[quote=urbanrealtor]While I agree with your basic thesis, the one thing I would add is the investment dimension.

For the people buying for the purpose of renting the property out, the magic number I am seeing is 8% return on their investment annually.

If someone feels that they are getting about 1/12th of their money back each year, that seems to make sense for them.[/quote]
That accepted metric, often called the cap rate, will change substantially. I still hear it said that the reason one accepts single digit returns on real estate is because of the upside potential. That will shift to demanding double digit returns to compensate for downside potential.

It is hard to imagine a rational investor accepting 8% returns on a risky, illiquid asset. Then again, the owner of the house I am renting is accepting -9%. Yes, that is a minus sign. Go figure.