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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

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Determents of Housing Prices

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Determents of housing prices l.jpg

Determents of Housing Prices


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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.


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Hypothesis

Population and wealth increases

drive up home prices


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HOW

  • 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


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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.


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STAT Analysis


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mean home prices vs income per capita


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all variables


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time vs home price


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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.


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Conclusions

1) real estate prices move in long-term cycles

2) time is most significant variable;

it that helps explain price increases:


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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


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Questions

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