What argument(s) support the claim that long-term housing prices trend upward?
Several people have mentioned the obvious: inflation.  But let's assume we are talking about real (inflation adjusted) prices. One argument is that populations keep rising while the land does not change.  So the price of homes in desirable places gets pushed up and people move to second-best locations, pushing those prices up, etc.  Similar Malthusian argument holds for raw materials (steel, granite, fine wood, etc.). Another argument is that the economy has a long-term upward trajectory (that's the assumption).  So each generation, as a whole, has more disposable real income than the previous.  As disposable income increases, people tend to put more and more money into their homes, pushing prices up.  True for all goods, of course, but it may be more true for real estate than for other types of goods. The Shiller data is inflation adjusted. In effect, a flat line means that long term, housing rises with inflation, no more no less. There's no argument, just the underlying data to support his charts. This, among them.   As much as I respect Nobel Prize winning Robert Shiller, his approach and analysis of the boom ignored interest rates. Say we look at a $50K earning couple. This is just below median income. At 9%, they qualify to borrow $145K. As rates fell to 4%, they qualify for $244K. Same fixed 30 term. Ignoring all other factors, the swing in rates will generate an oscillation around the long term trend. And my own data crunching suggests the equilibrium median home price will tend toward the price supported by the median income.  A similar, but not identical question - Why can't house prices be out of tune with salaries? In response to Chan-Ho's comment - I'd imagine Shiller understood the interest impact. To clarify, the chart, as presented, ignores it. It is supported by inflation and historical values. if you look at real estate as well as the stock market they have consistently increased over a long period of history even with short term drops. It is also based on inflation and the fact that the price of land and building material has increased over time.
Where's the data? You made a claim, now yiou can back it up, or you can recant.  Ad hominem attacks don't support an argument, sure, but given that /u/TrumpTaint *has actually provided evidence*, and you haven't, what are you waiting for? As user14469 mentions you would have to decide what type of properties you would like to invest in. Are you after negatively geared properties that may have higher long term growth potential (usually within 15 to 20km from major cities), or after positive cash-flow properties which may have a lower long term growth potential (usually located more than 20km from major cities).  With negative geared properties your rent from the property will not cover the mortgage and other costs, so you will have to supplement it through your income. The theory is that you can claim a tax deduction on your employment income from the negative gearing (benefits mainly those on higher tax brackets), and the potential long term growth of the property will make up for the negative gearing over the long term.  If you are after these type of properties Michael Yardney has some books on the subject. On the other hand, positive cash-flow properties provide enough rental income to cover the mortgage and other costs. They put cash into your pockets each week. They don't have as much growth potential as more inner city properties, but if you stick to the outer regions of major cities, instead of rural towns, you will still achieve decent long term growth. If you are after these type of properties Margaret Lomas has some books on the subject. My preference is for cash-flow positive properties, and some of the areas user14469 has mentioned. I am personally invested in the Penrith and surrounding areas.  With negatively geared properties you generally have to supplement the property with your own income and generally have to wait for the property price to increase so you build up equity in the property. This then allows you to refinance the additional equity so you can use it as deposits to buy other properties or to supplement your income. The problem is if you go through a period of low, stagnate or negative growth, you may have to wait quite a few years for your equity to increase substantially. With positively geared properties, you are getting a net income from the property every week so using none of your other income to supplement the property. You can thus afford to buy more properties sooner. And even if the properties go through a period of low, stagnate or negative growth you are still getting extra income each week. Over the long term these properties will also go up and you will have the benefit of both passive income and capital gains. I also agree with user14469 regarding doing at least 6 months of research in the area/s you are looking to buy. Visit open homes, attend auctions, talk to real estate agents and get to know the area. This kind of research will beat any information you get from websites, books and magazines. You will find that when a property comes onto the market you will know what it is worth and how much you can offer below asking price. Another thing to consider is when to buy. Most people are buying now in Australia because of the record low interest rates (below 5%). This is causing higher demand in the property markets and prices to rise steadily. Many people who buy during this period will be able to afford the property when interest rates are at 5%, but as the housing market and the economy heat up and interest rates start rising, they find it hard to afford the property when interest rate rise to 7%, 8% or higher. I personally prefer to buy when interest rates are on the rise and when they are near their highs. During this time no one wants to touch property with a six foot pole, but all the owners who bought when interest rates where much lower are finding it hard to keep making repayments so they put their properties on the market. There ends up being low demand and increased supply, causing prices to fall. It is very easy to find bargains and negotiate lower prices during this period. Because interest rates will be near or at their highs, the economy will be starting to slow down, so it will not be long before interest rates start dropping again. If you can afford to buy a property at 8% you will definitely be able to afford it at 6% or lower. Plus you would have bought at or near the lows of the price cycle, just before prices once again start increasing as interest rates drop. Read and learn as much as possible from others, but in the end make up your own mind on the type of properties and areas you prefer. Remember that shares represent votes at the shareholders' meeting. If share price drops too far below the value of that percentage of the company, the company gets bought out and taken over. This tends to set a minimum share price derived from the company's current value. The share price may rise above that baseline if people expect it to be worth more in the future, or drop s bit below if people expect awful news. That's why investment is called speculation. If the price asked is too high to be justified by current guesses, nobody buys. That sets the upper limit at any given time. Since some of this is guesswork, the market is not completely rational. Prices can drop after good news if they'd been inflated by the expectation of better news, for example. In general, businesses which don't crash tend to grow.  Hence the market as a whole generally trends upward if viewed on a long timescale. But there's a lot of noise on that curve; short term or single stocks are much harder to predict. "Great question!  A Yield Curve is a plot of the yields for different maturities of debt. This can be for any debt, but the most common used when discussing yield curves is the debt of the Federal Government. The yield curve is observed by its slope.  A curve with a positive slope (up and to the right) or a steepening curve, i.e. one that's becoming more positively sloped or less negatively sloped, may indicate several different situations. The Kansas City Federal Reserve has a nice paper that summarizes various economic theories about the yield curve, and even though it's a bit dated, the theories are still valid. I'll summarize the major points here. A positively sloped yield curve can indicate expectations of inflation in the future. The longer a security has before it matures, the more opportunities it has to be affected by changes in inflation, so if investors expect inflation to occur in the future, they may demand higher yields on longer-term securities to compensate them for the additional inflationary risk. A steepening yield curve may indicate that investors are increasing their expectations of future inflation. A positively sloped yield curve may also reflect expectations of deprecation in the dollar. The publication linked before states that depreciation of the dollar may have increased the perceived risk of future exchange rate changes and discouraged purchases of long-term Treasury securities by Japanese and other foreign investors, forcing the yields on these securities higher. Supply shocks, e.g. decreases in oil prices that lead to decreased production, may cause the yield curve to steepen because they affect short-term inflation expectations significantly more than long-term inflation. For example, a decrease in oil prices may decrease short-term inflation expectations, so short-term nominal interest rates decline. Investors usually assume that long-term inflation is governed more by fundamental macroeconomic factors than short-term factors like commodity price swings, so this price shock may lead short-term yields to decrease but leave long-term relatively unaffected, thus steepening the yield curve. Even if inflation expectations remain unchanged, the yield curve can still change. The supply of and demand for money affects the ""required real rate,"" i.e. the price of credit, loans, etc. The supply comes from private savings, money coming from abroad, and growth in the money supply, while demand comes from private investors and the government. The paper summarizes the effects on real rates by saying Lower private saving, declines in the real money supply, and reduced capital inflows decrease the supply of funds and raise the required real rate. A larger government deficit and stronger private investment raise the required real rate by increasing the demand for funds. The upward pressure on future real interest rates contributes to the yield curve's positive slope, and a steepening yield curve could indicate an increasing government deficit, declines in private savings, or reduced capital coming in from abroad (for example, because of a recession in Europe that reduces their demand for US imports). an easing of monetary policy when is economy is already producing near its capacity ... would initially expand the real money supply, lowering required short-term real interest rates. With long-term real interest rates unchanged, the yield curve would steepen. Lower interest rates in turn would stimulate domestic spending, putting upward pressure on prices. This upward price pressure would probably increase expected inflation, and as the first bullet point describes, this can cause long-term nominal interest rates to rise. The combination of the decline in short-term rates and the rise in long-term rates steepens the yield curve.  Similarly, an inverted yield curve or a positively sloped yield curve that is becoming less steep may indicate the reverse of some or all of the above situations. For example, a rise in oil prices may increase expectations of short-term inflation, so investors demand higher interest rates on short-term debt. Because long-term inflation expectations are governed more by fundamental macroeconomic factors than short-term swings in commodity prices, long-term expectations may not rise nearly as much as short term expectations, which leads to a yield curve that is becoming less steep or even negatively sloped. Forecasting based on the curve slope is not an exact science, just one of many indicators used.  Note - Yield Curve was not yet defined here and was key to my answer for What is the ""Bernanke Twist"" and ""Operation Twist""? What exactly does it do? So I took the liberty of ask/answer." I hate that this thread is all binary, either it's the fault of the individual or the fault of the society. Isn't it obviously both?  Some of it is lifestyle inflation (which is understandable considering our parents generation was one of the wealthiest in human history).  Some of it is the automation throwing a wrench into unskilled/lowskilled labor.   The article says it's a function of stagnating wages while housing and other traditional expenses keep climbing. If that's true (which I think it is based [on this and other studies](http://www.epi.org/publication/charting-wage-stagnation/)) then why aren't we having conversations about WHY this is happening. "&gt; A severe outbreak of inflation would be great for debtors and homeowners - a large percentage of the population.   Not necessarily.  You presume that wages would rise along with prices.  In fact prices have been rising, but wages haven't followed suit.  &gt;It would also be great for equity owners.  Do you understand the definition of ""bubble""?" Becoming a landlord is a pretty roundabout way to hedge against inflation. Why don't you research TIPs (Treasury Inflation Protected Securities (?)) Over the very long term, a house will just about match inflation, but no more. I observe that it (median home price) has remarkably tight correlation to the mortgage one can buy with a week's worth of median income based on the 30 year rate. In other words, strip out inflation, wage gains, and the effect of the 30 year rate peaking at 18%, then dropping to 4%, and home prices have flatlined for a century.  I agree with mhoran. My answer is for the median, theoretical home. As they say, YMMV, your mileage may vary. As in, you can't have one. "I don't buy the ""house prices will always increase due to the increased cost of raw materials"" argument. In a lot of countries you will find that the cost of (re)building a property is substantially lower than its perceived sale value. If it wasn't, there would be no incentive for developers to take the risk of buying the land and building houses on it. Say the cost of building the house is 50% of the sale price (which might already be generous). Materials probably account for half of the building cost so you've got 25% tail wagging 75% dog? I'd start to worry if people buy property as a get rich quick scheme, which seems to be what you're describing."