Home prices are in a bubble. Full stop.

 

Source: Aaron Brown, Bloomberg

Much of the focus on the housing market lately has centered on the short-term environment, with the low inventory of homes cited for rising prices and a jump in rental vacancy rates driving rents lower. But if the concern is the possibility of major economic disruptio—rather than just whether houses are good investments at current price—the focus should be on long-term macroeconomics. Sure, real estate prices always drift up or down, and differ by location and type of home. A bubble in housing requires widespread overvaluation over years, which is what we have witnessed.

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