The market for single-family homes does not appear to be efficient. Year-to-year changes in prices tend to be followed by changes in the same direction in the subsequent year. Moreover, information about real interest rates does not appear to be incorporated in prices. There is thus a profitable trading rule for persons who are free to time the purchase of their homes. Still, overall, individual housing price changes are not very forecastable.

Tests of weak-form efficiency of the market for single family homes are performed using data on repeat sales prices of 39, 210 individual homes, each for two sales dates. Tests were done for Atlanta, Chicago, Dallas, and San Francisco/Oakland for 1970-86. While evidence for seasonality in real housing prices is weak, we do find some evidence of inertia in housing prices. A city-wide real log price index change in a given year tends to be followed by a city-wide real log price index change in the same direction (and between a quarter to a half as large in magnitude) in the subsequent year. However, the inertia cannot account for much of the variation in individual housing real price changes. There is so much noise in individual housing prices relative to city-wide price index changes that the R[squared] in forecasting regressions for annual real price change in individual homes is never more than .04.