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Sorry, S.F.'s Skyrocketing Housing Prices Aren’t Actually a Bubble

And your ridiculous rent helps prove it.


A new analysis from the Federal Reserve Bank of San Francisco has bad news for anyone hoping this current boom is really just a bubble destined to deflate. It’s not. We’re really going to stay this way, apparently! According to Fed researchers’ analysis of employment, housing starts, and mortgage debt nationwide, this boom doesn’t have a lot in common with the one in 2005–6. Hate to break it to you, but skyrocketing rents in places like San Francisco are actually a sign that these prices are a reality, not a Karl-induced mirage.

In the San Francisco metro area, where home values have risen around 50 percent since 2011, rents have gone up in equal measure, according to Zillow data. “This is not the pattern you typically see in a bubble,” says Kevin Lansing, a research adviser at the San Francisco Fed. “A bubble would be characterized by a big-run-up in house prices but little movement in rent. Since rents represent the ‘fundamental’ for a housing investor, the fact that rents have increased a lot helps to provide a fundamental justification for the price run-up.” 

Other signs that the U.S. is not in a bubble, despite a median home price only 8 percent below the pre-recession peak? When Lansing and colleagues Reuven Glick and Daniel Molitor looked at housing market indicators nationwide, they didn’t see any of the telltale signs of the last decade’s credit-fueled bubble. The amount of debt people are taking on as a proportion of their income has actually fallen since 2011, for instance, and the construction of new homes is at just 50 percent of its former peak.

Every bubble has cheerleaders who promise, no, really, this time it’s different! Which is an awkward thing for a Fed researcher to find himself saying. But hear him out, Lansing says. “We looked at other things like household debt and lending standards—are they back to where they were in the crazy years? They’re not,” he explains. “That led us to believe this time is a bit different.”

But a lack of vigilance could inflate a boom into a genuine bubble if lending standards loosen, Lansing cautions. “That’s possibly dangerous if it goes too far,” he says. “Then you can get people qualifying to buy houses at really high prices who shouldn’t be. That’s how we ended up with the foreclosure crisis.”


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