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Three Cents Worth: Those Inverse Entry-Levels

[This week, our graph guy Jonathan Miller examines the relationship between apartments of various price levels and the mortgage rates that love them. Click on the image to expand.]

Since mortgage rates began to slip in the second half of 2006, I thought I would look at the relationship of certain market segments and their response to changes in mortgage rates.

I totaled up all the quarterly sales prices that fell into each of three price strata?less than $1M, $1M to $4M and greater than $4M?to how they trend against mortgage rates. I selected the 1-year ARM as a rate to track since that was the rate that showed the most immediate response to the Fed rate tightening effort that began in June 2004.

I noticed that the entry-level market as a percentage of all sales (pink line), comprised of studios and 1-bedrooms, showed the inverse of the trend in mortgage rates (green columns). As mortgage rates increased, the entry-level market share fell as those would-be buyers probably moved into the rental market, fueling that market's rise over the last two years.
· Market Price Strata vs. 1-Year ARM Rates [Miller Samuel]