Industry News

New study banishes real estate bubble

Home prices are 'reasonable,' business schools say

Most U.S. cities show little evidence of a housing bubble as of the end of 2004, according to a study by two prestigious universities released today. Recent house-price jumps are largely explained by economic fundamentals such as low interest rates, strong income growth and unusually low housing prices in the mid-1990s, said a study of 46 single-family housing markets from 1980 to 2004 by researchers from Columbia Business School, the Federal Reserve Bank and the Wharton School of the University of Pennsylvania. The study, "Assessing High Housing Prices: Bubbles, Fundamentals and Misperceptions," found no evidence that buyers are bidding up the price of houses based on unrealistic expectations of future price increases. According to the study, conventional metrics for assessing the housing market such as price-to-rent ratios or price-to-income ratios ignore the effects of lower real, long-term interest rates, and thus fail to accurately reflect the state of housing costs. The stu...