House price developments and fundamentals in the United States

Andrea Finicelli

No 7, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper discusses the limitations of the price-income ratio, the price-rent ratio, and of affordability measures as indicators of housing market conditions. For the purpose of assessing whether house prices are misaligned, the most sensible approach is to calculate the user cost of ownership and the implied theoretical ratio of house prices to rents, and compare the latter with the observed ratio. On the basis of this methodology, US house prices appear to have departed from fundamentals since 2004, cumulating an overvaluation of between 25 and 30 per cent by the third quarter of 2006.

Keywords: house prices; affordability; user cost; fundamentals; bubbles (search for similar items in EconPapers)
JEL-codes: G10 R21 R31 (search for similar items in EconPapers)
Date: 2007-05
References: View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
https://www.bancaditalia.it/pubblicazioni/qef/2007-0007/QEF_7.pdf (application/pdf)

Related works:
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:bdi:opques:qef_7_07

Access Statistics for this paper

More papers in Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by ().