With regard to equity prices and bond prices, the reason I included that comparison was to make a couple of points. For one, the comment is often made that we can’t second-guess financial markets or financial market participants. It seems as if that may be true for equity market participants but less true for bond market participants. There I take “inflation scare” or “credibility gap” or “conundrum” all to be another term for a situation in which we have an idea of where the fundamentals are and we’re not sure what bond market participants are thinking.
Now, it’s true that there’s a difference in that you have a clear idea about the reaction function or where monetary policy is going and presumably can guide bond market participants with transparency regarding your notion of fundamentals. So there is a clear difference between the markets. The housing market is different from both the bond and the equity markets, and the question is: Where can we draw the lessons? The regional disparity is completely different from both markets, and that’s just a separate issue.
In any event, one reason behind the housing price appreciation, perhaps, is that we have very low long rates. This is a bond rate conundrum. Perhaps the misalignment in bond prices is leading to this misalignment in housing prices. So, one could perhaps make the argument that it’s the bond price experience in 1994 that may be the relevant one for today. I think I’ll stop there and leave it at that.