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Are housing prices, mortgage rates, and construction related?

by Amanda Shankle-Knowlton on Thursday, June 02, 2011 10:07 AM

If you haven’t figured it out by now, I’m kind of a nerd. I heard on the news the other day that home prices are falling once again, and my first thought was “I want to see that graphed!” rather than “Oh no, the economy is collapsing!” 

I grabbed the Case Shiller Home Price index information and plotted it as a simple time series in a Line Plot. Easy. But paraphrasing the words that Tina Turner sang: “I never do nothin’ nice and easy.”    

So off I went to find more data. I found housing construction data from the US Census and 30-year conventional mortgage rate information from the St. Louis Fed. 

Now we have three lines of data so we can see how each of these series changes over time since January of 2000. 

 

The Case Schiller Home Price Index tracked upward through April 2006 and fell until May of 2009.  It increased a bit but then began to fall in August of 2010.

Housing completions generally followed the same trend. 

Mortgage rates – look at the Right Y axis to see the interest rate values – fell generally between January of 2000 and mid-2003. They rose and hit a relative peak in mid 2006, around the same time the home price index peaks.   

I also wondered what impact the First Time Home Buyer’s tax credit had on these measures. I found that this tax credit was offered for homes purchased between April 2008 and May 2010.  I set both of these as vertical reference lines. Looks like home prices and single family housing completions both hit a relative peak around the same time the First Time Home Buyer’s tax credit expired.  Interesting.  

Then, I wanted to see how all of these measures correlated with one another. To do this in the three-plot time series line graph was a bit difficult, so I changed tactics. I created a Wafer Plot (Graphs > 3D XYZ Graphs), which allowed me to plot three variables at once in 2D space. On the X axis, I put the number of housing completions, and on the Y axis, I put mortgage rates. On the Z axis, I put the Home Price Index. The Z axis is represented by the values in the legend, with the dark reds indicating high home prices and the greens indicating low home prices.  

We can see that the highest home prices occurred in months when the mortgage interest rates were between roughly 6% and 7%, with the lowest home prices occurring when interest rates were at their highest. It also looks like mortgage rates are correlated with the number of housing completions. This graph is beautiful and informative, isn’t it?  

Once again, I don’t have any personal or policy advice – other than to please think twice or thrice before buying a home you can’t afford or don’t intend to occupy for several economic cycles. But I probably could have told you that before making these graphs.  

Amanda Shankle-Knowlton welcomes your questions and comments.  Email her. 

Photo credit: "Houses going down"  

http://www.flickr.com/photos/59937401@N07/5474464467/ -

Edit: I was contacted by David de Souza who indicated the original source of the photo as http://beingselfemployed.org/

 

 

 

Author
Amanda Shankle-Knowlton

Your data are speaking. Are you listening? A graph can help you find hidden patterns, and may also be able to tell a story better than a whole paper full of words. Please join me as I explore the world using pictures.

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