This paper assesses high house prices by examining bubbles, fundamentals, and misperceptions. It evaluates the annual cost of single-family housing in 46 U.S. metropolitan areas over the past 25 years, comparing it with local rents and incomes. Traditional metrics like price growth, price-to-rent, and price-to-income ratios can be misleading because they fail to account for changes in real long-term interest rates and differences in long-run house price growth across markets. These factors are especially important in recent years because house prices are more sensitive to interest rates when rates are low and in cities with high long-run price growth. The paper finds that during the 1980s, many cities with the largest subsequent house price declines were also the ones with the most overvalued houses. From 1995 to 2004, the cost of owning rose somewhat relative to the cost of renting, but not to levels that made houses look overvalued. As of the end of 2004, the analysis reveals little evidence of a housing bubble. In high-appreciation markets like San Francisco, Boston, and New York, current housing prices are not cheap, but our calculations do not reveal large price increases in excess of fundamentals. For such cities, expectations of outsized capital gains appear to play a very small role in single-family house prices. Rather, recent price growth is supported by basic economic factors such as low real, long-term interest rates, high income growth, and housing price levels that had fallen to unusually low levels during the mid-1990s. The paper also discusses the sensitivity of house prices to changes in fundamentals, noting that house prices are more sensitive to changes in real, long-term interest rates when rates are already low and in cities where expected price growth is high. The paper concludes that conventional metrics for assessing housing prices generally fail to reflect accurately the state of housing costs. It introduces a measure for evaluating the cost of home owning, the imputed annual rental cost of owning a home, and applies it to 25 years of history across a wide variety of housing markets. The paper finds that in 2004, housing prices looked reasonable, with only a few cities having valuation ratios approaching those of the 1980s. The paper also notes that while the data do not indicate bubbles in most cities in 2004, prices could still fall due to deterioration in underlying economic fundamentals. The paper also highlights that the data do not cover the condominium market, which may be more vulnerable to overvaluation and overbuilding.This paper assesses high house prices by examining bubbles, fundamentals, and misperceptions. It evaluates the annual cost of single-family housing in 46 U.S. metropolitan areas over the past 25 years, comparing it with local rents and incomes. Traditional metrics like price growth, price-to-rent, and price-to-income ratios can be misleading because they fail to account for changes in real long-term interest rates and differences in long-run house price growth across markets. These factors are especially important in recent years because house prices are more sensitive to interest rates when rates are low and in cities with high long-run price growth. The paper finds that during the 1980s, many cities with the largest subsequent house price declines were also the ones with the most overvalued houses. From 1995 to 2004, the cost of owning rose somewhat relative to the cost of renting, but not to levels that made houses look overvalued. As of the end of 2004, the analysis reveals little evidence of a housing bubble. In high-appreciation markets like San Francisco, Boston, and New York, current housing prices are not cheap, but our calculations do not reveal large price increases in excess of fundamentals. For such cities, expectations of outsized capital gains appear to play a very small role in single-family house prices. Rather, recent price growth is supported by basic economic factors such as low real, long-term interest rates, high income growth, and housing price levels that had fallen to unusually low levels during the mid-1990s. The paper also discusses the sensitivity of house prices to changes in fundamentals, noting that house prices are more sensitive to changes in real, long-term interest rates when rates are already low and in cities where expected price growth is high. The paper concludes that conventional metrics for assessing housing prices generally fail to reflect accurately the state of housing costs. It introduces a measure for evaluating the cost of home owning, the imputed annual rental cost of owning a home, and applies it to 25 years of history across a wide variety of housing markets. The paper finds that in 2004, housing prices looked reasonable, with only a few cities having valuation ratios approaching those of the 1980s. The paper also notes that while the data do not indicate bubbles in most cities in 2004, prices could still fall due to deterioration in underlying economic fundamentals. The paper also highlights that the data do not cover the condominium market, which may be more vulnerable to overvaluation and overbuilding.