Housing Bubble Anyone....Anyone?

Read the entire study-- also check the chart out that shows the cost of renting versus owning...Which one do you want to be doing?

While there is no dispute that housing prices have vastly outpaced the inflation rate over the last seven years, it is possible that higher housing prices reflect shifts in underlying fundamentals, which have led people to place increased value on home ownership. This is precisely what Federal Reserve Board Chairman Alan Greenspan argued in recent testimony before the Congress (“Fed Chief Blames Corporate Greed; House Revises Bill,” New York Times, July 17, 2002, Page A1). This section examines the evidence for such a shift in fundamentals.

Before looking at the data, it is worth noting that very similar arguments concerning shifts in fundamentals were made by those who believed that the stock prices at the peak of the bubble were justified, or that the high dollar could be maintained in spite of soaring current account deficits. Many prominent economists, including Mr. Greenspan, put forward such arguments. In the wake of the recent declines in the stock market and the dollar, these arguments appear much less credible than they may have two or three years ago.