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Stocks, home equity fuel real estate market

Perspective: Jobs, interest rates have little impact

In our last perspective, we declared February 2005 to be the best month ever to be a home builder. Annual new-home sales have risen 76 percent in the last 10 years, unsold inventory is low, prices are 12 percent higher than they were one year ago, and the economy is on the upswing. We asked ourselves, "How did we get here?" and we learned that job growth and mortgage rates really had very little to do with it. Beginning today, we will place more emphasis on two additional variables when helping executives strategize for the future. Prior to 1995, the World Made Sense to Economists It used to be that job growth and mortgage rates were all that mattered, but that is not the case anymore. Jobs and Housing: From 1972 through 1995, new-home sales and job growth were highly correlated, as shown in the first chart below. However, since 1995, there has been no correlation at all. Mortgage Rates and Housing: Except for two periods since 1972, new-home sales and mortgage rates have been highly...