Figure 2 shows the U.S. housing price index (solid line, left axis) and one-year adjustable mortgage rates - a proxy for subprime loans (dashed line, right axis). In the context of the housing and financial crisis, discuss the relationship between these two series.

 

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Figure 2: Housing prices and one-year adjustable mortgage rates HOUSE INDEX (2000Q1 = 100) 170 160 150 140 130 120 110 100 90 Index punt Interest Rate 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 80------------------‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒ 0.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 YEAR Source: Federal Reserve Economic Data, St. Louis Federal Reserve INTEREST RATE IN PERCENT Figure 2: Housing prices and one-year adjustable mortgage rates HOUSE INDEX (2000Q1 = 100) 170 160 150 140 130 120 110 100 90 Index punt Interest Rate 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 80------------------‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒ 0.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 YEAR Source: Federal Reserve Economic Data, St. Louis Federal Reserve INTEREST RATE IN PERCENT

Answer rating: 100% (QA)

Figure 2 shows the US housing price index solid line left axis and oneyear adjustable mortgage rates ... View the full answer