Research by Stuart Gabriel develops an index that warns earlier than others about approaching home loan problems
An index that tracks the number of Google searches for "foreclosure help" or "mortgage assistance" is a timelier gauge of default risk in the mortgage market than indicators typically used for forecasting, according to research published by the University of California Riverside's Marcelle Chauvet, UCLA Anderson's Stuart Gabriel and Copenhagen Business School's Chandler Lutz.
The Mortgage Default Risk Index (MDRI), which the researchers built by aggregating Google search phrases that suggest homeowner distress, correctly predicts rises in mortgage defaults before standard indicators hint at trouble ahead, according to the findings published in the Journal of Urban Economics. The index, the study concludes, acts as a leading indicator to the most up-to-date measures of housing markets in use today.
Using Google Trends, the researchers tabulated 11 household search queries that included a housing and home loan keyword, such as "mortgage" or "foreclosure," paired with "help" or "assistance." (Google Trends is a public tool that ranks the popularity, over any given period of time, of any search term or phrase entered.) The MDRI moves up as the number of searches for these terms rises.