In most economically healthy location such as Northern CA, NYC, DC metro, LA, prices will drop, but it will not drop to the level 5 years ago. Some of the price gain during the past 5 years are permanent. Yes, if economy gets worse, people’s income may temporarily get less, reducing their buying and leveraging power. It has been a repeat historical phenominon that when price sunk to the lowest level, people did not buy en masse. They were either too pessimistic or too financially constrained to buy. Both psychologically and physically, they were deprived of their best chance to buy. That’s why people often buy rising market, but they don’t buy falling or stagnating market. History has shown that time and time again.

If certain investors can avoid the same plight suffered by regular people, and they are mentally ready and has the leveraging power, buying when nobody is buying is almost a sure way to riches (nothing different from Warren Buffet’s contrarian approach).

I believe 2, 3 or even 4 years later, we will reach that state.

3 years of rising rent will reduce the cash flow gap

But be careful that history has shown us a period in traditionally high priced region that such gap had ever been completely closed. Such as California and many east coast region, the rent/mortgage gap had almost always has a spread. Only that when market dropped to the bottom, the gap was temporarily thinned, after that price will start rising again, gradually widening the spread over the next 5 years of boom leg.

If you ask for perfect cash flow, better seek them in slow growth region like NC or TX.