Unemployment vs. Housing prices

laxtosnoco

Tim made a post today about the link between unemployment and housing. I thought the topic was interesting, but needed some additional context. Deejayoh could probably produce prettier charts, but this is the best I can crank out in a few minutes. See below for a chart of unemployment vs. housing price changes 1991-present for Seattle. The chart does appear to show some connection between falling unemployment and rising prices (1998-2000 and 2004-mid 2006).



I also ran a simple regression plot (below), which shows a pretty strong inverse relationship between unemployment and housing prices. The R squared is 0.25 and clearly doesn't explain all the variation in home prices, but unemployment's impact is clearly statistically significant (P<.001).



Data used:
- Housing prices come from Case Shiller HPI and are represented as YOY % changes
- Unemployment is from the BLS website: http://data.bls.gov/cgi-bin/surveymost?la+53

jon

That's a purty picture, but the regression says that when unemployment goes up prices go down, but right now both unemployment and prices are going down.

What's going on is the economy is driving both, and this cycle the forces at work in the economy are different than before.

There's a great article at http://www.technologyreview.com/Infotech/19529/?a=f
that explains what happened to all the quant trading in August. It started in the subprime market and started to have strange effects on blue-chips, because those where the easiest to bail out of when the mortage market imploded.

laxtosnoco

Jon, I posted these charts in response to Tim's post on unemployment and real estate prices. The data does show that there is a strong historical relationship between unemployment and changes in housing prices.

I agree that the current trend is decreasing home price appreciation even in a time of low unemployment. I haven't looked at the data, but I bet the charts look similar in San Diego/LA/SF.