Flags of Caution for Future Downturns in the Housing Market Prediction Using the Markov Chain Model

The recent downturn in the United States housing market yielded a period of time akin to that of the Great Depression. Since the 1930s, there has never been an economic downturn in this country as close as that of the Great Depression era. The Depression experienced similarities to the current economic crisis but more important, the Great Depression's comparable statistical data raise flags of caution for future downturns in the housing market. One of the major similarities is a housing boom, which in both periods preceded a downturn. Precipitous growth reached unsustainable levels; then, a big decline burst the real estate bubble. In this study the Markov Chain Model was used as a forecasting tool to evaluate the status of home mortgages and to demonstrate the capability to predict future housing economic crises. Statistical data from both eras were gathered and shown in a transition matrix.