Housing prices may or may NOT follow the percentage of inflation, even in a healthy market. There are many factors that cause housing to go up when times are good and inflation is only one of them. I’ve read quite a few posts since I started reading this board where many a poster automatically figures in inflation when trying to determine where a house should presently be priced. I’m not saying that they’re absolutely wrong…..it’s just my opinion that they are. If “X” house was selling for $500k in 2001 and housing returns to 2001 levels, my opinion is that “X” house will most likely return to a price of $500k……NOT $500k plus the cost of inflation for the years between 2001-2008.
Over long periods of time inflation matters.
Indexing to inflation accounts for distortions in nominal dollar terms. Any economist worth his/her salt accounts for inflation. (Schiff does, Shiller does).
One could use prices, relative to incomes (as Rich does) to come up with perhaps a more relevant metric.
If one ignores inflation one might make the mistake of expecting prices to revert to where they were in 1965 when a SFR in Point Loma could be had for about $35K. After all the weather is not that much better now, is it ?
