freedomCM_IHB
New member
To do this analysis, you would also want to consider the rate of wage inflation, since the important consideration is the relative proportion of household income devoted to housing-related expenses.
Historical nationwide median house prices?
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IrvineRenter_IHB
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If you subtracted the rate of inflation from the interest rate to get the real rate of inflation, I think you would find a stronger correlation.
irvine_home_owner_IHB
New member
I'm still not sure what meme is trying to prove.
Everyone agrees that interest rate is not the <strong>ONLY</strong> factor that affects prices... but I don't think you can say it has <strong>NO</strong> correlation at all.
Heck... interest rates can be 0% but if the country was bombed and there were no houses to buy... well... you get what I'm saying.
Just comparing graphs that look at one componenent isn't proof (at least to me) that there is no correlation.
Are you going to tell me that the low teaser rates and loose financing guidelines had no relationship to the skyrocketing prices? If rates were at 8-10% and there were no ARMS... do you think houses would have hit the pricing the did?
I think we're trying to say the same thing... prices compared to rates is not straightforward. Just because rates are low right now doesn't mean that prices should go up... because the parameters are different. I'm sure if we were still living in the land of lax lending practices, the Dow was at record highs, the banks were gambling... my gardener could still afford those $1mil homes and prices would be back up again.
However -- I still think there is some correlation... but it's also dependent on other factors which is not shown on your graphs.
Everyone agrees that interest rate is not the <strong>ONLY</strong> factor that affects prices... but I don't think you can say it has <strong>NO</strong> correlation at all.
Heck... interest rates can be 0% but if the country was bombed and there were no houses to buy... well... you get what I'm saying.
Just comparing graphs that look at one componenent isn't proof (at least to me) that there is no correlation.
Are you going to tell me that the low teaser rates and loose financing guidelines had no relationship to the skyrocketing prices? If rates were at 8-10% and there were no ARMS... do you think houses would have hit the pricing the did?
I think we're trying to say the same thing... prices compared to rates is not straightforward. Just because rates are low right now doesn't mean that prices should go up... because the parameters are different. I'm sure if we were still living in the land of lax lending practices, the Dow was at record highs, the banks were gambling... my gardener could still afford those $1mil homes and prices would be back up again.
However -- I still think there is some correlation... but it's also dependent on other factors which is not shown on your graphs.
[quote author="irvine_home_owner" date=1243486621]I'm still not sure what meme is trying to prove.
Everyone agrees that interest rate is not the <strong>ONLY</strong> factor that affects prices... but I don't think you can say it has <strong>NO</strong> correlation at all.
Heck... interest rates can be 0% but if the country was bombed and there were no houses to buy... well... you get what I'm saying.
Just comparing graphs that look at one componenent isn't proof (at least to me) that there is no correlation.
Are you going to tell me that the low teaser rates and loose financing guidelines had no relationship to the skyrocketing prices? If rates were at 8-10% and there were no ARMS... do you think houses would have hit the pricing the did?
I think we're trying to say the same thing... prices compared to rates is not straightforward. Just because rates are low right now doesn't mean that prices should go up... because the parameters are different. I'm sure if we were still living in the land of lax lending practices, the Dow was at record highs, the banks were gambling... my gardener could still afford those $1mil homes and prices would be back up again.
However -- I still think there is some correlation... but it's also dependent on other factors which is not shown on your graphs.</blockquote>
I'm trying to find nationwide median house prices for the last 60+ years! Unsuccessfully, unfortunately.
I'm also interested in looking at historical charts of interest rates, housing prices, inflation, and so on, to see if we can understand what's going on and what this says about where housing is headed in the future.
Everyone agrees that interest rate is not the <strong>ONLY</strong> factor that affects prices... but I don't think you can say it has <strong>NO</strong> correlation at all.
Heck... interest rates can be 0% but if the country was bombed and there were no houses to buy... well... you get what I'm saying.
Just comparing graphs that look at one componenent isn't proof (at least to me) that there is no correlation.
Are you going to tell me that the low teaser rates and loose financing guidelines had no relationship to the skyrocketing prices? If rates were at 8-10% and there were no ARMS... do you think houses would have hit the pricing the did?
I think we're trying to say the same thing... prices compared to rates is not straightforward. Just because rates are low right now doesn't mean that prices should go up... because the parameters are different. I'm sure if we were still living in the land of lax lending practices, the Dow was at record highs, the banks were gambling... my gardener could still afford those $1mil homes and prices would be back up again.
However -- I still think there is some correlation... but it's also dependent on other factors which is not shown on your graphs.</blockquote>
I'm trying to find nationwide median house prices for the last 60+ years! Unsuccessfully, unfortunately.
I'm also interested in looking at historical charts of interest rates, housing prices, inflation, and so on, to see if we can understand what's going on and what this says about where housing is headed in the future.
irvine_home_owner_IHB
New member
[quote author="meme" date=1243487292]I'm also interested in looking at historical charts of interest rates, housing prices, inflation, and so on, to see if we can understand what's going on and what this says about where housing is headed in the future.</blockquote>
You should buy IR's book:
<a href="http://www.amazon.com/gp/product/0615226930?ie=UTF8&tag=thegrehoubub-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0615226930">http://www.amazon.com/gp/product/0615226930?ie=UTF8&tag=thegrehoubub-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0615226930</a>
You may be better off compiling which numbers most commonly win the Lotto and just play those until they pay out than trying to accurately guess where housing is headed. One thing many of us know for sure... it's not the bottom yet... so that little red line is going to keep on going down.
You should buy IR's book:
<a href="http://www.amazon.com/gp/product/0615226930?ie=UTF8&tag=thegrehoubub-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0615226930">http://www.amazon.com/gp/product/0615226930?ie=UTF8&tag=thegrehoubub-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0615226930</a>
You may be better off compiling which numbers most commonly win the Lotto and just play those until they pay out than trying to accurately guess where housing is headed. One thing many of us know for sure... it's not the bottom yet... so that little red line is going to keep on going down.
awgee_IHB
New member
What you "see" on the graphs does not determine correlation. Correlation is determined by statistical relevancy. Simplistically, if one third of the graph correlates and two thirds does not, there is no statistical relevancy and therefore no correlation. You can not pick and choose which portion of the graph you use and which you do not.
And if you try to say that a portion correlates and a portion does not because of other factors in the portion that does not, then overall there is no correlation. You can not just pick and choose to include other factors during some years and not during others. You can make anything correlate with anything if you pick and choose.
Again, by all logic, one would think the two inversely correlate, but I have seen the statistical analysis based on charts such as these, and they do not. It seems there are just too any other factors influencing home prices.
And if you try to say that a portion correlates and a portion does not because of other factors in the portion that does not, then overall there is no correlation. You can not just pick and choose to include other factors during some years and not during others. You can make anything correlate with anything if you pick and choose.
Again, by all logic, one would think the two inversely correlate, but I have seen the statistical analysis based on charts such as these, and they do not. It seems there are just too any other factors influencing home prices.
stepping_up_IHB
New member
[quote author="awgee" date=1243537428]What you "see" on the graphs does not determine correlation. Correlation is determined by statistical relevancy. Simplistically, if one third of the graph correlates and two thirds does not, there is no statistical relevancy and therefore no correlation. You can not pick and choose which portion of the graph you use and which you do not.
And if you try to say that a portion correlates and a portion does not because of other factors in the portion that does not, then overall there is no correlation. You can not just pick and choose to include other factors during some years and not during others. You can make anything correlate with anything if you pick and choose.
Again, by all logic, one would think the two inversely correlate, but I have seen the statistical analysis based on charts such as these, and they do not. It seems there are just too any other factors influencing home prices.</blockquote>
If I were a betting woman, I'd put my money on Awgee being right on this one.
And if you try to say that a portion correlates and a portion does not because of other factors in the portion that does not, then overall there is no correlation. You can not just pick and choose to include other factors during some years and not during others. You can make anything correlate with anything if you pick and choose.
Again, by all logic, one would think the two inversely correlate, but I have seen the statistical analysis based on charts such as these, and they do not. It seems there are just too any other factors influencing home prices.</blockquote>
If I were a betting woman, I'd put my money on Awgee being right on this one.
zubs_IHB
New member
If I could still remember my college math courses and econometrics, I would do some mathfu on your data points to see if there is a corrolation between decreasing interest rates and rising home prices. A histogram could plot out the corrolation, and I would guess it would show a negative corrolation as opposed to no corrolation.
But I'll leave the heavy lifting to someone else.
But I'll leave the heavy lifting to someone else.
[quote author="awgee" date=1243537428]What you "see" on the graphs does not determine correlation. Correlation is determined by statistical relevancy. Simplistically, if one third of the graph correlates and two thirds does not, there is no statistical relevancy and therefore no correlation. You can not pick and choose which portion of the graph you use and which you do not.
And if you try to say that a portion correlates and a portion does not because of other factors in the portion that does not, then overall there is no correlation. You can not just pick and choose to include other factors during some years and not during others. You can make anything correlate with anything if you pick and choose.
Again, by all logic, one would think the two inversely correlate, but I have seen the statistical analysis based on charts such as these, and they do not. It seems there are just too any other factors influencing home prices.</blockquote>
I agree with everything you're saying. However, I can come up with a logical reason why there is no correlation.
Low interest rates do not exist in a vaccuum, they happen during times of low inflation. High interest rates happen during times of high inflation.
Low interest rates should encourage higher housing prices. However, low inflation has the opposite effect, as people don't want to buy a house which won't be going up in value much at the same time that their salary won't be going up much.
High interest rates should lead to low housing prices. However, high inflation has the opposite effect, as everyone wants to buy a house when inflation is sending the price of everything, including housing prices, up. Also, if your income is rapidly going up due to high inflation, any house you can manage to barely squeeze into being able to pay for today, you'll easily be able to pay for in a few years. This is why people were still buying houses at the peak of inflation 30 or so years ago when mortgage rates were 15%.
So inflation and interest rates cancel each other out.
And if you try to say that a portion correlates and a portion does not because of other factors in the portion that does not, then overall there is no correlation. You can not just pick and choose to include other factors during some years and not during others. You can make anything correlate with anything if you pick and choose.
Again, by all logic, one would think the two inversely correlate, but I have seen the statistical analysis based on charts such as these, and they do not. It seems there are just too any other factors influencing home prices.</blockquote>
I agree with everything you're saying. However, I can come up with a logical reason why there is no correlation.
Low interest rates do not exist in a vaccuum, they happen during times of low inflation. High interest rates happen during times of high inflation.
Low interest rates should encourage higher housing prices. However, low inflation has the opposite effect, as people don't want to buy a house which won't be going up in value much at the same time that their salary won't be going up much.
High interest rates should lead to low housing prices. However, high inflation has the opposite effect, as everyone wants to buy a house when inflation is sending the price of everything, including housing prices, up. Also, if your income is rapidly going up due to high inflation, any house you can manage to barely squeeze into being able to pay for today, you'll easily be able to pay for in a few years. This is why people were still buying houses at the peak of inflation 30 or so years ago when mortgage rates were 15%.
So inflation and interest rates cancel each other out.
IrvineRenter_IHB
New member
[quote author="meme" date=1243567990][quote author="awgee" date=1243537428]What you "see" on the graphs does not determine correlation. Correlation is determined by statistical relevancy. Simplistically, if one third of the graph correlates and two thirds does not, there is no statistical relevancy and therefore no correlation. You can not pick and choose which portion of the graph you use and which you do not.
And if you try to say that a portion correlates and a portion does not because of other factors in the portion that does not, then overall there is no correlation. You can not just pick and choose to include other factors during some years and not during others. You can make anything correlate with anything if you pick and choose.
Again, by all logic, one would think the two inversely correlate, but I have seen the statistical analysis based on charts such as these, and they do not. It seems there are just too any other factors influencing home prices.</blockquote>
I agree with everything you're saying. However, I can come up with a logical reason why there is no correlation.
Low interest rates do not exist in a vaccuum, they happen during times of low inflation. High interest rates happen during times of high inflation.
Low interest rates should encourage higher housing prices. However, low inflation has the opposite effect, as people don't want to buy a house which won't be going up in value much at the same time that their salary won't be going up much.
High interest rates should lead to low housing prices. However, high inflation has the opposite effect, as everyone wants to buy a house when inflation is sending the price of everything, including housing prices, up. Also, if your income is rapidly going up due to high inflation, any house you can manage to barely squeeze into being able to pay for today, you'll easily be able to pay for in a few years. This is why people were still buying houses at the peak of inflation 30 or so years ago when mortgage rates were 15%.
So inflation and interest rates cancel each other out.</blockquote>
There are two variables that show strong correlation with home prices: income and rent. The only time prices diverge from these two variables is during a housing bubble, and then during the crash, prices return. Up until the early 1970s, the correlation was very high, but since we began the housing bubble merry-go-round in the late 70s, the correlation has broken down. It recalibrates at the bottom of every correction. That is why economists point to these two variables as the determinant of fundamental value.
And if you try to say that a portion correlates and a portion does not because of other factors in the portion that does not, then overall there is no correlation. You can not just pick and choose to include other factors during some years and not during others. You can make anything correlate with anything if you pick and choose.
Again, by all logic, one would think the two inversely correlate, but I have seen the statistical analysis based on charts such as these, and they do not. It seems there are just too any other factors influencing home prices.</blockquote>
I agree with everything you're saying. However, I can come up with a logical reason why there is no correlation.
Low interest rates do not exist in a vaccuum, they happen during times of low inflation. High interest rates happen during times of high inflation.
Low interest rates should encourage higher housing prices. However, low inflation has the opposite effect, as people don't want to buy a house which won't be going up in value much at the same time that their salary won't be going up much.
High interest rates should lead to low housing prices. However, high inflation has the opposite effect, as everyone wants to buy a house when inflation is sending the price of everything, including housing prices, up. Also, if your income is rapidly going up due to high inflation, any house you can manage to barely squeeze into being able to pay for today, you'll easily be able to pay for in a few years. This is why people were still buying houses at the peak of inflation 30 or so years ago when mortgage rates were 15%.
So inflation and interest rates cancel each other out.</blockquote>
There are two variables that show strong correlation with home prices: income and rent. The only time prices diverge from these two variables is during a housing bubble, and then during the crash, prices return. Up until the early 1970s, the correlation was very high, but since we began the housing bubble merry-go-round in the late 70s, the correlation has broken down. It recalibrates at the bottom of every correction. That is why economists point to these two variables as the determinant of fundamental value.
StudLee_IHB
New member
[quote author="awgee" date=1243577774]And if we are not confused enough.
Correlation is not necessarily indicative of cause and effect.
And if there are other influencing factors present, a direct cause and effect may not show up to as correlational, (is that a word?).</blockquote>
Correct: <a href="http://en.wikipedia.org/wiki/Correlation_does_not_imply_causation">Wiki</a>
Correlation is not necessarily indicative of cause and effect.
And if there are other influencing factors present, a direct cause and effect may not show up to as correlational, (is that a word?).</blockquote>
Correct: <a href="http://en.wikipedia.org/wiki/Correlation_does_not_imply_causation">Wiki</a>