mortgage rates. Issue 11 (23rd July 2016)

• Record Type: Journal Article
• Authors: Sadorsky, Perry
• Is Part Of: Applied economics letters. Volume 23:Issue 11(2016)
• Page Start: 822
• Page End: 825
• Publication Date: 2016-07-23
• Subjects: Forecasting -- mortgage rates -- bank rate -- Canada; E43 -- E47 -- R31; Economics -- Periodicals; Economics, Mathematical -- Periodicals; 330
• DOI: 10.1080/13504851.2015.1111981
• Languages: English
• ISSNs: 1350-4851

Abstract

ABSTRACT: Mortgage rates are one of the important drivers of the housing market. While there is a literature looking at the pass-through effect from Central Bank rates to mortgage rates, there is less known about how useful Central Bank rates are for forecasting mortgage rates. This article uses a selection of models (ARIMA, ARIMAX, BATS, state space error, trend seasonal (ETS), Holt Winter, random walk, simple exponential smoothing (SES), OLS and VAR) to forecast Canadian 5-year conventional mortgage rates. Based on RMSE, regression-based approaches like ARIMAX or OLS that use Central Bank rates to forecast mortgage rates are preferred when it comes to forecasting Canadian mortgage rates 6 or 12 months into the future, respectively.