There is no way to know if and when we hit the bottom of real estate prices until we have passed it, but a leading indicator for home prices are rent prices.
According to Yale economist and co-developer of the S&P Case/Shiller Home Price Index Robert Shiller, "If you look at the trend in rents to see where housing prices are headed, you're looking at the right measure."
In 1999 rents averaged 87% of the after-tax mortgage payment amount for similar homes and condos. When prices skyrocketed rents fell to less than 60% of after-tax mortgage payments. The 1999 ratio of 87% is used as a benchmark because it stuck around at this level throughout the '90s. Using this number as a guide we can conclude that prices appear to be stabilizing since in October of '09 rents were back at 83% of ownership costs.
Source: Sheila Bryan, Cobalt Mortgage
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