Housing Bubble: The Story Is Sale Prices, Not Rent

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The NYT article on the release of the April CPI notes the moderate 0.2 percent rise in the rental indexes, prompting the comment from Ken Mayland, President of ClearView Economics, "The question that raises is whether the big cyclical downturn in the housing industry is finally cooling shelter costs.” This comment is a bit peculiar. Rental prices never rose much more than inflation over the last decade and have generally trailed the overall rate of inflation over the last four years. It was sale prices that had soared. Economists typically expect the two to follow the same general path. The story of the bubble is the sharp divergence between sale prices and rent over the last decade, which indicates that sales prices were not being driven up by fundamental factors in the housing market.

--Dean Baker

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