Gary and Margaret Hwang Smith, two economics professors at Pomona College, recently concluded that there is no national housing bubble (“Bubble, Bubble, Where’s the Housing Bubble?“). In fact, they suggest that numerous cities across the nation are actually undervalued.

“They argued that the value of a home is determined by the rent it could fetch. Calculate the future rents, subtract mortgage payments, taxes and other costs, factor in a good annual rate of return of 6 percent or more, and one should be looking at the proper price of a house or condo.”

Before you take too much comfort, however, realize that their study was based on data from ten (10) US cities. And out of the ten, only one Bay Area city (San Mateo) was included in the study. And out of the ten, only one city (San Mateo) was determined to be overvalued. And based on their calculations, this one city (San Mateo) is overvalued by between 42 and 54 percent. No word on San Francisco.
Some New Math on Homes [NYT]
Bubble, Bubble, Where’s the Housing Bubble? (pdf)

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