by Barkley Rosser (Econospeak)

Aggregate housing prices in the US have recently been approaching the levels seen at the peak of the housing bubble back in 2006.Indeed, in some locations they have gone higher than they did then, such as in San Francisco.This has led some to speculate that the US is getting back into a housing bubble again.Maybe, but probably not, and the reason is not something to be happy about: rising rents, especially for lowest income Americans who cannot afford to buy even a cheap house.

When in 2005 Robert Shiller published the second edition of his influential book,Irrational Exuberance, his new second chapter that documented the long historical path of price-rent ratios in US housing pretty much convinced anybody who looked at it that indeed the US was having a housing bubble as that ratio had been sharply rising and was at all time historical highs.Indeed, it would peak a year later, with prices falling while rents did not as we plunged into the crash that led to the Great Recession through many channels.

The Economist has provided some more detailed data on prices and rents for three major UScities, high growth San Francisco, moreintermediate growth New York, and more slowly growing Philadelphia.Checking the various charts at this site one finds that San Francisco now has noticeably higher house prices than at the 2006 peak, New York has come up from its bottom by about a third tothe former peak, and Philadelphia has nearly fully recovered its peak, but not quite.OTOH, price to rent ratios have behaved very differently.At the peak, San Francisco was at 30, but is now just at 20, although rising somewhat.New York’s has not been rising at all, was at 25 at the peeak and ow about 14 and stagnant.Philadelphia was at 15 at the peak, at 10 at its bottom, but now only at 11.It is simple arithmetic that if prices have been rising substantially while price to rent ratios have not been, then rents must be rising.