Jonathan McCarthy and Richard W. Peach, two economists at the New York Fed, agree with me that there is no housing bubble.

we see that the adjusted rent-to-price ratio is not at a level that suggests a home price bubble exists. Instead, the period when this ratio was quite low was in 2000, but the other factors in the market (including the strong income gains at that time) prevented prices from falling. With the subsequent decline in interest rates, the ratio is now at a level in the upper part of its historical range.

They make the case that high home prices are driven more by higher incomes and lower interest rates than by expectations of further price appreciation. Thanks to Steven Antler for the pointer.

For Discussion. The ex post rental cost of owner-occupied housing for the past five years has been quite low, because of house price appreciation. Assuming that going forward the rental cost returns to something more normal, what will be the consequences?