House prices in the U.S. overall have increased by at least 6 percent annually for each of the past four years, according to most measures, more than twice the rate of inflation overall. Variation across markets has been substantial, and annual gains in many metropolitan areas have been well above 10 percent. The price hikes have been far in excess of income increases, and the house price to income ratio for the nation is the highest in at least twenty years.

Despite these price increases, home sales have remained strong. The number of existing homes sold in 2004 was up 10 percent from a year earlier, easily setting a new record. New home sales also have risen to record levels, and the demand that has pushed these sales has lifted new single-family construction to record levels as well. The homeownership rate–the proportion of households that own their home–is at its highest level ever, at 69 percent.

The sharp increases in house prices have spurred debate as to their causes, their implications, and the prospects for the future. Whether the increases can be fully explained by income growth and interest rates, given prevailing supply conditions, or whether prices have been boosted by speculation to "bubble" levels, has been hotly contested by analysts. The consequences of the increases in prices for household wealth and consumer spending and borrowing have been scrutinized by macroeconomists on Wall Street, the Federal Reserve, and in academia.