Serial correlations in asset prices are often associated with irrational investment decisions (e.g., speculative bubbles) or inefficient markets. This paper shows that even asset prices determined rationally in an efficient market become predictable if underlying cash flows contain predictable components. In particular, I show that cash flows from real estate tend to contain a predictable “overshooting” component, due to slow adjustments in asset supply. Such predictable cash flows result in overshooting prices of real estate even though rational capitalization rates counter-act the price overshooting. The predictability is unlikely to disappear even after various real estate derivatives are traded. The analysis indicates that the rational benchmark price must be carefully modeled when one tests irrationality or inefficiency in asset prices.