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House price developments and fundamentals in the United States

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  • Andrea Finicelli

    ()
    (Banca d'Italia)

Abstract

This paper discusses the limitations of the price-income ratio, the price-rent ratio, and of affordability measures as indicators of housing market conditions. For the purpose of assessing whether house prices are misaligned, the most sensible approach is to calculate the user cost of ownership and the implied theoretical ratio of house prices to rents, and compare the latter with the observed ratio. On the basis of this methodology, US house prices appear to have departed from fundamentals since 2004, cumulating an overvaluation of between 25 and 30 per cent by the third quarter of 2006.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 7.

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Date of creation: May 2007
Date of revision:
Handle: RePEc:bdi:opques:qef_7_07

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Postal: Via Nazionale, 91 - 00184 Roma
Web page: http://www.bancaditalia.it
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Related research

Keywords: house prices; affordability; user cost; fundamentals; bubbles;

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Cited by:
  1. Fabio C. Bagliano & Claudio Morana, 2008. "Permanent and Transitory Dynamics in House Prices and Consumption: Cross-Country Evidence," Working papers, Former Department of Economics and Public Finance "G. Prato", University of Torino 2, Former Department of Economics and Public Finance "G. Prato", University of Torino.
  2. Tiziana Caliman & Enrico di Bella, 2011. "Spatial Autoregressive Models for House Price Dynamics in Italy," Economics Bulletin, AccessEcon, vol. 31(2), pages 1837-1855.
  3. Caliman, Tiziana & Di Bella, Enrico, 2011. "House Price Dynamics in Italy - La dinamica delle quotazioni immobiliari in Italia," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 64(1), pages 37-65.
  4. Oikarinen, Elias, 2012. "Empirical evidence on the reaction speeds of housing prices and sales to demand shocks," Journal of Housing Economics, Elsevier, Elsevier, vol. 21(1), pages 41-54.
  5. Alessio Ciarlone, 2012. "House price cycles in emerging economies," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 863, Bank of Italy, Economic Research and International Relations Area.
  6. Semmler, Willi & Bernard, Lucas, 2012. "Boom–bust cycles: Leveraging, complex securities, and asset prices," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 81(2), pages 442-465.
  7. Oikarinen, Elias, 2009. "Household borrowing and metropolitan housing price dynamics - Empirical evidence from Helsinki," Journal of Housing Economics, Elsevier, Elsevier, vol. 18(2), pages 126-139, June.
  8. Beltratti, Andrea & Morana, Claudio, 2010. "International house prices and macroeconomic fluctuations," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(3), pages 533-545, March.
  9. Andrea Beltratti & Claudio Morana, 2008. "International shocks and national house prices," ICER Working Papers - Applied Mathematics Series, ICER - International Centre for Economic Research 14-2008, ICER - International Centre for Economic Research.
  10. Elias Oikarinen, 2008. "Empirical application of the housing-market no-arbitrage condition: problems, solutions and a Finnish case study," Discussion Papers, Aboa Centre for Economics 39, Aboa Centre for Economics.

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