Forecasting the Housing Market Sales in Italy: An MLP Neural Network Model

Using panel data on 99 Italian provinces in the period between 2005 and 2020, the research investigates the effects of fundamental economic factors on the home sales at the provincial level, in order to build a forecasting model using a non-linear artificial intelligence approach (MLP-Multiple Linear Perceptron neural network). There are multiple objectives to this: (a) to test the hypothesis that national, regional and local fundamentals such as interest rates, income, inflation rate, unemployment and demography affect the activity’s degree of the housing market; (b) to verify the effectiveness of a neural network in describing the dynamics of the real estate market; (c) to build a simulation model capable of predicting the effect of changes in fundamentals, also due to economic policy measures, on the market. Empirical results show that neural networks offer better capabilities than linear models in representing the complex relationships between the economic situation and the real estate market. The study provides useful information for regulators to improve the effectiveness of monetary policy to stabilize real estate markets as well as for stakeholders to draw up scenarios of market development.