By Chad Sandstedt of Value Investing Lab…

Either equities are severely underpriced or apartments are severely overpriced. With cheap agency debt and every pension fund chasing the asset class like it’s the homecoming queen, my money (figuratively for now) is on apartments being severely overpriced. Here is a quick analysis that values the S&P 500 as if it were an apartment:

S&P 500 Earnings (After-Tax) $       83.87(1)
Effective Tax Rate28.5%(2)
S&P 500 Earnings (Pre-Tax) $     117.30
Multi-Family Cap Rate4.0%
Value of S&P 500     2,932.52
Current S&P 500 Index Level     1,258.95
% Under (Over)valued57.1%
(1) Through 6/30/11 (
(2) Source: FetchXL