tag:blogger.com,1999:blog-31427364.post5789998317833294084..comments2024-03-26T03:52:23.395-07:00Comments on Housing Analysis: Guest Post: Vancouver Housing Price Correlation Modelmohicanhttp://www.blogger.com/profile/06094213357140749289noreply@blogger.comBlogger19125tag:blogger.com,1999:blog-31427364.post-76552463172311941162009-07-09T19:26:51.517-07:002009-07-09T19:26:51.517-07:00"it doesn't explain anything because caus...<i>"it doesn't explain anything because causation hasn't been demonstrated."</i><br /><br />Out of curiosity, how <i>would</i> you go about demonstrating causation?jessehttps://www.blogger.com/profile/02155122147972263497noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-8286948031560960542009-07-09T18:39:45.094-07:002009-07-09T18:39:45.094-07:00Correlation change in time, but at this very insta...<b>Correlation change in time, but at this very instant (2009Q1), you have these 4 factors that explain 85% of the price action.</b><br /><br />No, it doesn't <i>explain</i> anything because causation hasn't been demonstrated.Davehttps://www.blogger.com/profile/12522026256007882727noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-36340823262936736802009-07-09T17:50:07.242-07:002009-07-09T17:50:07.242-07:00"The immigration correlation makes little sen...<i>"The immigration correlation makes little sense for the reasons I have shown. Why not add global warming into the model and see what happens?"</i><br /><br />if global warming is correlated to economic activity, then it might not be a bad factor use. what should i use? the average annual temperature? but wait, i have to remove the effect of sun spots.....<br /><br />Kidding aside, doesn't immigration cause more demand for houses? Maybe its effect is not all direct. Perhaps, it's the reason he/she is coming for. Migration may be due to increase local economic activity like a new factory or startup/company. <br /><br />Correlation change in time, but at this very instant (2009Q1), you have these 4 factors that explain 85% of the price action.mikehttps://www.blogger.com/profile/00118603546135838855noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-74882616071736602772009-07-09T13:17:34.887-07:002009-07-09T13:17:34.887-07:00Mike, I am sure you already know this, but if your...Mike, I am sure you already know this, but if your model doesn't have any expectation of causation, then I would be suspicious of it's predictive ability.<br /><br />The immigration correlation makes little sense for the reasons I have shown. Why not add global warming into the model and see what happens? ;)Davehttps://www.blogger.com/profile/12522026256007882727noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-86239946157682700372009-07-09T09:40:39.671-07:002009-07-09T09:40:39.671-07:00Mike, that's great work! I'm quite impres...Mike, that's great work! I'm quite impressed!M-https://www.blogger.com/profile/11157896639592232047noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-21676760579685719212009-07-09T07:05:01.682-07:002009-07-09T07:05:01.682-07:00"Doesn't look like hot money to me. Looks..."Doesn't look like hot money to me. Looks like long term investors/residents."<br /><br />If its happening to every city in canada all at once then that doesnt make sense...buff_butlerhttps://www.blogger.com/profile/13312280863888753900noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-90780174670477493842009-07-07T23:14:30.718-07:002009-07-07T23:14:30.718-07:00It's tricky to do, but the model might benefit...It's tricky to do, but the model might benefit from incorporating an interest rate element that looks at percentage changes rather than absolute changes.<br /><br />e.g. A rise from 2% to 4% is treated as 'interest rates double' vs. 'interest rates go up by 2%'<br /><br />Over time, as people get used to lower rates they take on more debt which in turn makes their finances (and house prices in turn) more sensitive to interest rate changes than they used to be.<br /><br />In my experience, a composite interest rate metric that is half absolute change and half percentage change vs. say the average over the last 5 years, often gives the best results - but you're getting into tedious and time consuming fine tuning for relatively small gains in explanatory power.<br /><br />Still, if you look at the current recession, it was preceded by an interest rate increase of only 2.5% (prime from 2.25% in 2004 to 4.75% in 2007), but this was nonetheless a 111% percentage increase - larger than the interest rate increase that trigerred the recession of the early '90s.Declanhttps://www.blogger.com/profile/07930743440194279349noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-48715659229975907952009-07-07T15:59:21.589-07:002009-07-07T15:59:21.589-07:00How can a housing price model not account for inco...<i>How can a housing price model not account for income? The two biggest factors should be income and interest rates.</i> <br /><br />agreed. This model is not causal; it is a correlation model. I would venture to say that most of the income component probably came in via the unemployment rate and provincial migration.mikehttps://www.blogger.com/profile/00118603546135838855noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-56437188117193126382009-07-07T14:47:54.902-07:002009-07-07T14:47:54.902-07:00How can a housing price model not account for inco...How can a housing price model not account for income? The two biggest factors should be income and interest rates.<br /><br />I have trouble believing that every 1,000 migrants would cause a housing price increase of 1.7% to 1.8%. There is probably more correlation here than there is causation. To put it in perspective... there are roughly 2 million households in BC valued at an average of about $400k each. If you take the total value of BC real estate, increase it by 1.7% and attribute that increase to each new migrant, you end up with a value of $14 million per head. Obviously, each new migrant doesn’t cause that level of price increase.<br /><br />I suggest another iteration of your model start with income, interest rates, unemployment and net migration.Davehttps://www.blogger.com/profile/12522026256007882727noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-43402229752778177832009-07-07T14:25:09.334-07:002009-07-07T14:25:09.334-07:00I would include either housing starts/completions ...<i>I would include either housing starts/completions or inventory levels or months of inventory as well; both would intuitively have some effect on price fluctuations.</i><br /><br />Housing starts would be a lagging indicator, one would think, since builders tend to follow the market - note how many units are still in the pipeline with the market having already topped.<br /><br />However, completions should definitely have an effect as they directly affect supply.Robertohttps://www.blogger.com/profile/03338787957419791384noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-60131235613262555022009-07-07T12:36:28.195-07:002009-07-07T12:36:28.195-07:00you can try to see if there is a time offset for b...<i>you can try to see if there is a time offset for best fit.</i><br /><br />Not a surprise, but an optimized model is to delay the effects of unemployment, mortgage rate and international migration by a quarter. Provincial migration is still best fit with no delay. So, the effects of higher unemployment and lower mortgage rates should be seen in the coming quarter.<br /><br />Model 2.0 has a slightly better adjusted Rsq value. See the following link.<br /><br />http://docs.google.com/Presentation?id=dghbwhpz_95hrmr77g2<br /><br />I'll also update the blog posting...mikehttps://www.blogger.com/profile/00118603546135838855noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-89442922404067188892009-07-07T11:55:02.602-07:002009-07-07T11:55:02.602-07:00"I suspect the bounce is due to low interest ..."I suspect the bounce is due to low interest rates, and possibly hot money coming from china, where speculation on commodities is rampant."<br /><br />Doesn't look like hot money to me. Looks like long term investors/residents.JimTanhttps://www.blogger.com/profile/13480972517925246528noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-301567875224090612009-07-07T10:19:26.213-07:002009-07-07T10:19:26.213-07:00The key assumption is the 9% unemployment rate. .....<i>The key assumption is the 9% unemployment rate. ... regional is @6.7%.</i><br />June's unemployment rate for vancouver region is 7%, and I expect this to go up as the Olympics wrap up and global economy takes its toll on the region. Going back to 1990's level (or worst) is reasonable as this recession should be much worst.<br /><br /><i>What does the model say about the unemployment rate if RE bottomed in spring?</i><br />I suspect the bounce is due to low interest rates, and possibly hot money coming from china, where speculation on commodities is rampant. (Yes, the recent boom is not driven by demand; it is by financial speculation, and we know how that usually ends)<br /><br /><i>...nonlinear effect on affordability -- a shift from 4% to 5% is more significant than from 7% to 8% from the debtor's perspective.</i><br />By taking the logarithm of the price we take this effect out. What I'm concerned about is a 2nd order effect....mikehttps://www.blogger.com/profile/00118603546135838855noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-24986515441071947772009-07-07T09:31:36.209-07:002009-07-07T09:31:36.209-07:00You can try employment or median incomes instead o...You can try employment or median incomes instead of unemployment. The strong link between unemployment and price changes is also quite interesting. I don't know if you're cross-correlating but you can try to see if there is a time offset for best fit.jessehttps://www.blogger.com/profile/02155122147972263497noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-38826223085185866222009-07-07T09:16:29.856-07:002009-07-07T09:16:29.856-07:00Mike, thanks for spending the time to do this. It ...Mike, thanks for spending the time to do this. It doesn't pay that well! I would include either housing starts/completions or inventory levels or months of inventory as well; both would intuitively have some effect on price fluctuations. Also interest rates changes have a nonlinear effect on affordability -- a shift from 4% to 5% is more significant than from 7% to 8% from the debtor's perspective.<br /><br />I think a great take away for those not highly versed in statistics is that improved affordability through low interest rates seems to be tightly linked to price changes.jessehttps://www.blogger.com/profile/02155122147972263497noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-90070689112270616472009-07-07T07:54:33.421-07:002009-07-07T07:54:33.421-07:00The key assumption is the 9% unemployment rate. Cu...The key assumption is the 9% unemployment rate. Currently, the national rate is @8% with Ontario manufacturing leading the decline in jobs. BC province is @7.5% and regional is @6.7%.<br /><br />A new Merrill Lynch forecast calls for Canadian growth in the 2nd half 2009 and modest growth (2.7%) in 2010. <br /><br />What does the model say if local unemployment peaks this year (or early 2010) at 7.5%? Let's turn it around. What does the model say about the unemployment rate if RE bottomed in spring?<br /><br />Finally, the 2007/08 anomaly may be due to the commodities boom. For example, oil peaked in June 2008 at $170 per barrel. The main beneficiary was our neighbour Alberta.JimTanhttps://www.blogger.com/profile/13480972517925246528noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-47444982085116617212009-07-06T23:29:07.939-07:002009-07-06T23:29:07.939-07:00Though quite interesting, this is pretty far over ...Though quite interesting, this is pretty far over my head. <br /><br />Also, we can run graphs predicting everything we want, but it still wont make it happen. <br /><br />The huge spring bounce now running on into summer has shown me that the average buyer will jump right into a mortgage they cant afford because the real estate agent and mortgage broker say that it will be no big deal. <br /><br />The georgia straight article I am sure everyone has already read ( http://www.straight.com/article-237609/firsttimers-rates ) shows that people are willing to assume huge risk just to own a home. Until people start learning the consequences either through first had experience or seeing it happen to others, they will keep buying houses at ridiculously inflated prices because the realtor said it would be fine.Unknownhttps://www.blogger.com/profile/16361217381016612518noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-49998218259688396512009-07-06T23:05:52.611-07:002009-07-06T23:05:52.611-07:00thanks for the correction. They are indeed indepe...thanks for the correction. They are indeed independent variables.... housing price is the dependent variable.mikehttps://www.blogger.com/profile/00118603546135838855noreply@blogger.comtag:blogger.com,1999:blog-31427364.post-38214447269349165262009-07-06T23:01:14.502-07:002009-07-06T23:01:14.502-07:00Great work!!!
It will probably take me two days ...Great work!!! <br /><br />It will probably take me two days to analyze it. <br /><br />A point of clarification: I assume that the variables of unemployment and such are the predictor variables, i.e. independent. And,that price is he response variable- dependent. Or, have I misunderstood the direction of your regression analysis? <br /><br />Nevertheless, there does appear to be a strong and significant relationship between the variable you have presented.Unknownhttps://www.blogger.com/profile/16161286459973640706noreply@blogger.com