Another Housing Bubble? No.

Housing prices are, at least nominally speaking, back to levels last seen during the bubble. What does it portend?

The housing bubble of the 2000s did no favors to the U.S. commercial real estate industry when it burst and helped precipitate the most recent recession. Residential values might have been hurt worse than commercial values by the crash, but commercial properties did suffer. Mostly they’ve recovered since then—except arguably retail, which overbuilt considerably in the 2000s—but even so no one wants a new housing bubble. And yet housing prices are, at least nominally speaking, back to levels last seen during the bubble. What does it portend?

On Monday, the Federal Reserve Bank of San Francisco took up the question of whether “this time around is different” in housing with the release of a Fed Economic Letter by Reuven Glick, Kevin J. Lansing and Daniel Molitor. “After peaking in March 2006, the median U.S. house price fell about 30 percent, finally hitting bottom in November 2011,” the trio wrote. “Since then, the median house price has rebounded strongly and is nearly back to its pre-recession peak. In some parts of the country, house prices have reached all-time highs.” Yet things are different this time, asserted the letter: “We find that the increase in U.S. house prices since 2011 differs in significant ways from the mid-2000s housing boom.”

How so? The previous bubble can be described as credit-fueled, in which housing valuation (as measured by the house price-to-rent ratio) and household leverage (as measured by the mortgage debt-to-income ratio) rose together in a “self-reinforcing feedback loop,” the letter noted. By contrast, the more recent climb in housing prices shows a less-pronounced increase in housing valuation together with an outright decline in household leverage—a pattern that doesn’t point to a credit-fueled bubble.

The letter added that mortgage debt-to-income ratio reached an all-time high in late 2007, coinciding with the peak of the business cycle. “An important lesson from history is that bubbles can be extraordinarily costly when accompanied by significant increases in borrowing,” it noted. “On this point, [neoclassical economist] Irving Fisher famously remarked, ‘over-investment and over-speculation are often important; but they would have far less serious results were they not conducted with borrowed money.’”

As house prices rose during the mid-2000s, the lenders concocted a range of mortgage products to attract borrowers, including loans requiring no down payment or documentation of income, monthly payments for interest only or less and ARMs with low rates that reset higher over time. Those kinds of shenanigans aren’t as robust during this expansion in residential valuation (to use a word that the Fed report doesn’t). The price increases, in short, are more closely tied to improving fundamentals in the economy.