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New UC San Diego Model Predicts Housing Prices to Fall as much as 18% this Year

In an article published by UC San Diego, a study finds internet search data can be used as an early indicator of where the market is going.

According to a new study from the University of California San Diego’s Rady School of Management, a new model based on online search activity predicts that home prices will decrease by 5% nationally and 12% in San Diego County by the end of 2023. The model developed by Allan Timmermann and collaborators at Arhus University in Denmark tracks the rate at which prospective buyers use the internet to search for homes, providing a measure of potential demand for housing. The model's predictions have a proven accuracy rate of up to 70%, and it differs from other price predictors, such as Zillow, Goldman Sachs, and Redfin, which consider a range of factors, including interest rates, wage growth, unemployment, and housing supply.

Timmermann attributes the larger price drop in San Diego County to the fact that it's where the market overheated the most during the pandemic. He notes that many households got priced out of the market, and the market has cooled by 2.5% since May of 2022 when prices peaked. The study suggests that the pandemic-driven shift to remote work has led people to prioritize suburbs with more space and better weather, and San Diego, with its desirable suburbs and weather, is one of the areas that benefited from this trend. However, limited supply has caused prices to skyrocket, leading to a correction in prices as the market adjusts.

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