johnlewing

Missing From All the Credit Crisis Coverage: A Realistic Assessment of Where Home Prices Are Headed

as usual simple logic is the way to understand the situation:

1. asset value is based on cash flows (after-tax rental cash flows is a good starter) discounted at an appropriate rate to reflect the risk of the cash flows.

2. clearly houses in urban areas are overvalued on this basis, and probably substantially.

3. however, the comparison to prior periods is very tricky as general interest rates and interest rate expectations have come down over the past decade or two. in other words it's not an apples to apples comparison on the discount rate....whereas the cash flow estimates are probably reasonably comparable as long as inflation is considered.

bottom line is that they have to correct (and obviously have begun that process) but how fast and whether much of the loss will be "real" loss to inflation over time or a quicker nominal loss process.....nobody knows.

my guess is that prices will fall 10 % per year for a couple more years and in the end it will be nearly a 35% real loss and a 25% nominal loss on values.....

there will also be tax revolts throughout the land as the municipalities and townships hang on to their phony assessments and keep spending money foolishly and lavishly, especially on their own pensions.

johnny b. dog