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San Francisco Fed Study Says This Housing Boom Looks Less Precarious Than Last Bubble

Mortgage debt-to-income ratio is falling this time

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San Francisco.

Stickney Design / Getty Images
San Francisco.
Stickney Design / Getty Images

Is this housing boom different? There’s at least an argument to be made, according to a new San Francisco Fed study, described in an article published Monday. “Conditions in the latest boom appear far less precarious than those in the previous episode,” said the research article by San Francisco Fed economists Reuven Glick, Kevin Lansing, and Daniel Molitor. In the mid-2000s, home prices, as measures by the house price-to-rent ratio, and housing leverage, as measured by the mortgage debt-to-income ratio, “rose together in a self-reinforcing feedback loop,” the study found. While U.S. house prices have rebounded strongly since 2011, the pattern is “very different from the prior episode,” the article says. Indeed, there has been an outright decline in the ratio of mortgage debt-to-income ratio. And the increase in the house price-to-rent ratio is less pronounced. “Nevertheless, given that housing booms and busts can have significant and long lasting effects on employment and other parts of the economy, policy makers and regulators must remain vigilant to prevent a replay of the mid-2000s experience,” the article concluded. The study comes as Fed officials debate whether the Fed should use interest-rate policy to combat any asset-price bubbles. Past and present Fed officials, including Fed Vice Chairman Stanley Fischer are worried the Fed doesn’t have the proper tools to prevent a housing bubble. They have noted the Bank of England can set limits on loan-to-value and debt-to-income ratios on mortgages. This article originally appeared in MarketWatch.