Its more used to value a property at purchase than to determine your true return on capital (which can fluctuate greatly with leverage and cost of money).

Sometimes that is much easier for them and less risk to you when it comes to fluctuating rates. 

The study will take into account the fluctuation in value of the peso from when you purchased, to where it is now.  

This is driven by better rent:price ratios during a recession, not buying high and going through the rollercoaster of house value fluctuation, etc.I can afford a house in a better location once house values fall in a recessionObviously, waiting to buy obviously only works if I am still employed and can get a mortgage approved in a recession.

Why such drastic fluctuations in price?

Occasionally there is some fluctuation, but I rarely find it difficult to find good tenants other than a seasonal issue around the Thanksgiving/Christmas holidays.

They tried to justify using the 7% rate because "the rate could fluctuate from now til the time the loan funds."

The FMV is $170K to $180K, not 100% where this will fall until owner gets appraised because of the market fluctuating right now.

Does the interest rate fluctuate or can you lock one in?

(We're not discussing seller financing, below market financing or assumable financing here, that's a whole another discussion vis-a-vis the relationship of value to below market financing.)What the Professor is saying is that real estate values have NOT increased in "real dollar", when you exclude inflation from that equation.Once upon a time, a long time ago in a distant land, the distance measured in a few miles, before the current real estate crash; I discovered several pockets of real estate that were somewhat isolated from market fluctuations in value.