Calculated Risk takes note of an NPR appearance by Robert Shiller this past Friday. You won't be surprised by the headline:
Yale Professor Predicts Housing 'Bubble' Will Burst
I trust that you will neither be surprised that most of what Professor Shiller has to say is quite sensible and balanced. (Similar thoughts were expressed in a Wall Street Journal editorial published on Thursday.) But this statement struck me:
Although home prices have gone up a lot in the recent years, they are just the same houses, right? There is no change in the services they provide, its just the value we put on them.
I'm not so sure about that. Here is the usual scary picture of price-rent ratios:
Here's a picture of the ratio, when size and quality of the housing stock are controlled for:
Of course, this doesn't speak to the relevant question of whether homeowners' balance sheets can withstand the pressure of price declines and increases in interest-expense. But it does, to me, look like a picture in which people are responding to price incentives -- i.e. low interest rates -- to increase their flow of housing services. If that's a bubble, then what isn't?