In the U.K., average housing prices divided by average earnings now stand at over three standard deviations above trend line (measured over the last 50 years); as recently as 1995, the ratio was one standard deviation below the average! Today the variance in home prices to household earnings in England is even larger than the standard deviation imbalance of U.S. equities in March 2000, which represented the most conspicuous overvaluation in modern U.S. equity history. In order to move back to the historic trend line, home prices in England would have to fall by 38%. More from Doug Kass In Boston -- a good example of the red-hot coastal U.S. housing markets -- median home prices stand at 2.5 standard deviations above the historical distribution. Twenty years ago, home prices were 1.5 standard deviations below the average experienced over the last half-decade. In a recent CNBC special on housing, The Real Estate Boom, I mentioned that the price-earnings ratio of homes in the U.S. (average home prices divided by rental prices attainable) now approaches 34 -- eerily reminiscent of the bubble multiple on the S&P 500 Index in early 2000. If that ratio were to decline back to 20 (the average over the last 50 years), home prices would drop by 40%. According to The Economist (March 3, 2005), based on the value of house rentals today, the housing market is roughly 30% overpriced in the U.S. Another way to look at house price vulnerability is to call upon the speculative rise in London home prices in the 1982-88 period (when it peaked at two standard deviations above trend), and was deflated in the early 1990s. During that time frame, the ratio of home prices to average earnings fell from 5 times to under 3 times, signifying a meaningful drop in home prices! It is important to note that although the break in the real estate markets was responsible for a considerable amount of damage in the world recession of the early 1990s, improving real wages buffeted its overall impact. In contrast, today's low inflation and lower income growth will likely be less of a cushion to a housing price decline than in the previous cycle. Every single two-sigma event (a.k.a., bubble) in economic history has ultimately been broken, and with the piercing of an important asset class' bubble (like real estate) invariably comes lower consumption and lower investing intentions, regardless of monetary or fiscal policy responses