The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: John Vosilla who wrote (46821)	1/10/2006 1:32:54 AM
From: gpowell	Read Replies (1) of 306849

In the end true value is based on cash flows the asset will generate. What generates cash flow (hopefully a profitable flow) is past and current investment in capital that yields a product, in this case that product is housing services. Tell me the average condo in Manhattan is worth $1.2M today because New Yorkers are more productive and capitalists and I'd believe it if market rent for those condos approached $8k/month. As best as I can tell rents are half that today. The rental market does serve as a possible reality check for home prices. Only speaking for rentals out here in the Bay Area, most are inferior substitutes for owner occupied houses. But that only accounts for a portion of the current discrepancy between the implied value of housing services (for owner occupied housing) and rentals. No doubt, by today’s prices of rentals, households are paying a premium for locking in ownership of the capital that produces housing services.

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