Visualizing Economics presents a graphic history of housing prices in the U.S. since 1890.  Apparently real estate folks tend to get fooled by inflation.  Note the housing price bubble in 2000-2010 in real terms.  According to this we’re just getting back towards normal but not quite there yet.

Real vs Nominal Housing Prices: United States 1890-2010

A $10,000 house in 1890 would be worth almost the same in real dollars in 2010 but more than $350,000 in nominal dollars in 2010. Which matters to the home seller, real or nominal prices? If a seller is holding a mortgage then the question is: Can I sell for more or less than I owe? Since that loan amount is not adjusted for inflation then the nominal value is more importent both the seller and the mortgage holder. It is when nominal prices fall that banks have trouble with high rates of mortgage defaults. But if you are looking at the long-term value of real estate as an investment (compared to stocks or bonds) then you need to take into account the real growth.

Data Source for Housing Price Index from Robert Shiller’s Irrational Exuberance

BTW: If you like this graph, then please consider supporting the Kickstarter project for Visualizing Economics by going here and pledging like I have before April 30, 2011.  Thanks.