There is interesting commentary provided in the Bubble Trouble? Not Likely  article seen in today’s most emailed article in today’s Wall Street Journal based on a recently released research paper: Assessing High House Prices, Bubbles, Fundamentals, and Misperceptions [PDF] 
Many feel the current market feels like a housing bubble as evidenced by its rapid growth in housing prices, rising spread between sales prices and rents and the increasing gap between sales prices and income, but is it?
While house prices over the last decade have gone through the roof, the annual cost of owning a house has not. The annual cost of owning, not the price of the house itself, is what homebuyers should (and do) consider when contemplating a purchase.
In our appraisal practice, we observed this change in dynamic about two years ago. Buyers are shopping payment, not price.
Charles Himmelberg, a research economist at the Federal Reserve Bank of New York, Chris Mayer, a Professor of Real Estate at Columbia Business School and Todd Sinai, an associate professor of Real Estate at Wharton calculated housing costs in 46 housing markets since 1980 against rents and found that in nearly all the markets covered, the annual cost of owning a home in 2004 was no higher than the median cost of owning a home over the prior 25 years. This is primarily due to historically low mortgage rates.
This study covers the single family market, NOT the condo market
The authors indicated that condos were much easier to build and more responsive to demand. However, in markets where there was a scarcity of land and more government restrictions, prices were less likely to fall. “For example, even in the face of strong population growth, Houston and Dallas have seen no real house-price increase over the last 30 years.”
Some of the hottest areas like Portland and Miami, costs were 12% to 13% above their 25 year average while other hot markets like LA, Boston and New York were 3% above their 25 year average.
In the late 1980’s, the ratio was 52% in New York, 37% in Boston and 42% in LA, far higher than today.
The study surmises that the housing market does not appear to be based on unreasonable expectations for future growth but that high growth markets are especially vulnerable to mortgage rate fluctuations.