Are we in a housing bubble? A question that comes up quite often lately.  The short answer is not yet, but the concern is understandable. The scars are still fresh from the collapse last decade’s house price bubble. And warning signs of a possible new bubble are accumulating.

While the evidence indicates there currently is no housing bubble in the United States despite the rapid increase of house prices over the last five years consider the following. The Stock Market continues to reach new highs almost daily. House prices have been on a tear for the last five years, growing as fast as the long run average. House price growth has outpaced income growth by a cumulative 42 percent over the last 17 years. The number of large metropolitan statistical areas with unusually high house price to income ratios has grown from five in 2011 to 17 today.

At the height of the last decade’s bubble 27 metropolitan statistical areas exhibited unusually hight price to income ratios. An increasing share of these metropolitan statistical areas with relatively stable construction costs nonetheless have suspiciously high house prices per square foot.  Can we spot the next housing bubble? The experience of the mid 2000s is not encouraging. Even the experts at the Federal Reserve failed to recognize that bubble in time.