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By 2001, San Diego had enjoyed a nice housing boom.
At this point, one might have expected home price growth to slow down or even flatten out. But the show was only getting started. The typical home, already somewhat richly valued, would go on to nearly double in price in just a few years.
Interestingly, this price explosion occurred at a time when rents were growing fairly modestly. This is somewhat strange because the factors that typically drive home prices, such as incomes, employment, and population growth, also affect rents. Yet after 2001, while prices of already richly-valued homes increased 98 percent and the monthly payments on those homes rose 88 percent, rents only increased 31 percent.
Why did home prices and payments rise so much more than rents? There are many explanations for the housing price moonshot, but as we will see below, the evidence supports only one of them.
Let’s go through — one by one — the explanations that do not.
… To finish reading Toscano’s take, click here.