Over the past few years, I've found that a suprising number of
people are interested in investing in real estate. Everybody sees
housing prices go up, up and up. But I just found a graph of housing prices in the US from 1890 to today, adjusted for inflation (hat tip to the Freakonomics Blog).
In summary, housing prices have stayed mostly constant over the long
term, once you adjust for inflation. I think people forget to adjust
for inflation, and then they think that they made a lot of money by
investing in real estate.
The most interesting thing to me is that over the last 10 years
housing prices have doubled. That's no surprise. What is a surprise,
however, is how many people think housing prices will stay at their
current levels. I think this situation is similar to the Internet stock
bubble. I remember just before the bubble burst, all sorts of people
who knew nothing about the stock market were putting their savings in
the stock market, because they didn't want to miss out on a sure thing.
Well, that bubble burst, and I think this housing one will too, though
at a slower pace since housing is less liquid than stocks.