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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Taikun who wrote (60850)8/26/2006 5:05:31 PM
From: Moominoid of 306849
 
Was interested in the SPX - MHI chart floating around showing a supposed strong correlation in recent years between the two indices. One is an index bounded between 0 and 100 and the other open ended, so this kind of comparison makes no sense. A comparison that could make sense is one of the rates of change of the two indices.

Here is my chart of the logarithmic rates of change of the two indices:

rpi.edu

Also included are 12 month moving averages to filter the noise.

hmmm this shows that there may have been more correlation in the past with the stock market apparently leading. The opposite of what Mauldin and others are saying. Here are the correlations between the rates of change in the two indices:

Housing t+12 0.132
Housing t+11 0.055
Housing t+10 -0.082
Housing t+9 0.016
Housing t+8 -0.007
Housing t+7 -0.063
Housing t+6 -0.062
Housing t+5 0.070
Housing t+4 -0.028
Housing t+3 0.176
Housing t+2 0.184
Housing t+1 -0.080
Contemporaneous 0.089
Housing t-1 -0.012
Housing t-2 -0.016
Housing t-3 -0.089
Housing t-4 0.054
Housing t-5 -0.011
Housing t-6 -0.073
Housing t-7 0.103
Housing t-8 0.078
Housing t-9 0.054
Housing t-10 -0.048
Housing t-11 -0.083
Housing t-12 -0.036

t-12 means the correlation between housing changes 12 months ago and the stock market now. t+12 means the correlation between the stock market today and housing in 12 months time. If anything there is more correlation showing that the stock market predicts the housing market.

Obviously I could do a more sophisticated analysis if it was worthwhile.
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