[This week, graphic artiste Jonathan Miller takes some reader feedback to heart and charts the 1-Year adjustible rate mortage rate (red line) against the inflation-adjusted average sales price (green bars). Click on the graph for bigger bars and wider lines.]
Last week, my chart garnered a lot of feedback and requests for some new parameters in a similar chart. Besides encouragement for my mission to eliminate chartjunk, the suggestions included adjusting the average sales price for inflation so the numbers would more directly relate to today. In addition, the idea was posed to track an adjustable rate mortgage (ARM) product instead of the benchmark 30-year fixed mortgage, say the 1-Year ARM. Since many mortgage options have been added over the past five years, I was not sure what to ARM product to select, especially since many, such as the popular 5/1 fixed, don't have the same depth of historical data as the 30-year fixed. I took our Curbed readers' advice and went with the most volatile end of the spectrum and tracked the 1-Year ARM against the inflation-adjusted average sales price.
The result? The inflation-adjusted average sales price showed more of a downward slope in the first half of the 1990's but overall, it followed a similar pattern. The 1-Year ARM followed a similar pattern as the 30-year fixed rate but showed more volatility. The sharp drop in short term rates starting in 2000 seemed to correlate better with the steeper increase in the average sales price in the past five years.
The proliferation of various adjustable rate products in recent years may be more telling as to why price levels rose more steeply than long term rate fell in the past five years. This analysis provides further evidence how important mortgage rate levels are due to their influence on housing prices.
· CPI-Adjusted Avg Sales Price vs. 1-Yr ARM [Miller Samuel]