TIME SERIES AND

REGRESSION APPLIED
TO HOUSING PRICE
 CONTENT

„ DESCRIPTIVE ANALYSIS OF THE

HOUSING PRICE EVOLUTION AND THE
“MIBOR” BY MEANS OF TIME SERIES
„ CONCLUSIONS ON RELATIONSHIP
AMONG AVERAGE PRICE OF THE M2, ICP
AND THE “MIBOR”
„ REGRESSION ANALYSIS
 TIME SERIES
„ A time series, is a sequence of observations,
(t,yt) which are ordered in time.
„ APPLICATION:
a) The series of average price of square meter in
Spain from 1987 to 2003.
b) The series of the reference index “MIBOR”
from 1987 to 2003.
 TIME SERIES
COMPONENTS
1. Trend (T); it reflects its evolution in the long
term.
2. Seasonal component (S), it gathers the
oscillations of repetition in periods of time
equal or less than one year.
3. Cyclical component (C), it gathers periodic
oscillations of amplitude higher than one year.
4. Irregular component (I), it gathers the
erratic fluctuations due to unforeseeable
phenomena, known also like residual or erratic
component.
 MODELS USED FOR THE
STUDY OF TIME SERIES

In the classic study of time series, one

deals with two hypothesis of work:
„ The multiplicative hypothesis :
Y(t)=T*C*S*I
„ The additive hypothesis :
Y(t)=T+C+S+I
An analytical form to determine which
model fits best is the method of seasonal
quotients and differences.
 The method of
seasonal quotients and
differences
We calculate the series of the differences (d) and
the quotients one (q) between two consecutive
seasons from different years;
CV(d)= Standard deviation(d) CV(q)= Standard deviation(q)
Average(d) Average(q)

If CV (q) ≤ CV (d ) then we use the multiplicative model

If CV (q) > CV (d ) then we use the additive model

 Quarterly data of the
average price of m2
Year Price of m2 Year Price of m2 Year Price of m2 Year Price of m2 Year Price of m2
1987 1T 289.89 1991 1T 613.42 1995 1T 652.92 1999 1T 755.21 2003 1T 1,349.11
2T 308.64 2T 637.90 2T 661.06 2T 780.25 2T 1,402.57
3T 324.99 3T 652.80 3T 665.46 3T 803.89 3T 1,450.60
4T 345.55 4T 681.23 4T 667.47 4T 829.81
1988 1T 369.13 1992 1T 650.49 1996 1T 669.98 2000 1T 857.25
2T 389.79 2T 635.70 2T 674.79 2T 891.76
3T 404.39 3T 633.78 3T 675.18 3T 926.36
4T 423.12 4T 630.72 4T 676.45 4T 953.42
1989 1T 456.58 1993 1T 625.44 1997 1T 677.74 2001 1T 994.50
2T 480.17 2T 634.83 2T 683.06 2T 1,030.77
3T 502.72 3T 639.69 3T 686.64 3T 1,065.78
4T 516.43 4T 640.61 4T 691.78 4T 1,096.57
1990 1T 550.40 1994 1T 634.72 1998 1T 694.34 2002 1T 1,148.23
2T 559.73 2T 636.80 2T 709.66 2T 1,193.66
3T 570.77 3T 644.36 3T 723.95 3T 1,254.09
4T 580.60 4T 642.63 4T 738.58 4T 1,287.73

Data provided by the Spanish Ministry, “Ministerio de Fomento”

This time series follows a multiplicative model

 Representation of the
components series
Time series
Trend
Cyclical component
Irregular Component
1.600,00 Seasonal component 121
118
1.400,00 115
112
1.200,00 109
106
1.000,00 103
2

100
Euros/m

97
800,00
94
91
600,00 88
85
400,00 82
79
200,00 76
73
0,00 70
1T

1T

1T

1T

1T

1T
4T

3T

19 2T

4T

3T

19 2T

4T

3T

19 2T

4T

3T

19 2T

4T

3T

20 2T

4T

3T
87

90

93

96

99

02
Year
19
Representation of the
components series
MIBOR TIME SERIES
 ICP, MIBOR AND
AVERAGE PRICE OF m2
2000.00 150.00
1500.00 Average price m2
Euro/m 2

100.00
1000.00 MIBOR
50.00 ICP
500.00
0.00 0.00
1
6
11
16
21
26
31
36
41
46
51
56
61
66
quarters
Yearly variation of m2 price, ICP, MIBOR
200,00
Yearly variation m2
150,00
Variations(%)

Yearly variation ICP

100,00
Yearly variation Mibor
50,00

0,00
88

89

90

91

92

93

94

95

96

97

98

99

00

01

02
-50,00
19

19

19

19

19

19

19

19

19

19

19

19

20

20

20
Year
 CONCLUSIONS
„ The behaviour of housing price, is a very
complex economic concept to be modelled by
means of time series.
„ Many other factors influence housing price
evolution, among them, the ICP and the
reference index of mortgage rates. Therefore
in the last years the low interest rates have
created a high housing demand and hence a
high inflation.
„ It would be interesting to study these concepts
together using regression analysis.
 Simple linear
regression

„ How can we get a functional relationship

between two variables?
In our case, we try to explain the MIBOR
through the time, this means,
the MIBOR is the dependent variable and the
time the independent one. In this way we can
predict the MIBOR index for the next year. We
use the least squares method.
 Method of least
squares
„ A least-squares approximation is fitting a line to
a set of paired (xi,yi) observations. The line is;

y ( x) = a + bx + e
„ The goal is to minimize the error, the
discrepancy between the true value y and the
approximate value a + b x
n
min ∑ e = min ∑1 ( yi ,measured − yi ,mod el ) = min ∑ ( yi − b − axi )2
n2 n 2
1 i
1
 Method of the least
squares
„ To obtain these coefficients, we
differentiate this expression with respect
to these coefficients and we obtain,
∑ ∑ ∑
n n n
n x i y i − x i y i
b = 1 1 1

∑ ∑
n n
n 1
x i
2
− ( 1
x i ) 2

a = y − b x

„ To simplify this calculations, we do a

change of variable in x to make x ' = 0 in
order to get
∑
n
n x 'i y i
b = 1
a = y
n ∑
n 2
1
x ' i
 Coefficient of
determination
„ With this change of variable in x we get a very
simple expression for the coefficient of
determination, it shows how good is the
regression
2
(S x '. y )
R 2
= 2 2
S x 'S y

1 n
S t ' y = ∑1 xi ' yi − x ' y
n
1 n 1 n 2
St ' = ∑1 ( x i ') 2 − ( x ') 2
2
S = ∑1 yi − ( y ) 2
2
y
n n
Calculations to get the
regression line by means
of least squares method
 Results of the
regression
∑
n
yi 1 4 7 .1 3
a = 1
= = 8 .6 5
n 17
∑
n
y i x i' − 3 5 6 .0 8
b = 1
= = − 0 .8 7
∑
n
x ' i2 408
1

x ' = ( x − 1995)
y ( x ) = a + b x ' = a + b ( x − 1 9 9 5 ) = − 0 .8 7 x − 1 7 4 9 .7 7
R 2 = 0 .8 9 %
The prediction for 2004 is;

y(2004) = −0.872 x2004 + 1749.766 = 0.87

 M IBOR

0
2
4
6
8
10
12
14
16
18
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
regression

19

Year
96
19
97
Simple linear

19
98
19
99
20
00
20
01
20
02
20
03
MIBOR
Regres s io n