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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Tradelite who wrote (16028)	1/15/2004 12:32:48 PM
From: GraceZ	Read Replies (3) \| Respond to of 306849

If I was rational about deciding whether to invest in real estate as opposed to rent using the difference between the two to invest in another financial asset I could in fact determine whether real estate was over valued regardless of what other less rational investors were willing to pay. You are making the assumption that the buyer doesn't have alternative options for a dwelling like renting and that home values aren't at all related to rents. One can argue that housing is overvalued when the premium portion (the cost in excess of the cost to rent) rises significantly above what a like property can be had on the rental market reducing the expected return. You take the difference and compare your expected return to investments carrying similar risk. The expected return can be figured based on the historical rate of return and the fact that any rational investor would expect a regression to the mean (which is significantly below the rate that real estate has risen in the last five years).

To: Tradelite who wrote (16028)	1/15/2004 1:39:21 PM
From: bozwood	Read Replies (1) \| Respond to of 306849

"Overvalued and overpriced are poorly understood words" Only in times of overvaluation To value something on the basis of other similar assets is not the best way. Tulip bulbs were fairly valued on the basis of the tulip appraisor's estimate which was based on other tulip bulb sales. We all know how that turned out (and before you respond as such, I am well aware that houses are not tulip bulbs). It is better to set the asset's value in relation to something else. For instance, median home prices are now 3.2x median income. This is the highest ratio in history, I believe, and the highest since 1970, I am sure. Or for another example, median incomes have increased about 6% since the end of 2000 and home prices have increased 23%. This all is probably futile trying to point out to you, though, Tradelite as I don't believe you will even respond to the points I raise.