MLKlein

Property Values Set to Fall from Bubble Peak to Long-Run Average

I would suggest taking a look at the cost of ownership in relation to incomes over the extended time frame as well as availability of and cost of mortgages. As we witnessed in the bubble years, cheap and easy money resulted in accelerating prices to the point where very few people could actually afford, by conventional measurements, a home.

The chart shows that post WWII the value of homes was higher than prior to the war (ex depression). I believe that this is a result of having a deep market of good (and rational) financing options available to homeowners. So as a suggestion, I would overlay a graph depicting mortgage payment as a percentage of median income. For the payment calculation it would seem to make sense to use a 30 year fixed rate loan at the best available rate in the period. This may give additional clarity on the valuation process as most home buyers and underwriters relate their purchase and loan decision to the amount of monthly payment in relation to income (assuming we are not in a bubble).

Good luck. Thanks for the analysis.