Hey Simon,

Umm, the 'correlation vs. causation' thing has nothing to do with a 'single factor model.'

CR has, correctly in my view, pointed out that the direction of causation might flow from RE-related employment to prices. At the very least, it can be argued they are jointly determined. In such a case, the estimated coefficient will be biased up.

Prof. Hamilton knows this to be sure; he is an econometrician of the highest reputation. However, perhaps he overlooked mentioning this possibility in this case.

Job growth was higher in the 1995-2000 period in most areas and housing prices (with the exception of the Bay area) were nowhere near as high.

Since 2000, several areas that have had weak employment growth (if at all) like Boston, NYC metro, Bay Area in Cal have seen large gains in prices.

So my conclusion is that job growth in some areas explains some price rises, but not all or even most.

Also, does Dr. Hamilton's model take a possible feedback loop into effect, especially in areas like So Cal where a great deal of new jobs are real estate driven ?

Howdy Calc. New operating systems are a good thing!
Grand blog ya' got here. :•)

Yeah, but read this:

Stormy's great post at Brad Setser's web log:

RGE Monitor

I do not see a conundrum at all. Every time the Fed raises short term rates, the long term rates flatten: Not a conundrum.

Industry is not a place for investment; it already is cash rich and labor plentiful. The only place now is in government bills. The reason why investment does not flow elsewhere is that it is simply not needed, thus driving down long term interest rates. Complicating and adding to this problem is that many of the factories of the west simply have move. A solid proportion of industry has not created new, additional factories; they have simply relocated. Their total output has not changed, only their profits have.

Does this not explain why there are interest-only mortgages? There is a cash glut. Bernanke, to some extent, is absolutely right.

There is an enormous flow of capital and money out of the industrialized world. Some of it does return in terms of profits and salaries, but a good percentage of those profits never find their way into public coffers. The rich get very rich. There is no way longer any way of really getting a slice of those profits to pay the national bills. In addition, downward pressure on average wages continues.

Cheap labor has been substituted for investment. Credit is cheap. With profits and cheap labor at these quantities, who needs credit? I do not see this as a conundrum. The pump has been primed from every conceivable direction: tax incentives and cheap labor abroad, tax cuts at home.

Ten million Chinese work for a foreign enterprise. The size of that cheap labor force is staggering. And it is only a tip of the Chinese iceberg. And we have yet to touch India. We are living through a boom economy, except the boom is not really heard here. We are paying for it. The dimensions of that boom cause Chinese entrepreneurs to open fake off-shore businesses, pose as foreign investors, and then be eligible for all the goodies--roundtrip investors, they are called. With credit like this, is there any wonder that capital returns cannot be measured by real interest rates? Hell, I should start such a business. Bet doing so is dirt cheap. No loans required. And, you do not need real investment in automation or equipment when labor is dirt cheap. Look at what the Egyptians did with the pyramids, or the Chinese with the Great Wall.

Normal Keynesian economics was not prepared for anything like globalization of this magnitude or style. There is a glut of capital and credit and labor. And it is coming at the American taxpayer's expense. The average American consumer is going deeper and deeper into debt. Average credit card debt in the U.S. is over $9000. And the interest rates are hefty there! And then place that number against the median wage: credit card debt then becomes one-fourth of the median wage. Some are living on a knife's edge here