TY - JOUR AU - Himmelberg,Charles AU - Mayer,Christopher AU - Sinai,Todd TI - Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions JF - National Bureau of Economic Research Working Paper Series VL - No. 11643 PY - 2005 Y2 - September 2005 UR - http://www.nber.org/papers/w11643 L1 - http://www.nber.org/papers/w11643.pdf N1 - Author contact info: Charles Himmelberg Goldman, Sachs & Co. Global Investment Research, 22nd floor 200 West Street New York, NY 10004 Tel: 917-343-3218 E-Mail: charles.himmelberg@gs.com Christopher J. Mayer Columbia Business School 3022 Broadway, Uris Hall #805 New York, NY 10027 Tel: 212/854-4221 Fax: 212-932-0545 E-Mail: cm310@columbia.edu Todd M. Sinai University of Pennsylvania, Wharton School 1465 Steinberg Hall - Dietrich Hall 3620 Locust Walk Philadelphia, PA 19104-6302 Tel: 215/898-5390 Fax: 215/573-2220 E-Mail: sinai@wharton.upenn.edu M2 - featured in NBER digest on 2006-04-01 AB - We construct measures of the annual cost of single-family housing for 46 metropolitan areas in the United States over the last 25 years and compare them with local rents and incomes as a way of judging the level of housing prices. Conventional metrics like the growth rate of house prices, the price-to-rent ratio, and the price-to-income ratio can be misleading because they fail to account both for the time series pattern of real long-term interest rates and predictable differences in the long-run growth rates of house prices across local markets. These factors are especially important in recent years because house prices are theoretically more sensitive to interest rates when rates are already low, and more sensitive still in those cities where the long-run rate of house price growth is high. During the 1980s, our measures show that houses looked most overvalued in many of the same cities that subsequently experienced the largest house price declines. We find that from the trough of 1995 to 2004, the cost of owning rose somewhat relative to the cost of renting, but not, in most cities, to levels that made houses look overvalued. ER -