Houses merely maintain purchasing power, due to inflation.

[Jack B.]

People don't seem to understand the difference between nominal and real house prices. Real prices are inflation adjusted. The basically cost the same as they always have, adjusted for inflation. 

With real estate sure we get someone to pay off our property, but the reality is we are working for that money. And in the end we merely own a house that has maintained it's purchasing power. If you want to sell the house you live in, sure it tripled in value, great! But so did the other houses...and you still need a place to live, so you didn't really increase but merely maintain your purchasing power. So what's the point of appreciation? It's not as good and meaningful as one thinks. Leverage and inflation adjusted cash flow with eventual pay off are the keys to it being a decent investment. But the value going up alone is merely a hedge against inflation. This is not buying Microsoft at .02 cents a share and making 10 billion off it in 30 years.

[Joe Splitrock]

I have seen this chart and similar discussion before. I will mention some other factors:

1. This is all US housing, so it includes areas with less appreciation and areas with higher appreciation. If you were buying in Michigan versus California, the chart would look different. Realistically that makes some midwest areas worse and coastal areas much better. 

2. Housing makes up one third of the Consumer Price Index (CPI) which is the measure of inflation. Being that housing is such a huge chunk of the number, of course CPI is going to be in sync with housing.

3. CPI uses rental equivalent for the housing portion, so it technically doesn't even include house values. Housing is also not reported as often, so there is some lag time in realizing increases.

4. Housing standards and the typical "median house" have changed substantially over time. In 1960 the average house size was 1289 square feet and in 2000 it was 2366. Changing quality standards is a huge issue with measuring inflation in general. In 1960 you could spend over $1000 on a small color television. Today you couldn't even get a TV that low quality but you could buy something better second hand for $10. The CPI keeps evolving to higher quality items today cost the same or less. A 60" 4K TV is $1000, which is still major negative price movement on a far superior item. The point is if you flattened CPI to account for similar standard of living, it would reveal the cost of living has plummeted. Our standards have just increased.

5. Appreciation is only one factor in a housing investment. Most houses are purchased with leverage, so if you buy a $100,000 house, you may have spent $25,000. You rent it out 30 years and collect cash flow every month. The payment is fixed, but cash flow is inflation adjusted with rents. The whole time you are paying down the loan and increasing principal. At the end of 30 years, you may have a house worth $400,000 and you invested $25,000. Your rents have increased from $1000 a month to $4000 per month and you have collected an additional $200,000 in rents. 

6. The fact that house prices and rent are in sync with inflation is exactly the reason it makes housing a good investment. With any investment, beating inflation is critical and rental housing does it most every time, because just the underlying asset tracks inflation. 

7. It is a great point that when your house triples, that so does another house you may buy. However, if you move markets or down size, you can cash out profits. There are people who sold a house in California for $3M and bought a bigger house in the south for $300,000.