House Prices Still Too High Despite Collapse
Add a Comment 
bubble, house prices, mortgages, real estate September 3rd, 2008Despite early signs of a turn in the housing market, prices still have a long way to fall. In fact, we’re probably only halfway there.
There’s no perfect valuation metric for houses, but two measures–price-to-rent and price-to-income–are the best we know of. Asha Bangalore of Northern Trust provides recent charts of both, and a quick glance reveals how expensive house prices still are.
Price to Rent
Asha calculates the price-to-rent ratio using the Case-Shiller price index and the “Owner’s Equivalent Rent” component of the CPI. The horizontal “means” in her chart are one standard deviation above the long term mean (i.e., they’re not the average…they’re a standard-deviation higher than the average*). The higher mean includes the high prices of the bubble years, and the lower one doesn’t. Either way, it’s clear that house prices are still well above their long-term average level relative to rents. (And don’t forget that prices spend about half the time below the…
Tags: bubble, house prices, mortgages, real estate
