Correlation of US Home Values with Selected Economic Indicators

The strongest positive correlations were between GDP and non farm payrolls,. 0.99 and 0.97 for the two time periods used in the analysis and .081 and 0.89 respectively..

Out of these two indicators, GDP had a R squared value of .98 This may be attributed to the fact that housing and real estate contribute between 15 and 18 percent to US GDP (https://www.nahb.org/). It seems clear a robust economy has a concomitant relationship with home values.

The biggest negative correlation was with interest rate for the 30 year fixed mortgage -0.75 and -0.63 for 1971-2023 and 2000-2023 respectively.

This would seem to indicate that this is the biggest determination of house price appreciation. Lower interest rates tend to cause more demand in the housing market, possibly raising the value of home especially in a low inventory environment.

One interesting observation was the relatively low effect CPI (Inflation) has on home values. -0.07 -0.27 for the two periods.

Unemployment rates seemed to have had the least correlation with home values.

Looking at the correlation rates among themselves over the two time periods, CPI correlation with home prices had a fairly wide swing, showing it had less of an impact on home prices in the period from 2000-2022 compared to the 1971 -2023 period. The moderate positive correlation would indicate both moved somewhat in tandem, indicating consumers were not shy about driving up home values even as inflation increased.

Mortgage rates correlation with home prices had a smaller effect in the shorter time frame than the longer. Looking at the meteoric rise of home values in the last 20 years may explain this.

GDP was a very strong correlation in both time periods. Unemployment rates had a greater (though still mild) effect on values in the shorter period than the longer.

Nonfarm payrolls had a strong correlation in both time periods.

Sources used were Fred Data.

Full viz here: https://public.tableau.com/app/profile/chris.ford4921/viz/CorrelationofUSHomeValueswithSelectedEconomicIndicators/Story1