New analysis on housing bubble

CLAREMONT, Calif., April 1 (UPI) -- Despite numerous reports speculating on a U.S. housing bubble, two California professors say many areas of the country may be undervalued.

Gary and Margaret Hwang Smith -- who both teach economics at Pomona College in Claremont, Calif. -- presented their findings in a paper this week at the Brookings Institution. "Bubble, Bubble, Where's the Housing Bubble?" contends that even though prices have risen rapidly, and some buyers unrealistically expect the trend to continue, "the bubble is not, in fact, a bubble in most of these areas," The New York Times reported Saturday.

The economists say the value of a home is determined by the rent it could charge, which is different from most analyses, which use the relationship of home prices to income to determine whether home buyers are overreaching.

Calculate the future rents, subtract mortgage payments, taxes and other costs, factor in a rate of return of about 6 percent, and that should be the proper price of a house or condo, the economists said.