Determents of Housing PricesWhat & WHYHypothesisHOWExploratory Data AnalysisSTAT Analysismean home prices vs income per capitaSlide 8Slide 9all variablesSlide 11time vs home priceSlide 13Slide 14Further AnalysisSlide 16Slide 17Slide 18Slide 19ConclusionsSlide 21Center for Economic and Policy ResearchQuestionsDeterments of Housing Determents of Housing PricesPricesWhat & WHYWhat & WHYOur 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.HypothesisHypothesisPopulation and wealth increases drive up home pricesHOWHOW1) 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 prices3) Set up a model and ran a regression4) Modified our model5) Interpreted the resultsExploratory Data Exploratory Data AnalysisAnalysisVariables:Mortgage rates, unemployment rates,CPI, PPI, S&P Index (alterative INV),and income per capita.Sources:Economagic and the St. Louis Fed.STAT AnalysisSTAT Analysismean home prices vs income per mean home prices vs income per capitacapita-20000-10000010000200003000005000010000015000020000025000076 78 80 82 84 86 88 90 92 94 96 98 00 02Residual Actual FittedDependent Variable: AVGHOMESALESMethod: Least SquaresDate: 11/20/02 Time: 18:16Sample: 1975:01 2002:07Included observations: 331Variable Coefficient Std. Error t-Statistic Prob. INCPERCAP 7.069048 0.021993 321.4248 0.0000R-squared 0.976423 Mean dependent var 126863.7Adjusted R-squared 0.976423 S.D. dependent var 50204.56S.E. of regression 7708.746 Akaike info criterion 20.74112Sum squared resid 1.96E+10 Schwarz criterion 20.75260Log likelihood -3431.655 Durbin-Watson stat 0.383130all variablesall variablesDependent Variable: AVGHOMESALESMethod: Least SquaresDate: 11/20/02 Time: 18:03Sample: 1975:01 2002:07Included observations: 331Variable Coefficient Std. Error t-Statistic Prob. CPI -2620.066 479.5200 -5.463935 0.0000PPI 1900.434 253.7132 7.490481 0.0000UNEMP_RATE -1308.266 486.8899 -2.686985 0.0076INCPERCAP 8.775442 0.947094 9.265654 0.0000MRTG_RATE -657.8159 311.1963 -2.113829 0.0353MONTHS 385.3148 172.7806 2.230081 0.0264C 30352.78 12264.19 2.474911 0.0138R-squared 0.984578 Mean dependent var 126863.7Adjusted R-squared 0.984292 S.D. dependent var 50204.56S.E. of regression 6292.141 Akaike info criterion 20.35291Sum squared resid 1.28E+10 Schwarz criterion 20.43332Log likelihood -3361.407 F-statistic 3447.484Durbin-Watson stat 0.615215 Prob(F-statistic) 0.000000time vs home pricetime vs home priceDependent Variable: AVGHOMESALESMethod: Least SquaresDate: 11/20/02 Time: 18:39Sample: 1975:01 2002:07Included observations: 331Variable Coefficient Std. Error t-Statistic Prob. MONTHS 517.8749 4.625557 111.9595 0.0000C 40896.51 885.9602 46.16066 0.0000R-squared 0.974425 Mean dependent var 126863.7Adjusted R-squared 0.974347 S.D. dependent var 50204.56S.E. of regression 8041.062 Akaike info criterion 20.82853Sum squared resid 2.13E+10 Schwarz criterion 20.85151Log likelihood -3445.122 F-statistic 12534.92Durbin-Watson stat 0.341824 Prob(F-statistic) 0.000000Avg Home Price over Timey = 518.47x + 40830R2 = 0.9749050,000100,000150,000200,000250,0000 50 100 150 200 250 300 350Months starting at 1975Mean Home PriceFurther Analysis 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-0.15-0.1-0.0500.050.10.15-0.01 -0.005 0 0.005 0.01 0.015 0.02 0.025 0.03% change income per capita% change mean home pricechange morgage rate vs change mean ave home price-0.15-0.1-0.0500.050.10.15-0.2 -0.15 -0.1 -0.05 0 0.05 0.1 0.15 0.2% change morgage rate% change mean home pricechange unemployment vs change home price-0.15-0.1-0.0500.050.10.15-0.1 -0.08 -0.06 -0.04 -0.02 0 0.02 0.04 0.06 0.08 0.1% change unemployment rate% change mean home priceS&P Index vs Avg Home Pricey = 42345Ln(x) - 146309R2 = 0.960810,000100,0001,000,0000 500 1000 1500 2000 2500 3000 3500 4000 4500 5000S&P IndexMean Home PriceConclusionsConclusions1) real estate prices move in long-term cycles 2) time is most significant variable; it that helps explain price increases:Avg Home Price over Timey = 518.47x + 40830R2 = 0.9749050,000100,000150,000200,000250,0000 50 100 150 200 250 300 350Months starting at 1975Mean Home PriceCenter 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 wealthQuestions Questions
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