Price Gains Built on Fundamentals or Full of Hot Air? Rates Move Higher; Fed Statement Changes
Whenever housing prices rise faster than the rate of inflation, the question arises, are we in a housing bubble? Two Urban Institute (UI) analysts, Bing Bai and Edward Golding, say rapidly growing prices can be benign when they are buoyed by fundamentals such as job and income growth, and are indications of an expanding economy. A bubble, on the other hand, is inflated by artificial or temporary factors. The latter kinds of price increases are often unsustainable and may come to no good end. Appreciating home prices over the last five years have outpaced inflation by a cumulative 34 percent. While this is a significant difference, it is modest compared to the 87 percent difference between price growth and inflation in both 1997 and 2006. But, even if the differential is not yet alarming, the
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