Just a few days ago, The Federal Reserve Bank of San Francisco published an interesting research study where they argue that this U.S. housing boom is different than that of the early 2000s.

During the last boom, U.S. home prices peaked in 2006 and then dropped about 30% in the wake of The Great Recession. Since then prices have rebounded – almost to their pre-recession levels. This has some people asking whether this story is headed towards the same ending.

But the FRBSF is saying no:

“We find that the increase in U.S. house prices since 2011 differs in significant ways from the mid-2000s housing boom. The prior episode can be described as a credit-fueled bubble in which housing valuation—as measured by the house price-to-rent ratio—and household leverage—as measured by the mortgage debt-to-income ratio—rose together in a self-reinforcing feedback loop. In contrast, the more recent episode exhibits a less-pronounced increase in housing valuation together with an outright decline in household leverage—a pattern that is not suggestive of a credit-fueled bubble.”

And here’s the chart:

I really like this post by Daniel Hertz talking about the inherent tension in American housing policy.

Here’s his conclusion:

We are, in conclusion, profoundly conflicted as a nation when it comes to housing: we want it to be affordable, but we also want its prices to rise fast enough to be valuable as a financial investment. That’s a contradiction we need to acknowledge if our housing policy debate—and, ultimately, our housing policy—is going to be coherent and constructive.

Of course, this situation isn’t unique to the US. Though the US does have homeownership subsidies – such as the mortgage interest tax deduction – that other similar countries, like Canada, do not have.

Still, I feel a similar kind of contradiction here. We worry about excess supply and housing bubbles when the reality is that both of these things are desirable outcomes if, and only if, the primary objective is to maintain housing affordability.

But I don’t think that is the primary objective in practice. At least in this part of the world, I think we worry first and foremost about making sure that home prices continue to go up and that wealth is being built. Then, we worry about providing affordable housing for those that are unable to participate.

I’m not making a judgement call on whether or not that’s a good or bad thing. It just strikes me that this tension, and there certainly is a tension, is not an equal one.

Just a few days ago, The Federal Reserve Bank of San Francisco published an interesting research study where they argue that this U.S. housing boom is different than that of the early 2000s.

During the last boom, U.S. home prices peaked in 2006 and then dropped about 30% in the wake of The Great Recession. Since then prices have rebounded – almost to their pre-recession levels. This has some people asking whether this story is headed towards the same ending.

But the FRBSF is saying no:

“We find that the increase in U.S. house prices since 2011 differs in significant ways from the mid-2000s housing boom. The prior episode can be described as a credit-fueled bubble in which housing valuation—as measured by the house price-to-rent ratio—and household leverage—as measured by the mortgage debt-to-income ratio—rose together in a self-reinforcing feedback loop. In contrast, the more recent episode exhibits a less-pronounced increase in housing valuation together with an outright decline in household leverage—a pattern that is not suggestive of a credit-fueled bubble.”

And here’s the chart:

I really like this post by Daniel Hertz talking about the inherent tension in American housing policy.

Here’s his conclusion:

We are, in conclusion, profoundly conflicted as a nation when it comes to housing: we want it to be affordable, but we also want its prices to rise fast enough to be valuable as a financial investment. That’s a contradiction we need to acknowledge if our housing policy debate—and, ultimately, our housing policy—is going to be coherent and constructive.

Of course, this situation isn’t unique to the US. Though the US does have homeownership subsidies – such as the mortgage interest tax deduction – that other similar countries, like Canada, do not have.

Still, I feel a similar kind of contradiction here. We worry about excess supply and housing bubbles when the reality is that both of these things are desirable outcomes if, and only if, the primary objective is to maintain housing affordability.

But I don’t think that is the primary objective in practice. At least in this part of the world, I think we worry first and foremost about making sure that home prices continue to go up and that wealth is being built. Then, we worry about providing affordable housing for those that are unable to participate.

I’m not making a judgement call on whether or not that’s a good or bad thing. It just strikes me that this tension, and there certainly is a tension, is not an equal one.