Year Published
2009
Abstract
The dramatic rise and even more dramatic fall in U.S.
house prices over the last several years has engendered
much research to try to determine whether these
events represent a house price “bubble,” where prices
rose above their fundamental values and then collapsed.
A key focus of this research is the behavior of rent-price
ratios, which typically combine data on tenant rents and
owner-occupied house prices to proxy the earnings yield on
owner-occupied housing, much like an earnings-price ratio
for a stock. Studies have found little correlation between
movements in these ratios and their typical fundamental
determinants (e.g., Campbell et al. 2007), leading many
experts to conclude that houses were, indeed, overvalued
(e.g. Case and Shiller 2004).
house prices over the last several years has engendered
much research to try to determine whether these
events represent a house price “bubble,” where prices
rose above their fundamental values and then collapsed.
A key focus of this research is the behavior of rent-price
ratios, which typically combine data on tenant rents and
owner-occupied house prices to proxy the earnings yield on
owner-occupied housing, much like an earnings-price ratio
for a stock. Studies have found little correlation between
movements in these ratios and their typical fundamental
determinants (e.g., Campbell et al. 2007), leading many
experts to conclude that houses were, indeed, overvalued
(e.g. Case and Shiller 2004).
Research Category