I find this whole mention of inflation adjusted dollars a little odd. It is a valid economic discussion, but not of much use on real life applications. I live my life in dollars today. I cannot to burger king and offer them $3.50 for a whopper because the $4.50 price is nominal dollars and I want to pay in real dollars. I think that whole school of thought was brought to the forefront by economists who never made any money off of their predictions, but needed to sound smart.
There are people in here, 4plex to name one of the top of my head, that seem to have a very good handle on the inflationary nature of this economic cycle. However, for the average person, I do not feel any real dollar decline in RE would mean anything, they need nominal declines to afford housing. Of course if we got spiraling wage inflation, it might make sense, but we are far from that.
It is almost impossible to set up assets in a perfect way to take into account the effect of inflation on the dollars value. Real estate is in nominal dollars. It will not help anyone one bit if the real value of RE drops, and there wages stay flat, which is generally what is happening now. The afforadability issue will still be the same.
One further thought on this. The studies that I have done comparing real rates to housing historically, would suggest that housing prices will not drop based on their current relationship to real rates, they actually would rise if they do what they have historically done. It is almost impossible for me to believe that could happen, but it is what my research has told me. Of course that is based on the CPI, which seems to be a joke as far as what it tells us inflation is currently.
