In the wake of the housing bubble, Americans aren't feeling so keen on the once commonly-held view that a home is a good investment. Sure, it can pay dividends once paid off -- there's no question that you save money when you have nothing more to pay for your shelter other than occasional maintenance. But some analysts have attempted to show that, on average, home prices never really rise if you take inflation into account. This means that there's no reason to expect home value appreciation to exceed the rate of inflation over an extended period. Is this right?
It might depend on what data you're using. Robert Shiller is one such economist who claims that home values are steady if you account for inflation, but Bill McBride at Calculated Risk doesn't like his data. Basically, the quibble amounts to Shiller having used Federal Housing Finance Agency data in the 1970s, which he says doesn't capture the entire market well enough.
In a blog post, he recalculates the Shiller index using Freddie Mac data instead and also considers CoreLogic's index. Doing so, he finds an upward slope in housing prices for both, even after inflation is taken into account. Here's the chart:
Although he doesn't provide values, I tried to eye it to come up with annual returns. The red dashed line (Shiller's recalculated) apprears to indicate a return of around 0.5%, while the blue dashed line (CoreLogic) appears to indicate a return of around 0.8%. Neither are going to make you rich, but each is definitely greater than zero.