Evidence of a housing bubble has been suggestive but indirect, in that it does not address the key question of whether housing prices are justified by the value of the services provided by a home. We first show how to estimate the fundamental value of a home from rent data. We then use this procedure to estimate the fundamental value of homes in ten urban housing markets using a unique set of rent and sale price data for matched singlefamily homes. Our evidence indicates that, even though prices have risen rapidly and some buyers have unrealistic expectations of continuing price increases, the bubble is not, in fact, a bubble in most of these areas: under a variety of plausible assumptions about fundamentals, buying a home at current market prices still appears to be an attractive long-term investment. Our results also demonstrate that models that gauge a housing bubble by comparing movements in housing price indexes with movements in other indexes or with the values predicted by regression models are flawed, because they assume that market prices fluctuate randomly around fundamental values. Those models must assume that prices were close to fundamentals in the past in order to conclude that the 2001–05 run-up pushed prices above fundamentals. But maybe prices were below fundamentals in the past and the 2001–05 run-up pushed prices closer to fundamentals.