Mortgage Rate
How does unemployment affect mortgage rates?
by regression analysis I found that there is a strong positive correlation between unemployment and mortgage rates. I can not figure out why. Any thoughts?
You have to be cautious, mortgage rates are potential rates and unemployment data are retrospective data. Data is collected at time t may in fact reflect the time t-1 and forward rates at time t 359th Moreover, the mortgage market itself changed over time will deposit financing and insurance reserves funded twenty years ago and mutual fund owned today. It creates different owners with different obligations. Final time series regressions is very difficult to do correctly. It's a whole field in itself. Unemployment is related to bond market prices, because higher unemployment tends to result in lower inflation, which makes bonds more secure and allows higher bond prices, so there should be a positive relationship with prices, but a negative relationship with space. But a mortgage taken as 360 forward commitments and the current unemployment does not reflect future beliefs about the economy in a direct manner. If you find a positive correlation, there is very strong, there is also a possibility that you have a unit root problem and your t-test is misspecified. The significance may be spurious. This is partly dependent on the relationship or not. If you run your tests using a standard statistical package, it is likely your correlation method is invalid.