Tuesday, September 20, 2005

More "No Bubble" Talk

by Calculated Risk on 9/20/2005 03:26:00 PM

The media is picking up the recent No Bubble paper: Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions

From the SFGate: Bubble won't burst, Study finds Bay Area housing prices in line with economic growth:

The recent, rapid price increases stem not from a speculative frenzy but from basic economic factors, including low interest rates, strong income growth and abnormally low prices in the mid-1990s, said researchers at Columbia University and the University of Pennsylvania's Wharton School.

"The bubble fears are over people paying money for housing today because they're expecting unreasonable (price increases)," said Todd Sinai, associate professor of real estate at the Wharton School. "Our calculation says that if people are expecting something reasonable, house prices today are justified -- and they are in San Francisco."
Over in the UK the BoE is arguing there is no bubble. From Reuters: Possible no housing market bubble-BoE's Nickell
The housing market, which rose 123 percent between early 1999 and the middle of last year, may well not have been in a bubble, Bank of England policymaker Stephen Nickell said on Tuesday.

Nickell said a fall in long-term real interest rates from about 4 percent in the mid-1990s to around 2 percent by 2000 was one factor that has likely driven a substantial rise in the equilibrium house price to earnings ratio since the mid-1990s.

"Of course, there is a good deal of uncertainty here, but it is clear that it may be legitimately argued that there has been no housing bubble whatever," Nickell told an academic audience.

Nickell also said that low inflation, the rise in two-salary households and increased levels of job security and rapid prospective earnings growth may also make it more sensible for households to borrow more now than they have in the past.
The paper is not worth reading, but I suppose I'll write a review (JS did a nice job in earlier comments).