Determents of Housing Prices What WHY Our goal was to discover the determents of rising home prices and to identify any anomies in historic housing prices To figure out if current housing market is over priced if there is a real estate bubble Hypothesis Population and wealth increases drive up home prices HOW 1 We collected average home prices in the US on a monthly basis 1975 2002 2 Then we gathered data we thought would be good determents of home prices 3 Set up a model and ran a regression 4 Modified our model 5 Interpreted the results Exploratory Data Analysis Variables Mortgage rates unemployment rates CPI PPI S P Index alterative INV and income per capita Sources Economagic and the St Louis Fed STAT Analysis mean home prices vs income per capita 250000 200000 150000 30000 100000 20000 50000 10000 0 0 10000 20000 76 78 80 82 84 86 88 90 92 94 96 98 00 02 Residual Actual Fitted Dependent Variable AVGHOMESALES Method Least Squares Date 11 20 02 Time 18 16 Sample 1975 01 2002 07 Included observations 331 Variable INCPERCAP Coefficient Std Error t Statistic Prob 7 069048 0 021993 321 4248 0 0000 R squared 0 976423 Mean dependent var 126863 7 Adjusted R squared 0 976423 S D dependent var 50204 56 S E of regression 7708 746 Akaike info criterion 20 74112 Sum squared resid 1 96E 10 Schwarz criterion 20 75260 Log likelihood 3431 655 Durbin Watson stat 0 383130 all variables Dependent Variable AVGHOMESALES Method Least Squares Date 11 20 02 Time 18 03 Sample 1975 01 2002 07 Included observations 331 Variable Coefficient Std Error t Statistic Prob CPI 2620 066 479 5200 5 463935 0 0000 PPI 1900 434 253 7132 7 490481 0 0000 UNEMP RATE 1308 266 486 8899 2 686985 0 0076 INCPERCAP 8 775442 0 947094 9 265654 0 0000 MRTG RATE 657 8159 311 1963 2 113829 0 0353 MONTHS 385 3148 172 7806 2 230081 0 0264 C 30352 78 12264 19 2 474911 0 0138 R squared 0 984578 Mean dependent var 126863 7 Adjusted R squared 0 984292 S D dependent var 50204 56 S E of regression 6292 141 Akaike info criterion 20 35291 Sum squared resid 1 28E 10 Schwarz criterion 20 43332 Log likelihood 3361 407 F statistic 3447 484 Prob F statistic 0 000000 Durbin Watson stat 0 615215 time vs home price Dependent Variable AVGHOMESALES Method Least Squares Date 11 20 02 Time 18 39 Sample 1975 01 2002 07 Included observations 331 Variable Coefficient Std Error t Statistic Prob MONTHS 517 8749 4 625557 111 9595 0 0000 C 40896 51 885 9602 46 16066 0 0000 R squared 0 974425 Mean dependent var 126863 7 Adjusted R squared 0 974347 S D dependent var 50204 56 S E of regression 8041 062 Akaike info criterion 20 82853 Sum squared resid 2 13E 10 Schwarz criterion 20 85151 Log likelihood 3445 122 F statistic 12534 92 Prob F statistic 0 000000 Durbin Watson stat 0 341824 Avg Home Price over Time 250 000 Mean Home Price 200 000 150 000 y 518 47x 40830 R2 0 9749 100 000 50 000 0 0 50 100 150 200 Months starting at 1975 250 300 350 Further Analysis Changes in income per capita have no effect on changes in mean home prices This is also true for changes in mortgage unemployment rates S P and CPI change income per cap vs change home price 0 15 change mean home price 0 1 0 05 0 0 01 0 005 0 0 005 0 01 0 015 0 05 0 1 0 15 change income per capita 0 02 0 025 0 03 change morgage rate vs change mean ave home price 0 15 change mean home price 0 1 0 05 0 0 2 0 15 0 1 0 05 0 0 05 0 1 0 15 change morgage rate 0 05 0 1 0 15 0 2 change unemployment vs change home price 0 15 0 1 change mean home price 0 05 0 0 1 0 08 0 06 0 04 0 02 0 0 02 0 05 0 1 0 15 change unemployment rate 0 04 0 06 0 08 0 1 S P Index vs Avg Home Price Mean Home Price 1 000 000 100 000 y 42345Ln x 146309 R2 0 9608 10 000 0 500 1000 1500 2000 2500 S P Index 3000 3500 4000 4500 5000 Conclusions 1 real estate prices move in long term cycles 2 time is most significant variable it that helps explain price increases Avg Home Price over Time 250 000 Mean Home Price 200 000 150 000 y 518 47x 40830 R2 0 9749 100 000 50 000 0 0 50 100 150 200 Months starting at 1975 250 300 350 Center for Economic and Policy Research in the last 7 years home sale prices have increased nearly 30 percent more than the overall rate of inflation there is no obvious explanation for a sudden increase in relative demand for housing which could explain the price rise the only plausible explanation for sudden surge in home prices is the existance of a housing bubble major factor driving housing sales is the expectation that housing prices will be higher in the future the collapse of the bubble will lead to a loss of between 1 3 trillion and 2 6 trillion of housing wealth Questions
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