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.