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  • Writer's picturePhilip Ammerman


The Dallas Fed has an interesting article on empirical data and signs of housing asset price misallocation. In this case, the price-to-rent and price-to-income indicators for housing assets appear overvalued. This is certainly the case in most of the countries I am working in, and the Fed confirms this will research from 11 additional markets.

Our evidence points to abnormal U.S. housing market behavior for the first time since the boom of the early 2000s. Reasons for concern are clear in certain economic indicators—the price-to-rent ratio, in particular, and the price-to-income ratio—which show signs that 2021 house prices appear increasingly out of step with fundamentals.

While historically low interest rates are a factor, they do not fully explain housing market developments. Other drivers have played a role, including pandemic-related U.S. fiscal stimulus programs and COVID-19-related supply-chain disruptions and associated policy responses. The resulting fundamental-driven higher house prices may have fueled a fear-of-missing-out wave of exuberance involving new investors and more aggressive speculation among existing investors.

The US Fed has now committed to both interest rate rises as well as paring back $ 95 billion per month in security purchases. (Hopefully through non-renewals rather than sales, but sales will be inevitable at some point).

This means that once again, variable rate mortgages are going to reset upwards.


Jarod Coulter, Valerie Grossman, Enrique Martínez-García, Peter C.B. Phillips and Shuping Shi. March 29, 2022

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