Is Correlation and Causation

a key survival concept to thrive as a financial professional?

Todd Ballenger
June 20, 2025

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"Cum hoc ergo propter hoc." (Latin)

Translation: "With this, therefore because of this."

What causes What, and Does it Matter?

As driving distance on PGA Tour Increases, so do House Prices Increase?

The average driving distance of PGA Tour golfers (that’s how far the pros can whack a golf ball).
U.S. home prices. (Yes, the cost of the roof over your head).

Both lines went up. Steadily. Almost eerily in sync.

But before we all start hitting the gym to beef up our drives, this is a key concept that we often see in finance:

Just because two things happen at the same time doesn’t mean one caused the other.

Correlation is not Causation

Imagine you’re eating a peanut butter sandwich and wearing your lucky socks. Suddenly, it starts raining outside. Did your sandwich make it rain? Nope. Not likely. If you believe it did, every time it seemed try you’d start eating peanut butter sandwiches. That might affect your waist line, but probably not the rain.

I saw a funny one recently about: “As ice cream sales rise, shark attacks increase,”
Think critically.
People eat more ice cream when it's hot out.
People swim more when it’s hot out.

These are simple examples, but consider when you see charts and news that ‘this is happening and that is happening’ at the same time, or ‘this seems to be causing this’ it is often impossible to really know what’s going on.

I like to say to myself ‘the fact is that is happening now’ the causation or correlation are interesting, but not critical to action. The action I take is more important than what caused something.

Because in many real-world scenarios — investing, business, policy, and even life decisions — timing eats theory for breakfast.

🧠 Imagine Two People:

Person A: Wants to understand why the rates are going higher. Dives into 10 reports, waits for a meta-analysis, debates causation, then worse waits for rates to move down again, and waits and waits.
Person B: Sees that the rates are moving up, realizes that will affect the market, but — even with imperfect information, starts building new relationships and learning new skills.

💸 Who wins?
The person who moves fast but smart — because the market pays for outcomes, not epiphanies. It’s cool to learn, but learn while you work.

Even though driving distances and home prices aren’t causally linked...

👉 It is a fact that both are rising.
👉 If you’re a homebuyer, that fact affects your buying power now.
👉 If you're a course designer, that fact affects how you plan for longer tee shots.

So even if you don't know why it’s happening, you still have to adapt to what’s happening — because inaction is also a choice (and often the wrong one).

“Don’t confuse understanding the system with securing your ideal outcome.”

You can lose a fortune — waiting for research to prove something your eyes already see.

Factor	Analysis Mode	Action Mode
Focus	“Why is this happening?”	“What do I do about it now?”
Risk	Paralysis by overthinking	Mistakes, but forward movement
Payoff	Clarity (eventually)	Momentum, opportunity clarity along the way
Downside	Epic underperformance	Imperfect decisions

I have a joke about correlation and causation, but I'm not sure if it will have the desired effect. The last time I told it, everyone who laughed was already a statistician.

a BORROW SMART CONCEPT
Housing Affordability?

front row fixed rate from the past, back row new buyers?

The affordability of homes has changed drastically over 10 years.
The percentage of income required for mortgage payments was relatively stable between 2016 and 2021 (generally between 13% and 16%).
Starting in 2022, the ratio spiked dramatically, peaking at 26.1% in 2024 for buyers purchasing that year.

Despite household incomes rising, mortgage payments as a share of that income more than doubled from 2020 (around 13.7%) to 2024 (26.1%) — nearly a 91% increase in affordability burden over just four years. BUT - you can see those that locked in low rates have seen income increase, and therefore their cost of home ownership is going down ‘relatively’ and then there is inflation eating away at that debt and making it less costly for the same reason!

Federal Reserve Economic Data (FRED) – Mortgage Debt Service Payments as a Percent of Disposable Personal Income
National Association of Realtors (NAR) – Housing Affordability Index
Urban Institute – Housing Finance at a Glance

LIABILITIES
What’s Happening?

Houses should be in this category - H/T Mike Zacchardi

rate cuts vary from 1 this year to 2-3 this year - again the fact of now is today’s rate, work with that and stay aware of market changes.

asset values rising, debt decreasing

another look

this net worth with transition and support a new cycle of housing

housing doing better than before, compared to other areas of spending - but it’s a mixed bag depending on when you purchased

these are also liabilities and they do impact housing formation

the new Big Beautiful Bill really green for higher income earners

power cost are liabilities

finance with declining tax revenues relative to expenses

REAL ESTATE
What’s Happening?

from Mike Simonsen - consumers think housing prices will go down, how does that impact their behavior?

From Kitces.com - as we teach in our CLA class, working with advisors is about understanding YOUR and YOUR CLIENTS key life cycle needs, and HOME PURCHASE is a great one…