Why housing is inflation hedge?

[David Li]

I keep hearing that if you borrow at 3% interest rate then your hedging inflation, but if the price of your house/investment is not going up and is going sideway for the next few years, how is that inflation Hedge? especially if we adjust it for inflation the value of the house actually went down in real term, am I wrong?

[Doug Smith]

Historically, housing keeps pace with inflation. I know I've posted this chart before, so please forgive me if you've seen it, but it really does a good job of illustrating the relationship between the Consumer Price Index and the Housing Price Index. This data comes from the St Louis Fed. There will be outlier properties or even markets that you might see a drop, but those aren't the norm from a statistical perspective. Historically, overall housing prices have more than kept pace with inflation. 

[David Li]

@Doug Smith

It’s a great chart. Thanks for sharing. imma steal it

[David M.]

@David Li

Also, rents also tend to go up, in general as well.  Granted the past 5-7 years has seen a dramatic rise in rents, however.  Remember, this is a "big picture / macro" concept.