Forecast Accuracy
Measuring Forecast Accuracy
The Weiss one-year forecast predicts how much a property's value will rise or fall over the following year. Its accuracy can be measured by comparing it to the change in the Weiss index computed a year later.
The median signed error in the most recent test was 0.1%, indicating virtually no bias in the forecasts.
The median signed error in the most recent test was 0.1%, indicating virtually no bias in the forecasts.
Directional Accuracy
Another way to measure forecast accuracy is how well it predicts the direction of property value changes. Since home prices have inertia, it is relatively easy to predict price changes when appreciation or depreciation continues year-over-year. However, a forecast is more important to mortgage investors in times of high market volatility. For example, it is more important to know that home values are beginning to decrease in a certain neighborhood, than whether the magnitude of an ongoing decline is 5% or 9%.
WA defines three direction ranges of price trends, up, when prices rise more than 3% in a year, down, when home prices change are less than 1%, and flat, when the change is between 1% and 3%. These are chosen to be within 1% of the 2% average yearly inflation rate that has existed for several decades.
WA compares the forecast direction, up, down or flat, to the following year's actual direction. The Weiss forecast is highly accurate in predicting changes in market direction.
WA defines three direction ranges of price trends, up, when prices rise more than 3% in a year, down, when home prices change are less than 1%, and flat, when the change is between 1% and 3%. These are chosen to be within 1% of the 2% average yearly inflation rate that has existed for several decades.
WA compares the forecast direction, up, down or flat, to the following year's actual direction. The Weiss forecast is highly accurate in predicting changes in market direction.
Three-year Forecast
WA also produces a longer-term, three-year forecast. Here are results for the predictive accuracy of this forecast versus actual 3-year home price appreciation. We choose the "flat" range to span the range 3% to 9%, three times the one-year range
When values were "down" over the following 3 years, the 3-year forecast predicted:
Forecast
Change Percent
Forecast Down
79%
Forecast Flat
13%
Forecast Up
8%
Figure one shows the yearly distribution of the WA three-year forecast for homes with decreasing value. Note that 2016-2017 are absent because this is a 2018 test of a 3-year forecast.
Overall accuracy for the 3-year forecast when values are declining is very good, with predictions in the incorrect "up" range only 8% of the time. In the yearly breakdown, the forecast is overwhelmingly correct through 2009. In 2010 many predictions are in the "flat" range. Beyond that, there are few down predictions, but the absolute number of homes with declining values is also very low.
When property values appreciably increased, the WA forecast predicted:
Forecast
Change Percent
Forecast Down
16%
Forecast Flat
13%
Forecast Up
71%
Figure one shows the yearly distribution of the WA three-year forecast for homes with decreasing value. Note that 2016-2017 are absent because this is a 2018 test of a 3-year forecast.
Overall accuracy for the 3-year forecast for rising values is lower than for declining values, but still very good. The yearly breakdown is overwhelmingly correct in all years except 2004, where the final phase of the housing boom was not fully predicted
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