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Comment by mikekchar | Hacker News Reader

I find it incredible as well. The only way housing can increase above inflation without it being a bubble is if everything else is below inflation -- because housing is a big part of the inflation calculation. If inflation is 2% and you are "making" a 10-15% return on your house investment, something is very seriously wrong where you live. The piper will be paid. The problem is that you don't know when. If you are opportunistic you might be able to make some money off this inbalance, but it's certainly not a condition you should wish for if you actually want to live in that area long term.

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Inflation is normally shorthand for "basket of goods" inflation, which notoriously /does not/ include housing costs. That's how we've had "low inflation" whilst having a bubble in housing and equity, because these forms of wealth are excluded. Which works out because you can have a mostly silent concentration of wealth without people screaming about this big indicator.

>something is very seriously wrong where you live

Places can become more or less desirable to live in - all this talk about matching inflation rates etc. is about the housing market as a whole - average. If you bought in a bad neighborhood and suddenly the neighborhood gets renovated and richer people start moving in - your property can increase in value multiple times over what you paid for it initially. If your area has excellent job offers and limited housing supply you will see housing prices increase because more people with more income will come to that area to work there. The problem happens when the local job market hits a slump and you assumed the demand increase will fuel the growth to cover your investments.

Part of it is that some areas grow. Some cities are growing, others shrinking; different neighborhoods in different places. Some people I know have done a double or better on their property values over the past decade-and-a-half because it is now an upscale area. It can't happen nationwide, but even an economy which is stagnant over all is constantly in flux.

Of course, others I know have also lost substantial value at times.

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