A good visual showing the basic cause of inflated housing prices and homeownership was historically low interest rates.
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7 comments:
There doesn’t seem to be a real strong correlation there, the slope of a trend line through the interest and savings rates seems to be pretty constant from ~'83 while the home ownership really doesn’t take of until ~'95. It’s probably worth looking into though.
I don't think the units are correct for a valid comparison. The homes owned line is total homes owned vs total homes lived in. That's not a rate so much as an intensity. The interest and savings rates are in units per time period. To make a valid comparison, I think the graph should compare the marginal rate (time rate of change) of home ownership to the other two.
Beautiful chart, fallacious argument.
The graph correctly shows the beginning of Clinton's Home ownership Policy as the root cause of this bubble, but it started in 1995.
There is hardly a causative relationship between interest rates and home ownership. Interest rates plummeted from 1980 to 1986 in an economic expansion, yet home ownership rates fell. From 1989 to 1994 interest rates fell further, yet home ownership rates remained flat (only part of which was during a recession). From 1995 to 2001, interest rates were generally stable and on a flat trend, but home ownership continued to rise. After 2001, interest rates plummeted again. While home ownership continued to climb, it did not accelerate.
It was the affordable mortgage products invented by Clinton's HUD, the purchase of those risky mortgages by Fannie and Freddie on the secondary market, and securitization of risky mortgage debt which provided the liquidity for this bubble.
The personal savings rate is tied to the dissaving for a down- payment, cash-out refinancing, and mortgage debt. So rather than illustrating correlation or causation, it's showing a tautology and therefore is uninformative.
This does seem to align pretty well with the changes made to the Community Reinvestment Act made by the Clinton Administration in 1995 and the securitization of those loans later in 1997.
Interesting comments re home ownership and interest rates not totally tracking.
Question: The savings rate and interest rates do seem to track. Could this be a simple matter of low interest rates being a disincentive to saving?
So, for all their efforts, they took home ownership from a decades-long average of about 65%, and got it to peak at 69%. They trashed the economy for THAT???
It would be good to see a graph showing personal debt level as well. I suspect a lot of home "owners" took out big home equity loans and blew the money on toys.
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