PE Ratios for Housing

Mark Thoma passes along comments from Paul Krugman and Brad Delong on the PE ratio for housing:

http://economistsview.typepad.com/economistsview/2007/12/more-links.html

Krugman thinks a 50 percent fall along the coasts is possible. I am doubtful. The problem with using a PE ratio is the composition of the rental stock evolves differently from the compostion of the owner stock--the quality of owner occupied housing is generally improving more rapidly than the quality of the renter stock. For a working paper on this, see my piece with Cutts and Chang:

http://www.gwu.edu/%7Ebusiness/research/workingpapers/Chang%20Cutts%20and%20Green%203-17-2005%201%20.pdf

This is under revision for a journal--I guess it is time to finish it up!