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How to Identify Housing Bubbles Ex Ante
For most people, a bubble entails a crash. Is there any way we can identify housing bubbles ex ante? That's a great question. I think where finance has gone, not just with housing, but with all assets, is to think very carefully about valuation metrics. We know from the data that systematically high price-to-rent ratios tend to predict at a two to three year horizon a decline in returns.