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California
Home
Prices Jason Nazar
What the Experts are
Saying
Introduction
“The main reason why
“Historically rent prices
house prices have been The Data
and
“The sale prices have
rising so rapidly boom
bigger the is the
moved
in together.
property prices If rents
the
historically low level of Analysis
go down
bigger thethe theory
bust.”
interest rates, which– The
holds that
Economist home prices
has allowed households Predictions
will eventually follow.”
to borrow more to buy a -
CNN Money
home.” – The Economist Conclusions
Beginning Expectations
Introduction
Home
As Mortgage Rates
The Data
Prices will
& As Unemployment
Analysis
Predictions
Increase
& As Personal Conclusions
Objectives
Introduction
2.
3. ToUnderstand
3.To Identify Which
Predict When the The Data
Key Drivers that
Combination of
Have
Factors Affected
ThereWould the
Will BeCause
a Analysis
California
a Residential
Correction
Correctionand
in the
Market Predictions
How Severe it Market
Residential Will Be
Conclusions
How Do Regressions Work
By themselves,
4 Important Indicators
AinRegression measures
a Regression
Introduction
regressions tell
how much the change in
one•Rvariable
Square (dependent)
The Data
us NOTHING
can•Pbe explained by the
Value
Analysis
change in a separate
about
•T Stator set of variables
variable Predictions
economics!
(independent).
•Coefficient Conclusions
Data Source
Dependent Variable (what we are trying to Introduction
explain): California Housing Prices from 1982 to 2004
The Data
Independent Variables (what indicators we
tested to explain the change in our dependent
variable)
Population Labor Force Rental Vacancies Analysis
CPI
30 Year Fixed Gross State
Mortgage Rate Product Unemployment Predictions
Rate
CA per capita Outstanding
Mortgage
personal Consumer
Loans Conclusions
income Credit
Outstanding
Regressions
Dependent Variable: CA
Home Prices from 1982-2004 Introduction
R Square 0.988278809
Adjusted R Square 0.976557618
The Data
Independent Variable:
Gross State Product 1982 – 2004
R Square 0.957003309
Analysis
Adjusted R
Square 0.954955847
Independent Variable:
The Data
Rental Vacancies 1982 - 2004
R Square 0.89610636
Adjusted R Square 0.89115905 Analysis
Conclusions
Regressions
Dependent Variable: Introduction
CA Home Prices 1982-2004
The Data
Independent Variable:
Consumer Credit 1982- 2004
R Square 0.8183169 Analysis
Adjusted R Square 0.8096654
The Data
Independent Variable:
Labor Force 1982 - 2004
R Square 0.796959611 Analysis
Adjusted R
Square 0.787291021
The Data
Independent Variable:
Mortgage Rates 1982 - 2004
R Square 0.597707136 Analysis
Adjusted R Square 0.578550333
Conclusions
Regressions
Dependent Variable: Introduction
CA Home Prices 1982-2004
The Data
Independent Variable:
Unemployment Rate 1982 - 2004
R Square 0.22650025
Analysis
Adjusted R Square 0.18966693
The Data
Coefficients t Stat P-value
Intercept -1667318.178 -2.401898067 0.035114425
CPI -14492.86311 -2.799590159 0.017287438
Mortgage Loans Outstanding 155.3372037 3.381913856 0.006121806
Analysis
California Per Capita Personal Income 23.87106866 2.000865703 0.07069901
30 Year Fixed Mortgage Rate 13145.78201 1.946951954 0.077518914
Population 0.103558054 2.330441439 0.039838063
Consumer Credit Outstanding 0.000253176 0.00241383 0.998117264 Predictions
Labor Force 0.01663074 0.756621464 0.465173652
Gross State Product -0.68147785 -1.764676976 0.105328758
Unemployment Rate 2321.952932 0.371787642 0.71711339
House Rental Vacancies -16896.6386 -1.040540382 0.32041972 Conclusions
Apartment Rental Vacancies 3939.594102 0.322926706 0.752806047
Problems with the Data
Introduction
statistically significant
Conclusions
California Home Prices
The California housing market has Introduction
traditionally been affected by a variety of
factors that work together to increase the
price of housing. The Data
Gross State
Labor Force Product
Population Analysis
Outstanding
Consumer
Credit
CPI
Predictions
Mortgage
Loans
Outstanding
CA per capita
personal Conclusions
income Rental Vacancies
Per 30 Year
Mortgage Capita Fixed Consumer Gross
Home Change Loans Personal Mortgage Credit Labor State
Year Prices in CPI Income Rate Population Force Product Unemply.
1982
1983 2.30% 1.64% 4.38% 5.21% -17.46% 2.14% 4.44% 0.85% 8.36% -2.02%
1984 -0.10% 4.95% 11.83% 9.91% 4.83% 1.89% 12.80% 2.68% 13.72% -19.59%
1985 4.90% 4.62% 13.80% 6.17% -10.45% 2.27% 18.55% 2.94% 9.27% -7.69%
1986 11.50% 3.13% 11.84% 4.25% -18.02% 2.46% 15.60% 2.70% 7.18% -6.94%
1987 6.30% 4.02% 13.74% 5.66% 0.20% 2.46% 7.85% 3.04% 10.09% -13.43%
1988 18.40% 4.64% 11.47% 5.84% 1.27% 2.44% 5.97% 2.88% 9.68% -8.62%
1989 16.60% 5.00% 11.25% 5.34% -0.19% 2.64% 8.20% 2.72% 8.52% -3.77%
1990 -1.20% 5.47% 12.45% 5.38% -1.84% 2.35% 6.50% 4.49% 7.45% 13.73%
1991 3.56% 4.15% 7.68% 0.46% -8.69% 2.11% 1.11% -0.29% 1.99% 32.76%
1992 -1.81% 3.56% 6.54% 3.03% -9.30% 1.74% -0.94% 1.35% 2.07% 20.78%
1993 -4.46% 2.61% 4.93% 0.81% -12.87% 1.06% 1.29% -0.68% 1.96% 1.08%
1994 -1.72% 1.41% 6.25% 2.26% 14.64% 0.67% 7.75% 0.44% 3.68% -8.51%
1995 -3.70% 1.65% 5.66% 4.24% -5.37% 0.60% 15.85% -0.38% 5.33% -9.30%
1996 -0.50% 2.01% 6.03% 4.25% -1.51% 0.79% 13.81% 0.89% 5.13% -7.69%
1997 5.20% 2.16% 6.75% 4.52% -2.69% 1.53% 9.07% 2.70% 7.38% -12.50%
1998 7.30% 1.99% 7.51% 6.48% -8.68% 1.26% 4.48% 2.23% 7.66% -6.35%
1999 8.70% 2.93% 9.91% 5.21% 7.20% 1.69% 8.42% 1.47% 7.82% -11.86%
2000 11.90% 3.74% 9.16% 8.92% 8.20% 1.36% 7.59% 3.15% 9.62% -5.77%
2001 -7.68% 3.95% 8.98% 0.90% -13.42% 1.67% 11.42% 1.66% 2.20% 10.20%
2002 28.86% 2.37% 10.86% 0.74% -6.17% 1.64% 7.37% 1.19% 5.28% 24.07%
2003 12.81% 2.69% 12.98% 1.00% -6.73% 1.69% 4.75% 0.48% 5.28% 0.00%
2004 20.71% 4.30% 9.17% 9.17% -5.08% 1.77% 5.27% 1.95% 5.28% -8.96%
The Historical Key Drivers
Introduction
Objective #1:
A variety of factors work together
to promote the growth of the
California residential market. For The Data
there to be a downturn in the
To Understand the
California market there would
Analysis
Key Drivers that
have to be a large negative spike
in one of 4 key factors
Have Affected the
(population, unemployment, per Predictions
California
capita income, or mortgage
Residential Market
rates) followed by a prolonged
period of recession. Conclusions
Will There be a Crash?
California home
Introduction
From 1982 to 2004:
Personal Income Increased
prices have
The Data
2.63
by a factor of:
appreciated by
Home Prices increased
Analysis
3.52
over %150 in
by a factor of:
Predictions
400000
Analysis
300000
200000
Predictions
100000
0 Conclusions
82
88
90
02
04
4
0
8
0
9
9
19
19
19
20
20
19
19
19
19
19
19
20
Yes Correction, How Bad?
Objective #2
There will be a correction because
the market is overvalued right now.
Introduction
250000
Dollars
200000 Analysis
150000
100000
Predictions
50000
0
Conclusions
82
86
00
90
94
98
04
4
2
6
8
0
19
19
20
19
19
19
19
19
19
19
20
20
Year
Tell Me When!
Objective #3:in the Fed
Watch for changes Introduction
Correction
California residentialin the
housing
Predictions
market. We predict that there
Residential Market
will be the first correction by
January of 2005. Conclusions
What You Should Do
Introduction
1.Hold off on buying
2.Lock in a fixed rate The Data