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The Journal of Structured Finance

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Price Bubble Metrics for Single-Family Housing

Frank E. Nothaft
The Journal of Structured Finance Winter 2019, 24 (4) 68-76; DOI: https://doi.org/10.3905/jsf.2019.1.071
Frank E. Nothaft
is an executive and chief economist at CoreLogic in Vienna, VA
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Abstract

Home-price indexes for several metropolitan areas show real prices well above their pre-Great Recession level. Further, CoreLogic’s Market Conditions Indicator has identified more than one-third of metropolitan areas as possibly overvalued, the highest share in a rising price environment since 2003 and raising concerns of an upcoming national valuation bubble. This article presents four indicators to monitor overvaluation tendencies for metropolitan areas: price-to-income ratio, price-to-rent ratio, mortgage payment-to-rent ratio, and home flipping activity. The first three metrics measure overvaluation, while the fourth measures speculative fervor. Taken together, if multiple metrics indicate overvaluation, coupled with a surge in speculative investment, then there is a greater risk of a future price decline. These metrics indicate that there is little risk of a national price bubble in 2018, but parts of southern California, southern Florida, and the Puget Sound area do have heightened overvaluation risk.

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The Journal of Structured Finance: 24 (4)
The Journal of Structured Finance
Vol. 24, Issue 4
Winter 2019
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Price Bubble Metrics for Single-Family Housing
Frank E. Nothaft
The Journal of Structured Finance Jan 2019, 24 (4) 68-76; DOI: 10.3905/jsf.2019.1.071

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Price Bubble Metrics for Single-Family Housing
Frank E. Nothaft
The Journal of Structured Finance Jan 2019, 24 (4) 68-76; DOI: 10.3905/jsf.2019.1.071
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  • Article
    • Abstract
    • PRICE-TO-INCOME RATIO
    • PRICE-TO-RENT RATIO
    • MONTHLY P&I-TO-RENT RATIO
    • FLIPPING ACTIVITY
    • SUMMARY
    • ACKNOWLEDGMENTS
    • ENDNOTES
    • REFERENCES
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