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 • 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.
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.
Conclusions 1) real estate prices move in long-term cycles 2) time is most significant variable; it that helps explain price increases:
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