xboxboy, this is awesome! Thanks for putting it together.
I’ve got to get on a meeting soon so very quick thoughts:
First, the steepening curve where as interest rates get lower, they exert a continually higher impact on affordability – that is something I had never thought about. That could be an important piece of the puzzle. I’d always observed that in the past, interest rates didn’t have such a big influence on valuations, but they seemed to have more of an impact more recently. This might be a result of the non-linear impact of rates — they didn’t matter so much when they were higher in the past, but matter a lot more now. Must think about it more.
Second, if you are inclined, I’d love to see a variation on the final graph that, instead of mapping both series, just shows the % difference between each series. That would give a more fine-grained look at how over- or under-valued SD housing is compared to your indicator.
Third, I’d be curious to see — what happens to the price model if rates go up to X? I guess I can do the math on that one based on the first chart. But for one example — rates got to the mid-4s in 2018. What would happen to your price model if they went to 4.5% again?
BTW I do have data that I’d be happy to share. To spare everyone the details on that, why don’t you PM me or email at [email protected].
