Casey Mulligan has gone overboard to Gilligan's Island in his latest fantasy about what happened in the housing market running up to 2006, "Was there a good reason for the housing boom?" http://caseymulligan.blogspot.com. While he admits that there might have been a little bit of a bubble, maybe, he is full of how it was mostly fundamentals. What were they? Well, the first one is that during 2002-06, people rather suddenly wanted lots more space in their housing because they were buying more stuff and wanted room to put it in. Funny about that, given how many people were buying more stuff by taking out home equity loans on the rising prices of their homes in order to buy a lot of that extra stuff.
The other is something I have not previously heard a single person mention, although in this Chicago wonderland, people do not have to know what they need to know in order to know it. In this case, it is an expectation of lower housing costs in the future due to computerization and cyberization of the mortgage lending and completion process, obviously something of great importance to people not planning to sell a home soon or buying one in that period long before these wonderful improvements would arrive (which have not yet, by and large, but we cannot disprove that this expectation was operating to push up the fundamental, can we?).
Regarding numbers, Mulligan is especially worked up about the Case and Shiller index for housing prices in major cities not having fallen all the way back to its low in 1997. It is at about 1.0 now, which it was in 1991 and 2000, with the low in 1997 around 0.8 and the high in 2006 at 1.4. If one looks at the price-to-rent ratios from around six months ago (latest I could find from Calculated Risk), http://www.calculatedriskblog.com/2009/11/house-prices-real-prices-price-to-rent.html, one finds that as of last November this index was at about 1.10, which was what it was in 2002, peaking at just under 1.35 in 2006, with it being 100 in 1990, and somewhat under that around 1997.
Maybe there has been some upward movement of the fundamentals as measured by rents, but nowhere nearly enough to justify all the whooping that Mulligan carries on about in this piece. But what can one expect from a guy who blamed the rising unemployment as we went into the Great Recession on a sudden outbreak of laziness on the part of workers?