The Housing Bubble

The chart on House-Price-to-Rental Ratio is one of the best illustrations I have seen of the current housing bubble. In many places it is now substantially cheaper to rent then own. In fact, in many places the cost of ownership is more then 150 percent of the cost of renting after calculating in the tax benefits.

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clipped from online.wsj.com HOME OWNERSHIP U.S. home ownership rates from 1900 through the current year HOUSE PRICE-TO-RENTAL RATIO Reflecting the booming real-estate market since 2000, the ratio of home prices to rent expenditures has risen sharply. Ratio of OFHEO house price index to personal consumption expenditures on rent Source: Congressional Budget Office; Office of Federal Housing Enterprise Oversight; Department of Commerce, Bureau of Economic Analysis COMMERCIAL PAPER Earlier this year, many mortgage-backed assets held by SIVs went bad suddenly. Assets could be downgraded from top to bottom overnight. Asset prices stop falling when markets conclude that all the bad news has been factored in. Overnight commercial paper interest rates, daily through Nov. 20, 2007 PRICES OF SUBRPRIME MORTGAGE TRANCHES Source: Markit ABX.HE index published by Markit