The American dream

For the longest time people believed and still believe that the "American dream" is not complete without owning a house. And for most people their house is basically their retirement plan. But what do the numbers tell us?

Let us start from the simple claim that: "houses appreciate and are great way to save/make money and make a fortune". Let us look at the graph below, inflation and house price.

First let us look at the average sales price of houses sold in the united states¹. One can see that the price is oscillating within a channel (the dashed and dash-dot blue lines), with exception to the post COVID section. One can also see that the increase in these prices matches the increase in inflation, i.e the blue lines are more or less parallel to the dotted red line. The latter represents the log term trend of inflation.

So, the first thing that one needs to get from the graph is that your house might be worth more dollars but these dollars are worth less. And whatever you gained in nominal term, you lost in inflation terms. That means your buying power has not changed over time, despite the fact that you have way more dollars.

Another important thing one should notice is that from 1970 till 2020, the consumer price index jumped from 39 to 280. That makes the slope 4.8%. Now let me ask you, how many times have you heard the FED talk about their 2% inflation target? In their own data, that never happened, at least since 1970. Inflation has been running closer to 5% than 2%.

1- Below are some of additional articles that I found interesting and thought they might drive the point home.
Housing Prices Have Not Changed All That Much In The Last 40 Years
Total U.S. Cumulative Inflation

If you take a look at the chart in the above paper you will see the that most inflation happened between 1970, and now. And that was a factor of 10 roughly. I.e. your money from the 1970 is worth tenth its value today.
A common rule in investment is the 72 rule. I says if you divide 72 by the return on your investment, you get the number of years it take to double you money. So if we adopt Warren Buffet "rule of thumb" for expectation, 7%, that means your money should double ever 10 years roughly. That means your money should have double 5 times from the 70s, that is a factor of 2⁵ or 32 folds. So, if all the assumptions are true you could potentially be ahead of inflation since your money will go up 32 folds, and you lose 10 (30%) of that to inflation.
The above math carries a risk of timing. If for example you started with \$1, double, double, double, double and double, that given you \$32. But if you lose say 50% after that, you are back to \$16. And if you suffer two 50% reduction in that 50 years, you are back to $8. So you did not beat inflation.