Housing market: Part 9: A long term look at intrinsic values
400 years of prices in Amsterdam. Overvaluation, undervaluation, and how long the average bubble takes to build, pop, and recover.
I’m sure that long term readers of Valuabl are utterly fed up with my discussion of the housing market. No topic seems to elicit as much emotion from both sides of the table as this one does. And, despite my best efforts, I am consistently drawn back to this topic.
In Part 7 of this series, I wrote that:
“This post will, hopefully, conclude our discussion of the housing market.”
Then, in Part 8, I sought to address the counterpoint that population growth, combined with limited supply, would drive prices and values up forever.
However, the hardcore sceptics of my approach to valuing housing continue to say that I should stick to businesses because traditional valuation methodologies like Discounted Cash Flow analysis don’t apply to real estate.
Initially, I tried to dispel this by introducing the idea of aggregate ownership, but on its own, that argument still feels lacking. So, the question is, how has the traditional valuation methodology performed historically for housing? Has it been a…