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In today’s Wall Street Journal, Chris Mayer and Todd Sinai argue that there’s no housing bubble.

We, along with Charles Himmelberg, a research economist at the Federal Reserve Bank of New York, computed annual housing costs for 46 housing markets from 1980 to 2004 in a study due to be published this fall in the Journal of Economic Perspectives. Our findings are striking. In none of the hottest housing markets did the ratio of the cost of owning to rent in 2004 exceed the average over the sample period in their own market by more than 13%. The highest was in Portland, Ore. Miami's ratio was 12% above average. But the ratios in the other oft-cited "bubble" cities such as Boston, L.A., New York and San Francisco were no more than 3% above their long-run averages. A similar pattern arises when we compare a city's cost of housing to its mean family income.

By contrast, in the late '80s, immediately prior to the large house-price declines of the early '90s, the ratio of the annual cost of owning to rent peaked 52% above the long-run average in San Francisco and New York. Boston and L.A. topped out, respectively, at 37% and 42% above the long-run average. Even allowing for growth in house prices during 2005, it is clear that while owning a house is not cheap, it is not inordinately expensive by historical standards.

Posted by edelfenbein at September 19, 2005 2:50 PM