the economist and the housing bubble, page-50

When factoring in opportunity cost, investors can lose big time on property. Madhun mentioned earlier that her would defy anyone who could show house price rise by less than 20% over a ten year period. Nominal prices would be difficult, real prices - very easy! A 300k house rising 20% over ten years would equate to 360k value. But with inflation at a lowly 2.5%, that 300k house would have to rise to 390k to just maintain it's original inflation adjusted value, ie the investor had a loss, never mind opportunity cost of invsting elsewhere. If inflation was at 6% - generally a more likely scenario during housing slumps, the house's value would have to rise to 540k just to maintain value. That's over a 30% loss despite the house "rising" 60k. Averaging the rises and the falls, a major U.S. study found that in inflation djusted terms, real estate rises approximately 2.4% year on year. The problem with the current situation is that inflation is too low to wipe out all the excess, only nominal price falls can do that...