Another Housing Boom—Another Housing Bust?

An article by Reuven Glick, Kevin J. Lansing, and Daniel Molitor, writing for the federal Reserve bank of San Francisco, addresses a critical question: "What's Different about the Latest Housing Boom?"

For anyone who lived through the Great Recession and the most recent housing boom, or bubble rather, it's natural to look on the current brisk housing market in many places around the country with a healthy amount of skepticism.

The team at the Federal Reserve Bank of San Francisco, however, have reason to alleviate such concerns:

"We find that the increase in U.S. house prices since 2011 differs in significant ways from the mid-2000s housing boom. The prior episode can be described as a credit-fueled bubble in which housing valuation—as measured by the house price-to-rent ratio—and household leverage—as measured by the mortgage debt-to-income ratio—rose together in a self-reinforcing feedback loop. In contrast, the more recent episode exhibits a less-pronounced increase in housing valuation together with an outright decline in household leverage—a pattern that is not suggestive of a credit-fueled bubble."

The article considers three indicators: 1) the median U.S. house price, 2) the number of private-sector workers employed in construction, and 3) the number of new housing starts, including both single- and multi-family homes. The first of those indicators is especially important, according to the article, because increases in asset prices are a fairly reliable portent.

Still, the post insists, this time is different. The remainder of the post goes into a lot of technical detail to back up that claim, relying especially on the current boom's "less-pronounced increase in the house price-to-rent ratio" and "outright decline in the ratio of household mortgage debt to personal disposable income."