Market Insights

Applying Data Mining Techniques to the Real Estate Market: Using Google Trends to Understand US Real Estate

Eli Glanz Founder and Principal, Alpha Real Estate Partners, Inc. Published January 2014

Introduction
CoreLogic, Census, HUD these are the traditional sources we have relied on in the past to provide data to analyze the real estate market. Unfortunately, these providers are oftentimes too limited, or too expensive, for our needs. In this paper we present an alternative resource, available at no cost to all: Google Trends. Internet research has become an indispensable and ubiquitous tool for those who participate in the real estate market home owners, renters, investors and developers these individuals search engine queries provide a rich dataset for us to analyze. Using tools provided by the Google Trends website various geographic and temporal trends in the US real estate market can be studied.

Electronic copy available at http://alpharealestatepartners.com/google-trends/ Contact the author: eli@alpharealestatepartners.com

GOOGLE TRENDS
Google Trends (http://www.google.com/trends/) is a data mining tool provided by Google. Its purpose is to analyze a portion of the searches made using the Google search engine. It allows one to determine how often a particular term was searched for relative to the total number of searches within a given timeframe and originating from within a specified geographic location. (Google Inc., 2014) With over two-thirds of the share of domestic internet searches Google is by far the predominant search engine used within the United States. (comScore, Inc., 2014) Capturing such a large portion of all internet searches allows us to use the analysis provided by Google Trends as a tool for identifying national market trends with a high degree of confidence.

SEASONALITY
We intuitively understand the presence of a seasonality in housing activity. For example, more people tend to move to a new home at the beginning or end of the academic year. Will real-world internet activity support our intuition? Figure 1 shows the relative frequency of the search for the term apartment rent over a period of time from 2004 through 2013. A clear pattern emerges; searches diminish rapidly from September through December in each year and peak in January and July.

Figure 1 - Frequency of the search term "apartment rent" over time (Google Inc., 2014)

Figure 2 shows the same analysis for the term mortgage. It is interesting to note a similar, though much less pronounced seasonality. This figure also reveals another notable trend the rapid shrinking of the mortgage market beginning in early 2009 as the financial crisis began to take hold. We can further see how the financial crisis disrupted the mortgage market in Figure 3 which shows how the government response to the financial crisis spurred extraordinary interest in mortgage refinancing. The precision and relevance of the Google data is confirmed by comparing the search trend with historical interest rate data By comparing these three charts we can confirm Googles relevance in revealing a seasonality and recent structural changes in the mortgage market.

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Figure 2 - Frequency of the search term "mortgage" over time (Google Inc., 2014)

Figure 3 - Frequency of the search term "mortgage refinance" over time (in blue) (Google Inc., 2014) compared to 10-Year US Treasury Rates (in orange) (U.S. Department of the Treasury, 2014)

GEOGRAPHIC RELATIONSHIPS
In real estate, one must not forget the old adage that nothing is more important than location, location, location. In addition to search terms, Google tracks the geographic location from which its searches originate which allows us to test to see if we can discern any location-based trends. Figure 4 shows the relative frequency of the search term apartment rent from three geographic locales: Miami-Ft. Lauderdale, Florida (in red), Houston, Texas (in orange) and in the entire United States (in blue). These two metropolitan areas were selected as they have similar sized populations (United States Census Bureau, 2014), are located in the southern US and have growing economies; they are compared to the nationwide trend to establish a baseline. Can we understand from this figure that the housing markets in these two cities are fundamentally different?

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Figure 4 - Frequency of the search term "apartment rent" over time from three locations: Miami-Ft. Lauderdale, Florida (red), Houston, Texas (orange), the entire United States (blue) (Google Inc., 2014)

To answer this question we run an additional trend analysis; Figure 5 which the trends for the search term homes sale in the same locations. The relative position of Miami and Houston reverse beginning in 2007, implying a tendency to home ownership vs. apartment rental in Houston. As a real estate investor or developer, for example, the emergence of such a structural differentiation would be critical to business planning.
Trend reversal

Figure 5- Frequency of the search term "homes sale" over time from three locations: Miami-Ft. Lauderdale, Florida (red), Houston, Texas (orange), the entire United States (blue) (Google Inc., 2014)

Another regional distinction we intuitively understand and which is supported in the data is shown in Figure 6 which shows the trends for the search term studio apartment in New York City (in red), Cincinnati, Ohio (in orange) and in the entire United States (in blue). The Google data clearly shows the prevalence of studio apartments in the high-cost New York apartment market. Such basic market conditions are valuable to potential real estate developers, individuals looking to move to a new city and even government planners. Using Google Trends we are able to identify market changes with near real-time precision.

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Figure 6 - Frequency of the search term studio apartment in New York City (red), Cincinnati, Ohio (orange) and in the entire United States (blue) (Google Inc., 2014)

CONCLUSIONS
Reviewing a few simple examples we can see that Google Trends can provide accurate and relevant time and location-based trends which reveal the underlying characteristics of the real estate market. This capability is free to all and we leave it to the reader to devise other search parameters to investigate. It should be noted that the construction of the data sets via Google is fundamentally different than that of the market data at websites such as Zillow or Redfin. These websites aggregate structured data derived primarily from market transactions which stands in contrast to Google Trends derivation of trends from user generated activity. We think it would be worthwhile to pursue combining these two types of data in future analyses. We look forward to other future opportunities for online data mining. Presently, Google Trends is the most comprehensive tool for analyzing broad-population activity. Social media platforms such as Facebook and Twitter also contain rich data sets which we hope will be made available for data mining.

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References
comScore, Inc. (2014, January 15). comScore Releases December 2013 U.S. Search Engine Rankings. Retrieved from comScore: http://www.comscore.com/Insights/Press_Releases/2014/1/comScore_Releases_Decemb er_2013_US_Search_Engine_Rankings Google Inc. (2014, January). Retrieved from Google Trends: http://www.google.com/trends/ Google Inc. (2014). Where Trends data comes from. Retrieved from Google Trends Help: https://support.google.com/trends/answer/4355213?hl=en&ref_topic=4365599 U.S. Department of the Treasury. (2014, January). Resource Center - Daily Treasury Yield Curve Rates. Retrieved from http://www.treasury.gov/resource-center/data-chart-center/interestrates/Pages/TextView.aspx?data=yield United States Census Bureau. (2014, January). Metropolitan and Micropolitan Statistical Areas. Retrieved from Population Estimates: http://www.census.gov/popest/data/metro/totals/2012/index.html

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The complete collection of research reports can be found at http://alpharealestatepartners.com/research-reports/ A further collection of real estate data resources can be found at http://alpharealestatepartners.com/housing-reference/

This is not an offer to sell or a solicitation of any offer to buy any securities. Copyright 2014 Alpha Real Estate Partners, Inc.

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