I think the link is not so much causative as correlative.
Lower stock prices harm the economy, and when the economy is harmed home prices drop.
So stock prices do have a causative effect on the economy, there link is not DIRECTLY causative to home values. Sometimes, some other asset class is waiting in the wings (a la 2001).
One other note regarding rent vs. buy. Even in markets outside of california, a favorable rent vs. buy is not enough to buoy the market.
In MN (probably in NV too, but I have no anecdotal evidence there) homes can easily cash flow. My friends who have bought in the last 2 years are still underwater even though they can cash flow their home. Psychologically it helps them stay current, but it is still interesting to note.[/quote]
Like sdr, I agree with you that high end homes tend to fare poorly when comparing against rent. Has it ever fare well against rent?
As you move down the desirability scale, the rent vs buy equation gets better. I never suggest that the lowest the price will drop is parity with rent. But if you’re buying your primary resident, comparing rent vs buy is very different than comparing it for a rental property. Although this might be a cliche, but we all have to live somewhere. Every month that you’re paying more for rent than buy that same property, you’re pay more than you need to, to put a roof over your head. Yes, you can wait a few years and price might bottom then, but how much will you save in nominal price vs how much you’ve thrown away in rent (the $ difference between rent vs buy)?
