… real estate value in America is generally denominated in dollars, which means that prices are, at least over the long term, tied to inflation. Remember – the less the value of each dollar, the more dollars it takes to buy anything, including real estate.
Real estate normally appreciates in price over the long term for two main reasons. One – there is only so much dry land on this planet. This makes dirt a finite commodity, and as such the laws of supply and demand stipulate that the price goes up over time. Two – real estate value in America is generally denominated in dollars, which means that prices are, at least over the long term, tied to inflation. Remember – the less the value of each dollar, the more dollars it takes to buy anything, including real estate. Since the average inflation rate over many decades seems to run between 3% and 4%, meaning that the dollar looses on the average 3% – 4% of its’ value annually, real estate appreciates every year proportionally.
Thus, a property that was purchased for $35,000 in 1960 would have fetched two to tree times as much or more by 2010. Furthermore, an apartment that would have rented for $150 per month in 1972, rented for $425 or more in 2000. Thus, income-producing real estate is a prodigious hedge against inflation both in terms of the buying power of the wealth stored within it and in terms of income protection.