Relation between News Media Sentiment and House Prices: A cross-country comparative analysis
Over the past 70 years house prices in most countries have undergone a remarkable transformation. Whereas they were relatively stable until the mid-20th century, they boomed in most countries in 1950s, fell in Asian countries in 1998, skyrocketed in the early 2000s, collapsed in 2008, and experienced extra-ordinary growth in 2020 despite the COVID‑19 pandemic. The housing market has become the world’s largest asset class and is now worth almost three times as much as all publicly traded stocks in the world. Without a doubt, the housing market is an important sector of any developed economy, and the purchase of a home is the most significant expense for most households and individuals during their entire lifetime.
Recent studies of the US housing market find that news media sentiment, defined as people’s attitudes and beliefs expressed in news media, captures important information about house price movements, above and beyond the effects of economic fundamentals. However, evidence outside the US is extremely limited and inconclusive. Since housing and credit markets outside the US are subject to a different set of rules and regulations, the findings and implications developed for the US market may not necessarily apply to other markets. Furthermore, recent developments in textual analytics provide opportunities to perform novel analysis of the news media sentiment. Finally, the recent outbreak of the COVID‑19 virus and its devastating effects on world economies provide an excellent opportunity to examine the role of investor sentiment in house price movements under economic crises with different impacts on the housing market: collapse in the 2008 Great Recession and extra-ordinary growth in the 2020 COVID‑19 pandemic.
The proposed research program will contribute to the existing literature by: 1) developing different and new measures of news media sentiment for the housing market; 2) conducting a comparative analysis of the relation between news media sentiment and house price movements under different regulatory and market environments in Canada, Australia, and United Kingdom (UK); and 3) by providing a comparative analysis of the relation between news media sentiment and house prices under two different economic crises. We focus on these three countries because they all use English as their official language. This commonality makes any measures of textual analysis easily transferable from one country to another. Also, these countries have different regulatory environments providing a natural laboratory for cross-country analysis.
The proposed research program aims to accomplish the following four objectives:
1) To develop novel measures of the news media sentiment related to the discussions of the housing markets in Canada, Australia, and UK;
2) To conduct a comparative analysis of the relation between news media sentiment and house price movements in Canada, Australia, and UK;
3) To compare the relation between news media sentiment and house price movements under two different economic shocks: the 2008 Great Recession and 2020 COVID‑19 pandemic;
4) To develop recommendations on house price movements for households, real estate investors and developers, regulators, and policymakers.
This research with advance academic analysis and will lead to important practical implications. Prices and conditions of the housing market can significantly affect the health of the entire economy and the financial well-being of many individuals and households. A better understanding of the factors moving house prices will help regulators and policymakers with developing more effective policies and will assist real estate investors and households with making better house purchase decisions.