Enhancing the accuracy of Malaysian house price forecasting: a comparative analysis on the forecasting performance between the hedonic price model and artificial neural network model

Abstract

The Hedonic Price Model (HPM), a prominent model used in real estate appraisal and economics, has been argued to be marred with nonlinearity, multicollinearity and heteroscedasticity problems that affect the accuracy of price predictions. An alternative method called Artificial Neural Network Model (ANN) was identified as capable of addressing the shortcomings of HPM and produces superior predictive performance. Hence, this study aims to evaluate the forecasting performance between HPM and ANN using Malaysian housing transaction data from the period between 2009 to 2018, sourced from the Valuation and Property Service Department, Johor Bahru. The models’ performance was evaluated and compared based on their statistical and predictive performance. Results showed that ANN outperformed HPM in both statistical and predictive performance. This study benefits the expansion of academic and practical knowledge in enhancing the accuracy of house price forecasting.