Library of Economics and Liberty masthead logo
 
Search EconLog
Recent Entries
Browse Archives
by date
by author
by category
Subscribe
About EconLog
Frequently Asked Questions
EconLog FAQ
Econlib Resources
About Econlib
Contact Econlib
Quote of the Day
Birthdays & Commemorations
Frequently Asked Questions
Get Econlib Newsletter
Subscribe to EconLog
XML (Full articles)
RDF (Excerpts)
Feedburner (One-click subscriptions)
More
FAQ (Instructions and more options)
Return to top
Articles EconLog EconTalk Books Encyclopedia Guides Search
Arnold Kling  
PERMANENT LINK | DECEMBER 10, 2004

Housing Bubble?

Arnold Kling
Progressive Implications of So... Tax Breaks vs. Subsidies...

Jonathan McCarthy and Richard W. Peach, two economists at the New York Fed, agree with me that there is no housing bubble.


we see that the adjusted rent-to-price ratio is not at a level that suggests a home price bubble exists. Instead, the period when this ratio was quite low was in 2000, but the other factors in the market (including the strong income gains at that time) prevented prices from falling. With the subsequent decline in interest rates, the ratio is now at a level in the upper part of its historical range.

They make the case that high home prices are driven more by higher incomes and lower interest rates than by expectations of further price appreciation. Thanks to Steven Antler for the pointer.

For Discussion. The ex post rental cost of owner-occupied housing for the past five years has been quite low, because of house price appreciation. Assuming that going forward the rental cost returns to something more normal, what will be the consequences?

CATEGORIES: Finance: stocks, options, etc.


COMMENTS (3 to date)
Lawrance George Lux writes:

Arnold,
You are talking higher mortgage interest rates here, which will bring down Housing price. The mortgage tax credit was a bad idea from the start, and did cause the Housing bubble. Income-earners could never afforded the higher Housing Price/Income without an artificial increase in basic Take-Home Income--the mortgage tax credit. The later is to the benefit of Realtors and Home-Sellers alone, as Mortgage-Holders with variable rates will find eventually. lgl

Posted December 10, 2004 7:41 PM
Bill writes:

The mortgage interest deduction is pure evil!

Posted December 11, 2004 12:19 AM
William Woodruff writes:

Do not forget the externalities of boomers retiring and downsizing !


Expect increasing interest rates to slow inflation of home prices, however not on a national basis.

Certain regions will be hit harder than others (non costal areas, not as hard as costal regions is my belief).

Posted December 13, 2004 2:54 PM
Comments for this entry have been closed
Return to top
Copyright © 2006-2008
Liberty Fund, Inc.
All Rights Reserved
Blogging software: Powered by Movable Type 4.2.1.
Pictures of Bryan Caplan and Arnold Kling courtesy of the authors.
All opinions expressed on EconLog reflect those of the author or individual commenters, and do not necessarily represent the views or positions of the Library of Economics and Liberty (Econlib) website or its owner, Liberty Fund, Inc.

Liberty Fund logo, amagi symbol
The cuneiform inscription in the Liberty Fund logo is the earliest-known written appearance of the word "freedom" (amagi), or "liberty." It is taken from a clay document written about 2300 B.C. in the Sumerian city-state of Lagash.
spacer gif