The Seattle Times is running a piece on how Seattle area house prices are going up.
Seattle area unemployment is also going down — and I had previously written this formula, that I had discovered in a regression that I did on home prices:
Log(HousePrice) = C + Time + SquareFootage + Log(Unemployment) + AR(1) + MA(1)
This formula says, “If unemployment improves, house prices also improve.” more-over, my regression also pointed out that unemployment was not correctly stated for the king county area. I did this work a year ago — and the outcomes are coming to pass as predicted. Even when house prices here will stabilize are happening as the model predicted. I think that when unemployment returns to 5%, house prices within 18 months will return to their 2003 level plus 6%( actually, more like 5.8%) per year since 2003.
I will also update my formula in this post with a hypothesis:
Log(HousePrice) = C + Time + SquareFootage + Log(Unemployment) + TimeAbove5%UnemploymentInRegion + AR(1) + MA(1)
See the new TimeAbove5%UnEmploymentInRegion factor? That the amount of time, in Quarters, that Unemployment has been above 5%. I think this force is the “Pervasive doom” force I had previously noted. If I were to re-run this regression ( and I don’t want to — it takes me an entire weekend to prep the data for such a run ), I think I can forecast the real-estate recovery for a region, based purely on unemployment.