Chart: How Google Searches Predict the Housing Market

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Economic forecasting is a notoriously tricky art, but a recent study from economists at the Bank of England identifies what might increasingly become a useful tool for analyzing the economy: Google search trends. Using data from Google Insights, the researchers found that search indexes for terms around "unemployment" were helpful for predicting actual unemployment rates. For house prices, they went further to suggest that search data could even "outperform some existing indicators over the period since 2004." The chart above details the correlation between search data and actual housing prices in England. (Estate agents are the British rough equivalent of real estate brokers in the United States.) As you can see above, the popularity of searches for "estate brokers" rose and fell in close correlation to the change in housing prices.

The Bank of England notes that similar studies have shown that search trends can be used to predict actual sales on things like cars, retail, and travel destinations. It may seem like yet another way to take the pulse of the economy, but the authors of one of the studies points out that Google trends do not come with the lengthy lag time for traditional economic statistics like monthly factory sales. However, Ainsley Thomson at The Wall Street Journal notes some drawbacks of using internet search data for hard economic research: "Widespread use of the Internet is relatively recent, so there are only a small amount of data to use for comparisons. Internet use also remains correlated with age and income, so samples may not be representative. And a lot of searches may be conducted purely out of curiosity, causing 'significant noise' in the research."

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