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Home Prices Are Overvalued but Will Decline Only Gradually

Author

Listed:
  • Jordan Rappaport

Abstract

The surge in home prices since the start of the pandemic and the sharp increase in interest rates during 2022 have made purchasing a home much less affordable. Homeownership costs relative to rents suggest home prices are considerably overvalued. However, relief is unlikely in the near future: owners have an incentive to remain in their current homes until rates decrease, mitigating downward pressure on prices.

Suggested Citation

  • Jordan Rappaport, 2023. "Home Prices Are Overvalued but Will Decline Only Gradually," Economic Bulletin, Federal Reserve Bank of Kansas City, issue February , pages 1-4, February.
    • Handle: RePEc:fip:fedkeb:95696
    as

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    File URL: https://www.kansascityfed.org/Economic%20Bulletin/documents/9365/EconomicBulletin23Rappaport0217.pdf
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    References listed on IDEAS

    as
    1. Philippe Bracke & Silvana Tenreyro, 2021. "History Dependence in the Housing Market," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(2), pages 420-443, April.
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    More about this item

    Keywords

    housing prices; rental costs; monetary policy;
    All these keywords.

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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