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.
"As Michael McGowan says, just because gold has gone up lots recently does not mean it will continue to go up by the same amount. This plot:  shows that if your father had bought $20,000 in gold 30 years ago, then 10 years ago he would have slightly less than $20,000 to show for it. Compare that with the bubble in real estate in the US:  Update: I was curious about JoeTaxpayer's question: how do US house prices track against US taxpayer's ability to borrow?  To try to answer this, I used the house price data from here, the 30 year fixed mortgages here and the US salary information from here. To calculate the ""ability to borrow"" I took the US hourly salary information, multiplied by 2000/12 to get a monthly salary. I (completely arbitrarily) assumed that 25 per cent of the monthly salary would be used on mortgage payments.  I then used Excel's ""PV"" (Present Value) function to calculate the present value of the thirty year fixed rate mortgage. The resulting graph is below.  The correlation coefficient between the two plots is 0.93.  There are so many caveats on what I've done in ~15 minutes, I don't want to list them... but it certainly ""gives one furiously to think"" !! Update 2:  OK, so even just salary information correlates very well with the house price increases.  And looking at the differences, we can see that perhaps there was a spike or bubble in house prices over and above what might be expected from salary-only or ability-to-borrow." All else constant, yes. It's one more reason rates aren't being raised quickly. The housing market is very delicate. Before the crash, a lot of homes in my area were 25% cheaper than after the rates dropped to historic lows. My area wasn't heavily affected by the recession, but homeowners still greatly benefitted from the increase in housing values which led to a lot more investment, though the houses aren't actually worth anything more.   To raise rates dramatically now would be to trap a lot of homebuyers in homes that aren't worth what they owe. In general, prices are inversely proportional to rates; however, accurate interest rate prediction would make one worthy of managing a large credit derivative hedge fund. This is not to say that interest rates cannot go up in Canada since the world is currently undergoing a resource bust, and the United States has begun exporting more oil, even trying to recently open the market to Europe, both of which Canada is relatively dependent upon. Also, to say that Canada currently has the most overpriced real estate is an oversight to say the least considering China currently has entire cities that are empty because prices are too high. A ten to twenty percent drop in real estate prices would probably be a full blown financial crisis, and since mortgage rates are currently around 2.5%, a one to two hundred basis point rise could mean a nearly 50% decrease in real estate prices if interest payments are held constant.  Canada would either have to start growing its economy at a much higher rate to encourage the central bank to raise rates to such a height, or oil would have to completely collapse suddenly to cause a speculatively possible collapse of CAD to encourage the same. The easiest relationship to manipulate between prices and rates is the perpetuity: where p is the price, i is the interest payment, and r is the interest rate.  In this case, an increase of r from 2.5% to 4.5% would cause a 44.5% decrease in p if i is held constant.  However, typical Canadian mortgages seem to mature in ten years at a fixed rate, so i cannot be held constant, and the relationship between r and p is less strong at earlier maturities, thus the most likely way for prices to collapse is for a financial collapse as described above. "Your argument is biased vastly in favor of the banks:  Doesn't the simultaneous growth of the residential and commercial real estate pricing bubbles undermines the case made by yourself that Fannie and Freddie were at the root of the problem?  Why does your explanation also leave out predatory lending? Or that during 2006, 22% of homes purchased (1.65 million units) were for investment purposes, with an additional 14% (1.07 million units) purchased as vacation homes. During 2005, these figures were 28% and 12%, respectively. In other words, a record level of nearly 40% of homes purchased were not intended as primary residences.   Or that housing prices nearly doubled between 2000 and 2006, a vastly different trend from the historical appreciation at roughly the rate of inflation.  Or that the proportion of subprime ARM loans made to people with credit scores high enough to qualify for conventional mortgages with better terms increased from 41% in 2000 to 61% by 2006.   From wikipedia: So why did lending standards decline? In a Peabody Award winning program, NPR correspondents argued that a ""Giant Pool of Money"" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. Further, this pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with financial innovation such as the mortgage-backed security (MBS) and collateralized debt obligation (CDO), which were assigned safe ratings by the credit rating agencies. In effect, Wall Street connected this pool of money to the mortgage market in the U.S., with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans, to small banks that funded the brokers, to the giant investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted. However, continued strong demand for MBS and CDO began to drive down lending standards, as long as mortgages could still be sold along the supply chain. Eventually, this speculative bubble proved unsustainable." When over the long term housing costs in a area rise faster than wages rise, the demographic of who lives in the area changes. The size and income parameters change. A region that was full of young singles is now populated with couples with adult children, that means that the businesses and amenities have to change. At a national level it isn't sustainable unless other items change. The portion of monthly income that can be safely allocated to housing would have to change. One adjustment could be the the lengthening of home loan periods, thus dropping the monthly payment.  This has been seen with car loans, over the last few decades the length of loans has increased. In interesting related event could be the change in deduction of mortgage interest and property tax. If this was to change abruptly, there could be an abrupt change the estimated value of housing, because the calculus of affordability would change. "Meh, not really.  While there was some idea that housing prices would continue to rise forever, the packaging of bad loans has nothing to do with optimism, that's outright fraud. If you really want to stretch the definition, you might be able to say they had a fantasy that they weren't going to get caught because...well they hadn't for nearly two decades.  Honestly though, just google ""fraud housing market"" or ""mortgage banks"" and you'll find more than enough direct proof of fraud and deception." Haven't they been predicting this since 2012? The luxury housing market keeps going up due to huge demand, influx of $ from the economic and stock market boom, and technological epicenters of innovation such as the Bay Area. Not a bubble I don't buy it.  The evidence offered seems weak.  Stocks are pretty high, but debt in the US has decreased according to the Federal Reserve statistics concerning debt.  It's true there is a little inflation in prices because of low interest rates, but as the Fed starts raising rates, there will be a correction.  Not a recession. The logic is that the value of America could be determined by adding up the assets of all Americans.  If houses are more expensive then America is richer (we own a large number of more expensive houses), even though no additional real assets have been created (as if more houses were built). In any case, for sure, the wages went up... a lot... and most likely wage increases are most of the 30% increase in costs.  As for consumers paying more, maybe they will get better quality, maybe they will be able to afford it now with extra income and maybe they will not raise the prices as they already have huge margins, people have choices and the real estate prices is only based on relative price of neighboring houses, used or new. The history of the last 100 years has demonstrated that inflation need not be a straight-line advance in price across the board. New technology has delivered productivity gains which have in many cases compensated for inflation. Keep in mind that price changes may be inflationary, but may not attributable to inflation. For example, the massive swing upward in gasoline prices had more to do with the market, specifically Chinese demand for gas than inflation. But increased fuel costs trickle into the prices of other commodities that we need to buy as well! I mentioned in other posts that it's not unreasonable that prices might rise slightly. Demand would go up and some labor costs would as well. To your point, I can say that prices would not go up 1:1, that's an absurd hypothesis that doesn't stand up to even a sniff test. "House prices do not go up.  Land prices in countries with growing economies tend to go up.  The price of the house on the land generally depreciates as it wears out. Houses require money; they are called money pits for a reason.  You have to replace HVAC periodically, roofs, repairs, rot, foundation problems, leaks, electrical repair; and all of that just reduces the rate at which the house (not the land) loses value. To maintain value (of the house proper), you need to regularly rebuild parts of the house.  People expect different things in Kitchens, bathrooms, dining rooms, doors, bedrooms today than they do in the past, and wear on flooring and fixtures accumulate over time. The price of land and is going to be highly determined by the current interest rates.  Interest rates are currently near zero; if they go up by even a few percent, we can expect land prices to stop growing and start shrinking, even if the economy continues to grow.  So the assumption that land+house prices go up is predicated on the last 35 years of constant rigorous economic growth mixed with interest rate decreases.  This is a common illusion, that people assume the recent economic past is somehow the way things are ""naturally"".  But we cannot decrease interest rates further, and rigorous economic growth is far from guaranteed. This is because people price land based on their carrying cost; the cost you have to spend out of your income to have ownership of it.  And that is a function of interest rates.  Throw in no longer expecting land values to constantly grow and second-order effects that boost land value also go away. Depending on the juristiction, a mortgage is a hugely leveraged investment.  It is akin to taking 10,000$, borrowing 40,000$ and buying stock.  If the stock goes up, you make almost 5x as much money; if it goes down, you lose 5x as much.  And you owe a constant stream of money to service the debt on top of that. If you want to be risk free, work out how you'd deal with the value of your house dropping by 50% together with losing your job, getting a job paying half as much after a period of 6 months unemployment.  The new job requires a 1.5 hour commute from your house.  Interest rates going up to 12% and your mortgage is up for renewal (in 15 years - they climbed gradually over the time, say), optionally. That is a medium-bad situation (not a great depression scale problem), but is a realistic ""bad luck"" event that could happen to you.  Not likely, but possible. Can you weather it?  If so, the risk is within your bounds.  Note that going bankrupt may be a reasonable plan to such a bit of bad luck.  However, note that had you not purchased the house, you wouldn't be bankrupt in that situation. It is reasonably likely that house prices will, after you spend ~3% of the construction cost of the house per year, pay the mortgage on the land+house, grow at a rate sufficient to offset the cost of renting and generate an economically reasonable level of profit.  It is not a risk-free investment. If someone tries to sell you a risk-free investment, they are almost certainly wrong." The big problem with your argument is the 10% per year figure, because in the long term (especially if adjusted for inflation) the prices have not been going up nearly that fast. Here is a site with some nice graphs for prices over the last 40 years, and it's pretty clear to see that pretty much just what you were talking about happened, prices outpaced the ability of people to pay, which progressively locked out more and more first time buyers, and eventually that breaks the cycle, pops the bubble, and the prices adjust. There is always of course the choice to NOT buy a house, and just rent, or if you had the feeling that you are near the top of a bubble, SELL and go back to renting.  It's interesting to note that in general, rental rates did not increase at nearly the same pace as the prices in the recent bubble. (which of course made it harder for anyone who bought 'investment' properties in the recent 8 years or so to cover their payments via rental revenue.) "Securities and ETFs are also subjected to Estate Tax.  Some ways: Draft a ""Transfer on Death"" instruction to the broker, that triggers a transfer to an account in the beneficiary's name, in most cases avoiding probate. If the broker does not support it, find another broker.  Give your brokerage and bank password/token to your beneficiary. Have him transfer out holdings within hours of death.  Create a Trust, that survives even after death of an individual.  P.S. ETF is treated as Stock (a company that owns other companies), regardless of the nature of the holdings.  P.S.2 Above suggestions are only applicable to nonresident alien of the US."