1. People value owning a home irrationally, the price is disconnected from fundamentals
2. People are pricing in future growth. With interest rates being low, this growth can be fairly long-term. The growth is primarily in future rent increases, but also potential interest rate decreases or irrational future growth (as in point 1).
Now, for point 2, we can actually calculate implied future growth, and then try to decide whether it is rational or not - e.g. given the market future interest rate expectations.
It would also be interesting to know who owns these houses. Did they buy them by really stretching themselves, and any downturn in the area would result in loads of forced sells, temporarily collapsing the market? Or are the owners in no danger of having to sell?
1. People value owning a home irrationally, the price is disconnected from fundamentals
2. People are pricing in future growth. With interest rates being low, this growth can be fairly long-term. The growth is primarily in future rent increases, but also potential interest rate decreases or irrational future growth (as in point 1).
Now, for point 2, we can actually calculate implied future growth, and then try to decide whether it is rational or not - e.g. given the market future interest rate expectations.
It would also be interesting to know who owns these houses. Did they buy them by really stretching themselves, and any downturn in the area would result in loads of forced sells, temporarily collapsing the market? Or are the owners in no danger of having to sell?