Bill McBride points out that when one looks at fundamentals (rent-to-price ratio and inflation adjusted house prices), house prices are now about where they were in 2002.  At the same time, Stan Humphries at Zillow shows that prices in Phoenix, where the housing market roared back over the past two years, are moving in a slightly negative direction.

The year 2002 was arguably the beginning of the house price bubble: in 2002, when one compared the cost of owning and renting in most US cities, it looked like a fairly break even proposition.  Prices had been rising smartly for five years, but in my view, those years were making up for weak previous years, and so levels were about where they should have been in 2001-02.

The problem was that house prices kept rising: if we look at the FHFA index, national prices rose six percent in 2002 and 2003, eight percent on an annual basis during the first six months of 2004, and then at double digit rates through early 2006.  This was of course unsustainable, and price growth slowed in 2006, went a bit negative at the end of 2007, and then fell dramatically until bottoming in early 2012.  House prices likely overshot on the way down, and so have since recovered somewhat, to a place where in light of both rents and incomes, they sort of make sense.

Going forward this means house prices should more or less move with inflation.  We don’t have a lot of inflation right now, so house prices should pretty much stay where they are for the foreseeable future.  If they move any more or less than that, we might have a problem.

www.forbes.com/