Interesting is the use of the word “should” with reference to calculating houses values, but let’s not get into that one. I would have thought that using just ten years of historical data is not enough, because the last five years are going to distort the trend.
Forgetting the importance of rents for the moment and just focussing on historical data the following may be helpful. From 1940 to 2000 the median inflation adjusted price of a house in the US has risen 390%. California was almost double that for the same period at 570%. For the last five years, house prices in the US have risen 180%, and for California 247%. Taking California in isolation, historically the market grew about 9% per annum to 2000 over a sixty year period. So if the median price was $211k in 2000, the compounded figure in 2007 will be $385k at a 9% annual average increase. If you were to use the straight line or other statistical methods to caluculate from 1940 to 2007, you’d arrive at a figure between $385 and today’s prices.
I have no evidence that the data above is accurate, but it looks sort of plausible.
