BobS
Good points gdcox.
It is common and easy to judge whether housing prices are above or below their “correct” level by comparing the rent of a property–or all properties–to their monthly cost of ownership. Easily grasped, easily measured, easily graphed over time, and a common starting point for deciding whether to rent or buy.
Right now one can rent a given house or condo for about half to two-thirds the cost of owning it. Depends heavily on neighborhood, with the fraction rising in lesser neighborhoods, falling in better areas.
This suggests that prices have quite a ways to fall (or rents to rise), before we get back to historical norms.
A complicating factor is expected appreciation or depreciation in housing values. Optimistic price expectations fueled the distortion in this ratio to historic lows recently. Perhaps the coming pessimism about future prices will cause the ratio to overshoot on the upside.