The Illusion of Wealth & How to Beat Inflation: A 100-Year Perspective
We tested 30 ideas about how to beat inflation against 100 years of US money supply data, from gold and housing to savings, the S&P 500 and Bitcoin.
Topic
Real Estate: What 100 Years of House Prices Really Show
We used the St. Louis Fed’s median US house price series for Part I, and it starts at $5,000 in 1926 and finishes at about $415,400.
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That is an 83-fold rise, and it is the number most people have in their heads when they say property always goes up. Set it against the money supply, which grew 503-fold over the same years, and the same house has held on to only about a sixth of its share of the money pool.
UK houses, using Nationwide’s index, did much better at 439x but still fell short. Property only came out ahead in our data with the rent reinvested, which the series overview puts at around 9.3% a year.
- 83x Median US house since 1926 $5,000 to $415,400, an M2-adjusted value of 0.17.
- 439x UK house prices since 1926 £619 to £271,809, an M2-adjusted value of 0.87.
- 241 → 120 oz Median US house priced in gold Fewer ounces of gold buy a house today than in 1926.
Articles on Real Estate
3 articles from our research on this topic.
Historical Asset Class Returns: The 100-Year Scorecard
Historical asset class returns since 1928 for nine investments, from small caps to T-bills, and why only three of them grew faster than the money supply.
Gold vs Real Estate Returns & Which Asset Beat Inflation? The 100-Year Performance
Gold rose 168x and US house prices 83x after 1926, while the money supply grew 503x. We compare gold vs real estate returns to see which kept its value.
Plain-English definitions
Key terms for real estate
- M2-adjusted value 1.0 = break-even
- An asset’s growth divided by M2 growth over the same years. Above 1.0 it gained share of the money pool, below 1.0 it lost share.
- Nominal vs real
- Nominal figures are the dollar amounts you see. Real figures adjust them for something else, which in this research is the growth in M2.
- Total return
- Price growth plus every dividend, rent payment or coupon put back into the investment, as opposed to price alone.
- Safe haven
- An asset people buy to protect wealth in bad times, such as gold or property. Part I tests whether they did that against M2.
FAQ
Questions about real estate
Answers drawn from the figures in our research. Educational only, not financial advice.
Does property beat inflation over the long term?
On price alone, not against money printing. US house prices lost about 83% of their value relative to M2 over the century in Part I, and the Part III scorecard, which uses a different index starting in 1928, puts US real estate at 56.3x against 473x for M2.
UK houses came closest at an M2-adjusted value of 0.87, and they did run ahead of M2 for a while in the late 1980s and the mid-2000s before falling back below break-even after 2008. Where property does win in our research is when the rent is reinvested, which the series overview puts at around 9.3% a year.
Why measure house prices in gold?
We wanted a second ruler that didn’t depend on the dollar. Priced in gold, the median US house cost about 241 ounces in 1926 and around 120 ounces today, so it has become cheaper in those terms even though its dollar price rose more than eighty-fold. That convinced us that most of what looks like property appreciation comes from the currency losing value rather than the house gaining it.
Sources