While fundamental factors clearly played a role in driving down house prices that were at excessive levels two years ago, we have argued in a paper (to be published in the Berkeley Electronic Journal of Economic Analysis and Policy) that in most markets house values are today lower than what is consistent with the average level of affordability in the past 20 years.

WSJ: Low-Interest Mortgages Are the Answer

Whether the earnings and book values are of the real world would require deeper analysis, but with the uptrends intact, this may be a decent place to start investigating.

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