Did Your House Actually Double? house prices in real terms

The most repeated number in household finance is nominal and gross

"We paid $200,000 in 2006 and it's worth $400,000 now."

The house doubled. Over the same twenty years, 3% inflation multiplies prices by 1.81 on its own. So most of the doubling was the currency rather than the house.

sale price, nominal $400,000 in 2006 money, at 3% inflation $221,470 real gain over 20 years +10.7% real gain per year +0.51%

At 2.5% inflation the same sale is a real gain of about 22%, or 1.0% a year.¹ The headline is identical in both cases, and the two results describe quite different outcomes.

Then subtract what the headline leaves out

The quoted figure is a gross number as well as a nominal one. Ownership carried costs for all twenty years, and selling carried more.

Any one of these can exceed a 10.7% real gain spread over two decades. Together they usually do. A full accounting frequently turns a real gain into a real loss on the asset considered alone.

This does not make buying a mistake

The house was shelter. Living somewhere has a cost regardless, and the alternative was paying rent for twenty years while rent tracked inflation upward.

The honest comparison is ownership costs against the rent avoided, with the real change in price as one term among several. That is a different calculation from the one the headline invites, and it often favors owning.

Two other things a house does that a price comparison misses: the mortgage payment is fixed while rent is not, which is the effect Does Inflation Reduce What You Owe? fixed-rate debt in real terms describes; and paying it down converts income into an owned asset. Both are real advantages and neither appears in "it doubled".

The claim being corrected here is narrow: that the nominal price change is a measure of investment return. It is not, and it is the version that gets repeated.

Why it matters for your position

A home is usually the largest single line in NEST: what you actually own, and that line is carried at a nominal value. A NEST that grew over ten years grew partly because the currency shrank.

Long-run house price research has generally found real appreciation far below what nominal figures suggest, though local markets vary enormously and a national finding says little about one address.² The arithmetic above is the part you can do for your own house without relying on anyone's index.

The test

• Over how many years, and what did prices do across them? Divide the current value by

(1 + inflation) to the power of the years held.

• What did the years cost? Tax, insurance, maintenance, interest, and the cost of selling.
• What was the alternative? Rent for the same period, rising with inflation.
• What is left? That is the return. It is usually smaller than the headline and it is the

number that describes what happened.

The short version

A house bought for $200,000 and sold for $400,000 twenty years later doubled in nominal terms and gained about 10.7% in real terms at 3% inflation, or 0.51% a year. At 2.5% inflation the real gain is about 22%. Neither figure subtracts property tax, insurance, maintenance, mortgage interest or selling costs, which together often exceed the real gain. None of this argues against owning, because the house was shelter and the alternative was rising rent. It argues against reading a nominal price change as an investment return.