Svensson on house price overvaluation

Claims from macroprudential authorities about house price overvaluation, for example for Sweden, based on the house price-to-income ratio are often exaggerated. This column argues that the sustainable level of interest rates does need to be part of any calculation of house price fundamentals, but no single metric of over- or undervaluation is satisfactory. This includes the user cost-to-income ratio. Instead, structural empirical models of housing and mortgage markets are required for an evidence-based assessment.