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I expected this was true for the same reasoning when buying a home, but when I sampled the historical numbers, there was no strong relationship. Bankrate came

I expected this was true for the same reasoning when buying a home, but when I sampled the historical numbers, there was no strong relationship. Bankrate came to similar conclusions: https://www.bankrate.com/finance/mortgages/rising-rates-lower-house-prices.aspx https://www.bankrate.com/finance/mortgages/rising-rates-lowe... I think your reasoning is valid, so best I can figure it's because home prices and interest rates are both directly correlated with economic activity. So if the economy is heating up, that might drive up wages and interest rates and inflation, and you see interest rates and home prices go up in parallel. The model of two simple variables tugging on each other breaks down when you add other factors, hence the weak relationship.

wtvanhest 8y ago
Lowering interest rates increase prices. Rising interest rates reduce volume until inflation catches up. People are unwilling to sell homes when they lose value because there is so much leverage
- jeromegv 8y ago
  Up until they have no choice but to sell, and in that case, have to sell at any cost.
Apes 8y ago
I don't believe your analysis. The relationship has such a high correlation, you can just look at the the graph and probably eyeball estimate the regression within 10% error. Banks and relators have such a massive conflict of interest in pretending that the inflated prices on housing are normal. Rising interest rates are causing housing sales volumes to plummet to record lows, and after over a year of pretending nothing was wrong, prices are finally starting to come down. But the people invested in the housing market want to pretend it's anything other than the interest rate, like a child caught with their hand in the cookie jar and making up nonsensical explanations on why it happened.
- brownbat 8y ago
  When I eyeball the graph, 2002 to 2011 really jumps out. For about a third of the graph the two move in lock step. It's a weird sort of inverted relationship when the variables spend so much time moving in the same direction. Here's another take: “If you look at the relationship between [mortgage] rates and [home] sales and home prices, the relationship is almost zero,” said Sam Khater, deputy chief economist at CoreLogic. https://www.curbed.com/2018/2/20/17029746/interest-rates-rising-home-sales-price https://www.curbed.com/2018/2/20/17029746/interest-rates-ris... Maybe all these people are biased, or lying about simple numbers, or it's some big conspiracy. The alternative explanation is just that the economy really has more than two variables. That second hypothesis doesn't seem so preposterous to me.
  - telchar 8y ago
    Indeed. It's worth considering as well that even when analyzing actual data what seems like a relationship between two variables can be wiped out or inverted by the addition of other variables into the model. It's important to include all relevant variables into the model to know how two variables really interact.
  - Spooky23 8y ago
    There is no conspiracy, just that the rules changes to keep demand going. All sorts of garbage loans that would have been illegal in the past are now common.
RA_Fisher 8y ago
Close! The Fed printed many more dollars. Society gradually learns to revalue things and it starts with assets. The same reason Bitcoin and liquid assets are falling, the Feds destroying dollars. It's not that these things are falling but that USD are becoming more scarce.
- space_fountain 8y ago
  I don't understand how that would work. Are you saying the fed printing money has meant that things like Bitcoint have gone done in value? Shouldn't it be the opposite since there's more or less a fixed supply of Bitcoin? Or are you saying that Bitcoin went up because they printed money and is now falling again as people get used to the increased monetary supply? That doesn't make sense to me either as I've never heard of an effect like that before
  - RA_Fisher 8y ago
    I'm saying this one, > Or are you saying that Bitcoin went up because they printed money and is now falling again as people get used to the increased monetary supply It's pretty amazing, but it's true. The Fed can alter the countable Dollars in existence ("money supply"). They have a gov granted monopoly on 'em.
    - BoiledCabbage 8y ago
      Yah this is ridiculous - 99% of the price change in bitcoin is entirely unrelated to the money supply. At most 1% and almost certainly significantly less is related to it. Bitcoin's price change is due to speculation plain and simple. There is a good amount of what's posted here about the financial system that is true, and a good bunch isn't. Bitcoin has gone up thousands of percent in a few years, gold has barely moved. Trying to claim Bitcoin's movement is due to money supply reasons makes zero space.
      - conanbatt 8y ago
        But stocks have gone down considerably also. There are many things that cause volatility in crypto, but bear in mind stocks lost more than 2 trillion dollars in october. Several times the entire "market cap" of BTC.
Spooky23 8y ago
I’d dig deeper. Buying power is a zero sum game driven by price, interest and tax. When you look at tax rates, there’s a direct correlation between home price and taxes in high price states like NY, that correlates tightly with the impact on buying power. I’d guarantee that if you were looking at the 11% 30-year mortgages with 85% LTV requirements that were typical in the 1980s, prices would be very close to 1980 levels adjusted for inflation.

wtvanhest 8y ago

Lowering interest rates increase prices. Rising interest rates reduce volume until inflation catches up. People are unwilling to sell homes when they lose value because there is so much leverage

jeromegv 8y ago
Up until they have no choice but to sell, and in that case, have to sell at any cost.

Apes 8y ago

I don't believe your analysis. The relationship has such a high correlation, you can just look at the the graph and probably eyeball estimate the regression within 10% error. Banks and relators have such a massive conflict of interest in pretending that the inflated prices on housing are normal. Rising interest rates are causing housing sales volumes to plummet to record lows, and after over a year of pretending nothing was wrong, prices are finally starting to come down. But the people invested in the housing market want to pretend it's anything other than the interest rate, like a child caught with their hand in the cookie jar and making up nonsensical explanations on why it happened.

brownbat 8y ago
When I eyeball the graph, 2002 to 2011 really jumps out. For about a third of the graph the two move in lock step. It's a weird sort of inverted relationship when the variables spend so much time moving in the same direction. Here's another take: “If you look at the relationship between [mortgage] rates and [home] sales and home prices, the relationship is almost zero,” said Sam Khater, deputy chief economist at CoreLogic. https://www.curbed.com/2018/2/20/17029746/interest-rates-rising-home-sales-price https://www.curbed.com/2018/2/20/17029746/interest-rates-ris... Maybe all these people are biased, or lying about simple numbers, or it's some big conspiracy. The alternative explanation is just that the economy really has more than two variables. That second hypothesis doesn't seem so preposterous to me.
- telchar 8y ago
  Indeed. It's worth considering as well that even when analyzing actual data what seems like a relationship between two variables can be wiped out or inverted by the addition of other variables into the model. It's important to include all relevant variables into the model to know how two variables really interact.
- Spooky23 8y ago
  There is no conspiracy, just that the rules changes to keep demand going. All sorts of garbage loans that would have been illegal in the past are now common.

RA_Fisher 8y ago

Close! The Fed printed many more dollars. Society gradually learns to revalue things and it starts with assets. The same reason Bitcoin and liquid assets are falling, the Feds destroying dollars. It's not that these things are falling but that USD are becoming more scarce.

space_fountain 8y ago
I don't understand how that would work. Are you saying the fed printing money has meant that things like Bitcoint have gone done in value? Shouldn't it be the opposite since there's more or less a fixed supply of Bitcoin? Or are you saying that Bitcoin went up because they printed money and is now falling again as people get used to the increased monetary supply? That doesn't make sense to me either as I've never heard of an effect like that before
- RA_Fisher 8y ago
  I'm saying this one, > Or are you saying that Bitcoin went up because they printed money and is now falling again as people get used to the increased monetary supply It's pretty amazing, but it's true. The Fed can alter the countable Dollars in existence ("money supply"). They have a gov granted monopoly on 'em.
  - BoiledCabbage 8y ago
    Yah this is ridiculous - 99% of the price change in bitcoin is entirely unrelated to the money supply. At most 1% and almost certainly significantly less is related to it. Bitcoin's price change is due to speculation plain and simple. There is a good amount of what's posted here about the financial system that is true, and a good bunch isn't. Bitcoin has gone up thousands of percent in a few years, gold has barely moved. Trying to claim Bitcoin's movement is due to money supply reasons makes zero space.
    - conanbatt 8y ago
      But stocks have gone down considerably also. There are many things that cause volatility in crypto, but bear in mind stocks lost more than 2 trillion dollars in october. Several times the entire "market cap" of BTC.

Spooky23 8y ago

I’d dig deeper. Buying power is a zero sum game driven by price, interest and tax. When you look at tax rates, there’s a direct correlation between home price and taxes in high price states like NY, that correlates tightly with the impact on buying power. I’d guarantee that if you were looking at the 11% 30-year mortgages with 85% LTV requirements that were typical in the 1980s, prices would be very close to 1980 levels adjusted for inflation.