It's Friday, and the first full day of Summer '07. That combination brings only one thought to mind. Barbecue. Not that we haven't already fired up the grill, mind you.

I hosted a BBQ last weekend for family. One constant about family BBQ's around here, while the burgers are cooking the conversation always seems to turn to the price of things. Whether it's gas or a gallon of milk, prices always seem to come up.

Last weekend one of my in-laws offered up and interesting theory on the price of homes. We'd all been observing how home prices were falling in our respective neighborhoods. My position was that frenzied home buying and selling activity borne of low interest rates and predatory lending practices has driven prices to unsustainable levels. As a result, the housing market is now experiencing a correction. My father-in-law, in his very diplomatic way, didn't disagree; but he had his own view.

He said he thought the main cause was that home prices were dropping had more to do with the availability of funds. Specifically, he pointed to increasing interest in stocks and increased gas prices. His theory is that money is flowing into our cars and the stock market, leaving less cash available to fuel housing prices.

I thought this was an interesting theory so I went out in search of data to put it to the test.

This is a chart of monthly cosing prices of the Dow Jones Industrial Average, housing sales and gas prices over the most recent 2 years. I'm not sure I can draw any real conclusions from this, but it is interesting that his theory does at least withstand the first test against real-life factual data. It could be interesting to watch and see what happens in the near future. If the moderation in prices we've been seeing lately in both stocks and gas prices is accompanied by renewed interest in housing, it could be telling.

What do you think? Is there a causal relationship here? I'm not at all willing to concede a causal relationship if recent gas and stock price moderation accompanies a resumed upward trend in housing sales. But you have to admit it's an interesting idea.