How do we know that the housing market is out of equilibrium?--By comparing it to rental prices.
Fed economists predict that housing is going to fall further:
...the rent/price yield in America ranged between 5% and 5.5% from 1960 to 1995, but fell rapidly thereafter to reach a historic low of 3.5% at the height of the boom. Given the typical pace of rental growth, Mr Feroli reckons house prices (as measured by the Case-Shiller index) need to fall by 10-15% over the next year and a half for the rent/price yield to return to its historical average. Again, that suggests the national housing bust is only halfway through.
How do we know that the housing market is out of equilibrium?--By comparing it to rental prices. Fed economists predict that housing is going to fall further:
Of course, as people lose their homes and move into rental housing, it's possible that part of the adjustment will come through rents rising more rapidly. Or that the rent-to-home value ratio will resent at a permanently lower level.
ReplyDeleteOne good thing, I guess, is that we'll see.