Hi Stan – Great point about rents. I would also add another point if you are assuming static rates and inflation: if rates and inflation can both be assumed to be low, the “real” burden of your debt will stay higher through the amortization. In contrast, if rates/inflation are high, you are paying more interest, but you are basically paying off your mortgage faster as inflation eats away at the real burden of your principal.
But, what I was more attempting to get at was the fact that rates and inflation are NOT static. So discounting future income using today’s 10-year Treasury doesn’t really take that into account, if I am understanding you correctly.
And again, I’m kind of muddying the waters here by trying to figure out not one guy’s decision to buy or not, but rather what represents a fundamentally justifiable, sustainable level of pricing. For this latter, it seems to me that one must take the long view on rates. Or, that one should ignore rates altogether, because A) they haven’t had much impact historically and B) since their future direction is unknown, they shouldn’t figure into pricing. Or something.
I’m pretty exhausted and out of it this evening so the above may or may not make sense. Thanks for sharing your insights.
Rich
PS – Ray – In bonds, you care not just about the current rate but about future rates. I’m arguing that the same is true in housing.
