This is a data driven investigation on whether the 2007 - 2009 financial crisis was at all oil related or was it mainly housing related. As you will soon find out, it was mainly housing related. Oil had nothing to do with it.

1. Was 2007 – 2009 a Housing
crisis or an Oil crisis?
Gaetan Lion
July 11, 2012
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2. Kunstler believes the recent housing-
financial crisis was really an oil crisis
James Kunstler, the author of
“Too Much Magic”, is one of the
main advocates of this view.
2

3. The Data suggests otherwise…
Home price vs Oil price. Standardized variables
4.00
Home price
3.00 Oil price
2.00
1.00
0.00
-1.00
-2.00
Jan-89
Jan-96
Jan-03
Jan-07
Jan-87
Jan-88
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-04
Jan-05
Jan-06
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Using a Case Shiller monthly home price series (for 10 major MSAs) going
back to 1987, and using oil prices from the EIA over the same period; we
observe that home prices peaked in July 2006 or a full two years before oil
prices peaked in July 2008. When oil prices crashed from July 2008 to
February 2009, home prices continued crashing too. That’s the opposite
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direction of what Kunstler and other Peak Oil advocates suggest.

4. Home Price vs Oil Price Scatter Plot
Home Price vs Oil price. Standardized variables
2.50
Home price. Standardized unit
2.00
1.50
1.00
0.50
0.00
-0.50
-1.00
-1.50
-1.50 -1.00 -0.50 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00
Oil price. Standardized unit
The scatter plot shows that when oil prices are low, they have a
positive relationship with oil prices (opposite of Peak oil expectations).
When oil prices are high, they have essentially no relationship with
home prices (also not supporting Kunstler’s opinion). 4

5. Home Price change vs Oil Price change
Home Price vs Oil price. 12 mth change
200%
150%
12 mth Oil price change
100%
50%
0%
-50%
-100%
-25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25%
12 mth Home price change
The scatter plot focuses on 12 mth change in such prices.
And, the result is essentially random. Focusing on other
change interval (1 mth, 3 mth, 6 mth) generates very similar
randomness. 5

6. Focusing on the Crisis
Real Home price Oil price Home price Oil price
GDP growth index per barrel change change
2006q1 5.1% 223.8 $ 62.7 When Oil peaked at
2006q2 1.6% 226.3 $ 71.0 1.1% 13.2%
2006q3 0.1% 225.1 $ 63.8 -0.5% -10.1% $133.9 in 2008 Q2,
2006q4
2007q1
2.7%
0.5%
222.4
219.7
$
$
62.0
60.4
-1.2%
-1.2%
-2.9%
-2.5%
home prices had
2007q2
2007q3
3.6%
3.0%
217.4
212.7
$
$
67.5
79.9
-1.0%
-2.1%
11.7%
18.4%
already declined by
2007q4 1.7% 200.7 $ 91.7 -5.7% 14.7% over 20% since 2006
2008q1 -1.8% 186.1 $ 105.5 -7.3% 15.0%
2008q2 1.3% 180.5 $ 133.9 -3.0% 27.0% Q2. When Oil
2008q3
2008q4
-3.7%
-8.9%
173.4
162.1
$
$
104.1
41.1
-4.0%
-6.5%
-22.2%
-60.5%
crashed to $41.1 by
2009q1 -6.7% 151.5 $ 47.9 -6.5% 16.6% 2008 Q4, home prices
2009q2 -0.7% 153.4 $ 69.6 1.2% 45.3%
2009q3 1.7% 158.8 $ 69.4 3.5% -0.3% kept on declining. All
2009q4 3.8% 158.2 $ 74.5 -0.4% 7.3%
2010q1 3.9% 156.2 $ 81.2 -1.2% 9.0% those observations
2010q2
2010q3
3.8%
2.5%
161.1
161.0
$
$
75.3
75.2
3.1%
0.0%
-7.2%
-0.1%
contradict Kunstler’s
2010q4 2.3% 156.0 $ 89.2 -3.1% 18.5% theory.
2011q1 0.4% 150.9 $ 102.9 -3.3% 15.4%
2011q2 1.3% 154.9 $ 96.3 2.6% -6.4%
2011q3 1.8% 155.6 $ 85.5 0.5% -11.2%
2011q4 3.0% 149.6 $ 98.6 -3.9% 15.2% 6
2012q1 1.9% 148.4 $ 103.3 -0.8% 4.8%

7. Was the 2007 – 2009 Crisis a Housing
Crisis or an Oil Crisis?
Correlation Matrix
R. GDP gr. H. price chg. Oil price chg.
Real GDP growth 1
H. price chg. 0.58 1
Oil price chg. 0.44 0.00 1
This correlation matrix uses the data on the previous slide. Notice
that over this crisis and post crisis period, the correlation between oil
price change and home price change is zero (no relationship
whatsoever). The correlation between oil price change and real GDP
growth is positive (0.44). That is the wrong sign than what Kunstler
and other Peak Oil advocates have in mind. Finally, the relationship
between home price change and real GDP growth is the strongest
and directionally makes sense. This confirms the financial crisis was
strongly housing related. And, it was not oil related (correlation is off
wrong sign.)
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