Macroeconomic Determinants of Housing Prices in Korea VAR and LSTM Forecast Comparative Analysis During Pandemic of COVID-19

Abstract

During COVID-19 the housing market in Korea experienced the soaring prices, despite the decrease in the economic growth rate. This paper aims to analyze macroeconomic determinants affecting housing prices in Korea during the pandemic and find an appropriate statistic model to forecast the changes in housing prices in Korea. First, an appropriate lag for the model using Akaike information criterion was found. After the macroeconomic factors were checked if they possess the unit root, the dependencies in the model were analyzed using vector autoregression (VAR) model. As for the prediction, the VAR model was used and, besides, compared afterwards with the long shortterm memory (LSTM) model. CPI, mortgage rate, IIP at lag 1 and federal funds effective rate at lag 1 and 2 were found to be significant for housing prices. In addition, the prediction performance of the LSTM model appeared to be more accurate in comparison with the VAR model. The results of the analysis play an essential role in policymaker perception when making decisions related to managing potential housing risks arose during crises. It is essential to take into considerations macroeconomic factors besides the taxes and housing policy amendments and use an appropriate model for prices forecast.