Great comment from this week's Barron's interview with Raj Gupta...

Q: Are you concerned with inflation or deflation at this point?

A: Housing has important implications for the macro outlook on inflation and deflation. The Center of Economic and Policy Research put out a paper comparing the cost of renting a home to the cost of owning a home. Starting somewhere in the mid-'Nineties, there has been a pretty sharp increase in the real cost of owning a home compared with renting a home. It is the largest gap since 1975, and it is among the largest gaps ever, and in absolute terms it is very large. To correct this gap requires some decline in house prices. House prices in the U.S., other than in the 1930s, have never really declined. The rate of appreciation slows, but prices have tended to be stable. It will be very hard to close the gap between the two by having rental prices go up. The rental market is in bad shape and vacancies are rising. By definition, housing prices have got to weaken. That's the key to what happens next on the inflation front. When housing prices weaken, we will enter into a lower inflationary regime than we are currently in.