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It is well known that the stock market is extremely difficult to predict, because any model that has an advantage quickly loses that advantage once it is put in

It is well known that the stock market is extremely difficult to predict, because any model that has an advantage quickly loses that advantage once it is put into practice. Real estate, however, has not traditionally had the intense sort of algorithmic focus that the stock market has had. Are there still opportunities to profit based on obvious patterns, and if so, why hasn't this generally been done already? Lack of available of real estate data perhaps? I would think a hedge fund would have no problem contacting a few hundred MLS for the necessary listing data though.

slededit 8y ago
Back around 2012 or so I interviewed with a company doing just that to price mortgage backed securities. So it is being done.
benatkin 8y ago
There are probably signs people are looking to move somewhere, like an increase in retail/dining activity, so it might be more like predicting who's going to have a baby [1] than predicting the stock market. 1: https://www.forbes.com/sites/kashmirhill/2012/02/16/how-target-figured-out-a-teen-girl-was-pregnant-before-her-father-did/ https://www.forbes.com/sites/kashmirhill/2012/02/16/how-targ...
someguydave 8y ago
Real estate is very expensive to transact. Certainly one could not execute short term trading strategies like is common with securities markets.
- adrianN 8y ago
  Don't you usually start a derivative market if the transaction costs of the original market are too high?
  - zwischenzug 8y ago
    Derivative of what, though? There's no index to track that people will agree on or can't be gamed.
    - dagw 8y ago
      In the US there's the Case-Schiller index which is the underlying for several classes of derivatives.
- savvidis 8y ago
  This is true for retail. However if a fund structures it the right way i.e. one property one company, the transaction costs could be similar like a share purchase deal.
kortilla 8y ago
Patterns in real estate aren’t as predictive as you think, especially given the long time to close a deal. Down at the neighborhood level, a single policy decision or decision to sit on a big plot of land instead of developing it can completely halt gentrification and reverse it.
- notahacker 8y ago
  Also, it's likely a lot of the trends easily incorporated into a computer model (price movements, demographic changes, transport changes, retail outlet changes etc) significantly lag the policy decisions that make them possible. So if you want to profit from real estate price growth in a city, I'd imagine human understanding of why an area might gentrify in future outperforms machine understanding of indicators the area is starting to gentrify. Still, the long time to close a deal also means real estate markets are far from efficient, so there's likely to still be profit to be made with a machine telling you where to look, especially if you do the rest of your research properly.
Tiktaalik 8y ago
Real Estate speculation can have very long timelines. The data on upcoming developments and rezonings is all public and trivial to find but is also available years in advance. It can take years for public works projects to be completed even if they're not delayed. This means one needs to be able to hold for a long, long time. For example several years ago the City of Vancouver in partnership with the public transit authority formalized a decision to make a rapid transit line across the city. It's the sort of thing that will increase land values. However due to politics the line was delayed and construction is estimated around 2020 I think. The plan has been floating around since the 1990s and it was already cancelled once in 2001. Similarly there's another line that will likely be eventually built and it's mentioned in the region's 2040 transportation plan but the timeline is so far off. The expected existence of these improved public transit options are likely to some degree already baked into the selling prices of properties in this area.
quickthrower2 8y ago
The money to be made on a property is peanuts to traders. They’d have to buy blocks, but then they are real estate developers and that’s a different game. Most of the edge will be in marketing and negotiation for a property development rather than buy and hold for 10 years hoping the poor people get priced out because there is decent pressed coffee sold from a bicycle friendly hip cafe with exposed brick walls.

slededit 8y ago

Back around 2012 or so I interviewed with a company doing just that to price mortgage backed securities. So it is being done.

benatkin 8y ago

There are probably signs people are looking to move somewhere, like an increase in retail/dining activity, so it might be more like predicting who's going to have a baby [1] than predicting the stock market. 1: https://www.forbes.com/sites/kashmirhill/2012/02/16/how-target-figured-out-a-teen-girl-was-pregnant-before-her-father-did/ https://www.forbes.com/sites/kashmirhill/2012/02/16/how-targ...

someguydave 8y ago

Real estate is very expensive to transact. Certainly one could not execute short term trading strategies like is common with securities markets.

adrianN 8y ago
Don't you usually start a derivative market if the transaction costs of the original market are too high?
- zwischenzug 8y ago
  Derivative of what, though? There's no index to track that people will agree on or can't be gamed.
  - dagw 8y ago
    In the US there's the Case-Schiller index which is the underlying for several classes of derivatives.
savvidis 8y ago
This is true for retail. However if a fund structures it the right way i.e. one property one company, the transaction costs could be similar like a share purchase deal.

kortilla 8y ago

Patterns in real estate aren’t as predictive as you think, especially given the long time to close a deal. Down at the neighborhood level, a single policy decision or decision to sit on a big plot of land instead of developing it can completely halt gentrification and reverse it.

notahacker 8y ago
Also, it's likely a lot of the trends easily incorporated into a computer model (price movements, demographic changes, transport changes, retail outlet changes etc) significantly lag the policy decisions that make them possible. So if you want to profit from real estate price growth in a city, I'd imagine human understanding of why an area might gentrify in future outperforms machine understanding of indicators the area is starting to gentrify. Still, the long time to close a deal also means real estate markets are far from efficient, so there's likely to still be profit to be made with a machine telling you where to look, especially if you do the rest of your research properly.

Tiktaalik 8y ago

Real Estate speculation can have very long timelines. The data on upcoming developments and rezonings is all public and trivial to find but is also available years in advance. It can take years for public works projects to be completed even if they're not delayed. This means one needs to be able to hold for a long, long time. For example several years ago the City of Vancouver in partnership with the public transit authority formalized a decision to make a rapid transit line across the city. It's the sort of thing that will increase land values. However due to politics the line was delayed and construction is estimated around 2020 I think. The plan has been floating around since the 1990s and it was already cancelled once in 2001. Similarly there's another line that will likely be eventually built and it's mentioned in the region's 2040 transportation plan but the timeline is so far off. The expected existence of these improved public transit options are likely to some degree already baked into the selling prices of properties in this area.

quickthrower2 8y ago

The money to be made on a property is peanuts to traders. They’d have to buy blocks, but then they are real estate developers and that’s a different game. Most of the edge will be in marketing and negotiation for a property development rather than buy and hold for 10 years hoping the poor people get priced out because there is decent pressed coffee sold from a bicycle friendly hip cafe with exposed brick walls.