Market Efficiency, Market Efficiency, Housing Affordability and Housing Affordability and the Real Estate “Bubble”the Real Estate “Bubble”

Samuel Alfred LegerSamuel Alfred Leger

Basic IdeaBasic Idea

To develop a better understanding of To develop a better understanding of the current real estate and housing the current real estate and housing marketsmarkets

Develop a new measure of housing Develop a new measure of housing affordabilityaffordability

Research QuestionsResearch Questions What is driving housing appreciation?What is driving housing appreciation? Is the real estate market staying Is the real estate market staying

efficient?efficient? Is there actually a real estate Is there actually a real estate

“bubble”?“bubble”? What can recent homebuyers do to What can recent homebuyers do to

stay afloat in an inflated real estate stay afloat in an inflated real estate market?market?

ResearchResearch

Develop a measure of housing Develop a measure of housing market efficiency and use this market efficiency and use this measure also to consider housing measure also to consider housing affordabilityaffordability

Examine housing market conditions Examine housing market conditions within the Cape Fear regionwithin the Cape Fear region

Information TableInformation Table

Home Home Ownership Ownership

RatesRates

Housing Housing StockStock

(thousands)(thousands)

Mortgage Mortgage Interest Interest RatesRates

Housing Housing Affordability Affordability

Median Median PricePrice

19751975 N/AN/A 79,08779,087 14.72%14.72% $35,300$35,300

19851985 63.9%63.9% 99,93199,931 11.93%11.93% $75,500$75,500

19951995 64.7%64.7% 109,457109,457 8.01%8.01% $113,100$113,100

20042004 69.2%69.2% 122,470122,470 5.88%5.88% $188,900$188,900

ResearchResearch

Examine home prices, interest rates Examine home prices, interest rates and household income to see how and household income to see how those variables have swayed.those variables have swayed.

Interest rates adjust to record lowsInterest rates adjust to record lows Household income and inflation were Household income and inflation were

modestmodest Possible drivers for housing Possible drivers for housing

affordabilityaffordability

Research and ProcessResearch and Process

Developing a measure of housing Developing a measure of housing affordability and tracking it over a affordability and tracking it over a period of time period of time

To discover any extremes in the To discover any extremes in the market, either today or in the recent market, either today or in the recent past. past.

Research and ProcessResearch and Process

Considering median house prices Considering median house prices along with the median household along with the median household income; a ratio of these is developed income; a ratio of these is developed for North Carolina with regional data for North Carolina with regional data

reach conclusions about the local reach conclusions about the local market.market.

PurposePurpose

Give insight about market conditions, Give insight about market conditions, housing affordability and the much housing affordability and the much discussed real estate “bubble”discussed real estate “bubble”

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