U.S. home prices shows signs of becoming “unhinged from fundamentals” like they did in the housing bubble that preceded the 2008 crash, according to a blog post by the Dallas Federal Reserve bank.
“Our evidence points to abnormal U.S. housing market behavior for the first time since the boom of the early 2000s,” the Dallas Fed researchers wrote, citing data to measure “exuberance” on property markets that they’ve developed with scholars around the world as part of the International Housing Observatory.
The measure suggests that “the U.S. housing market has been showing signs of exuberance for more than five consecutive quarters through third quarter 2021,” they wrote. The surge in home prices has continued since then.
The Dallas Fed researchers’ index is based on economic variables such as disposable income per-capita, housing rents and long-term interest rates. Their main takeaway is that since the beginning of 2020, price-to-rent ratios have soared beyond what those “fundamentals” alone can explain, and moved into the “exuberance” stage.