The difficulty of valuing property during a period of depression is greatly increased just at the time when, through falling rentals and values, it is most necessary to be careful in making mortgage loans. This difficulty arises partly through the number of real estate transactions being greatly reduced and information from this source thus largely cut off, since no property owner will sell under such conditions except through necessity. And also because of the difficulty of forecasting future rentals where vacancies exist, it is a matter of the greatest difficulty to judge whether these are to be temporary or long continued. To avoid the difficulty which arises from a lack of information about sales, the most feasible method is to prepare a scale of relative values for a city, so that a few real estate transactions in different localities will tend to show the drift of values, just as an inspection of the daily fluctuations of half a dozen prominent stocks tends to show the drift of fluctuations for the whole list of securities.

A further effect of a depression on values of different kinds of property not usually given sufficient consideration, is the great difference which a reduction in the gross rentals of property makes in the net rentals where the expenses of the property are heavy, as contrasted with the slight effect which such a drop in gross rentals has where the expenses of a property are light. This is readily shown by contrasting a modern office building, which normally has expenses amounting to about 50% of its gross rentals - these expenses including not only taxes and insurance, but heat, light, elevator service, janitor service, etc. - with a store building of moderate height where the expenses do not amount to over 15% of the gross rentals, the owner having no expenses except taxes and insurance. If we assume a drop in gross rentals amounting to 30%, the drop in net rentals of the office building will be 60%, while the drop in net rentals of the store building amount to only about 35%. Since values follow rentals, the stability of value of a property that is less expensive to operate, tends always to be greater than that of a property which is more expensive to operate, and careful lenders are therefore disposed to exercise the utmost caution in loaning on large buildings, the expenses of which are heavy.