Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions

Charles Himmelberg, Christopher Mayer and Todd Sinai

No 11643, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We construct measures of the annual cost of single-family housing for 46 metropolitan areas in the United States over the last 25 years and compare them with local rents and incomes as a way of judging the level of housing prices. Conventional metrics like the growth rate of house prices, the price-to-rent ratio, and the price-to-income ratio can be misleading because they fail to account both for the time series pattern of real long-term interest rates and predictable differences in the long-run growth rates of house prices across local markets. These factors are especially important in recent years because house prices are theoretically more sensitive to interest rates when rates are already low, and more sensitive still in those cities where the long-run rate of house price growth is high. During the 1980s, our measures show that houses looked most overvalued in many of the same cities that subsequently experienced the largest house price declines. We find that from the trough of 1995 to 2004, the cost of owning rose somewhat relative to the cost of renting, but not, in most cities, to levels that made houses look overvalued.

JEL-codes: G10 R21 R31 (search for similar items in EconPapers)
Date: 2005-09
New Economics Papers: this item is included in nep-bec, nep-fin, nep-geo and nep-ure
Note: AP PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (690)

Published as Himmelberg, Charles, Christopher Mayer and Todd Sinai. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, 2005, v19(4,Fall), 67-92.

Downloads: (external link)
http://www.nber.org/papers/w11643.pdf (application/pdf)

Related works:
Journal Article: Assessing High House Prices: Bubbles, Fundamentals and Misperceptions (2005)
Working Paper: Assessing high house prices: bubbles, fundamentals, and misperceptions (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:11643

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w11643

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().