Housing Euphoria vs. Interest Rates?

This is a look at the chart I did in my last post compared to the 10 year treasury yield (treasury yield is upside down to show the possible inverse relationship).

We might not expect to see that much correlation during periods of rising interest rates simply because people do not have to refinance a fixed rate mortgage when rates are rising. When rates are falling, they will of course take advantage of it. That might explain why the left side of the chart is less correlated than the right side (that and the 1970s were a hard asset decade thanks to inflation and negative real rates of return).

Could the lack of correlation recently have anything to do with giving loans to anyone with a pulse, no documentation loans, interest only loans, negative amortization loans, commercials showing renters flushing money down toilets, a plethora of real estate TV shows, the assumption that home prices only go up, and so on, and so on? Who knows!

It is possible this is just a coincidence as well, but it does back my thinking that falling interest rates for 20+ years led to all sorts of unsustainable prosperity and we're more than likely overdue for some headwinds.

See Also:
Housing Bust Recipe (Update)

Source Data:
U.S. Census Bureau: Housing Vacancies and Homeownership (CPS/HVS)
FRB: Selected Interest Rates