This paper attempts to provide an answer to the question whether the recent surge in US real estate prices is fundamentally driven, or whether the current situation reflects bubble symptoms. This is a question of paramount importance since in the case of a bubble in real estate prices the question emerges if and how the Fed should react to it. Implicitly, monetary policy in the euro area is addressed as well, with France and Spain experiencing exorbitant price increases of real estate during at least the last four years and the ECB trying to play down the dangers of this development for price stability.