The tightening of housing capacity, especially in the rental market, has tended to firm up the level of home prices and push up rental inflation rates. Home price to rent ratios have moved to or below longer-term norms, especially in light of the low level of interest rates. At the same time, the elevated rate of foreclosures, which we see receding ahead, continues for now to act as a drag on home prices. On balance, we think that the recent increases in most indexes of home prices signal that a bottom is forming in the market, but it may well be some time before we see a sustained move to a significantly positive home price inflation. That said, we see the risks around this view shifting to the upside.
