Modelling and Forecasting Property Types’ Price Changes and Correlations within the City of Manchester, UK

Most of the research done on real estate markets to date has concentratedon aggregate real estate price indices and correlations between regional propertiesassets. Previous research also shows that the residential real estate market is lessstudied compared to commercial real estate despite figures showing huge potentialgrowth in the residential real estate market. This paper covers residential real estatemarkets by property types (flats, terraced, semi-detached, and detached) within thecity of Manchester, UK. The paper covers their time series properties as well astheir correlations. The data period is divided into estimation sample from 1995 to2011 and forecasting sample from 2011 to 2013.The highest risk per one percent ofreturn as indicated by the coefficient of variation is for detached properties followedby terraced, flats and semi-detached properties. Property types correlations showthat the highest correlation is between the most expensive properties, detached andsemi-detached and the next highest correlations are between the less expensive,terraced and flats due to the close substitution of those property types. The pricedecline for detached property took year to show positive price change while forflats and terraced properties it only took a quarter to show a positive price changes.