How long is a piece of string comes to mind. G will be all over the place, and also presumably most market participants are doing something similar to Bernstein’s equation in their heads, roughly, so there’s an element of feedback involved.

The Economist did a lot of work on rent and house prices throughout the decade; the called the bubble but way too early (as did I) and they expected a far greater correction in prices based on rents (as did I).

Bitter, moi?

Matt: The more leveraged the investment (i.e., the greater percentage of it you fund with borrowed money) the more the returns will be magnified.

If your (non-leveraged) return is greater than the rate at which you’re borrowing, more leverage = better returns.

If your (non-leveraged) return is less than the rate at which you’re borrowing, more leverage = worse returns.

Good point. The calculation is simply:
Inflation-Adjusted Interest Rate = After-Tax Interest Rate – Rate of Inflation

It’s a bit of a guess though, as there’s no way to know what rate of inflation we’ll see in the future.

That said, we’ve already built an inflation assumption into the expected return calculation when we estimate future inflation-adjusted increases in home values, so just make sure you use the same inflation assumption in each part of the calculation.

The one thing I would add is an example of how to calculate the after-inflation interest rate given a fixed mortgage rate.

-Rick