When asset prices get disconnected from fundamentals, it’s time to stay away. I did so in the mid-2000s when I saw the housing bubble. House prices always revert back to the level where investors can make a decent return on rent. If the rent has stayed flat while a house has doubled, investors will not buy those homes. If the rent has gone up, while the house price has halved, the investors may flock in and start a bidding war, and provide a floor for house prices.
This analysis in the article shows how rents are intimately tied to population, number of rental units, and peoples’ income. Rent cannot jump up in price just because the landlords charge more…it jumps up in price because your renting competition is willing to pay more.
I don’t know anything about Eric Fischer except that he’s a freaking hero.