What’s Different about the Latest Housing Boom?

After peaking in 2006, the median U.S. house price fell about 30%, finally hitting bottom in late 2011. Since then, house prices have rebounded strongly and are nearly back to the pre-recession peak. However, conditions in the latest boom appear far less precarious than those in the previous episode. The current run-up exhibits a less-pronounced increase in the house price-to-rent ratio and an outright decline in the household mortgage debt-to-income ratio—a pattern that is not suggestive of a credit-fueled bubble. Starting in the early 2000s, the U.S. housing market experienced a tremendous boom. House prices, private-sector construction employment, new housing starts, and household mortgage debt all rose in unison. An accommodative interest rate environment combined with lax lending standards, ineffective mortgage regulation, and unchecked growth of loan securitization all helped fuel an overexpansion of consumer borrowing. An influx of new homebuyers with access to easy mortgage credit helped bid up house prices to unprecedented levels relative to rents or disposable income. The run-up, in turn, encouraged lenders to ease credit further on the assumption that house prices would continue to rise. Similarly optimistic homebuilders responded to the price signals and embarked on a record-setting building spree such that, at one point, the construction sector employed 5.7 % of American workers, th