We are conditioned and brainwashed to expect inflation. In reality most of the rising prices in real estate is not really increasing our wealth in spending power, but just increasing the line on our balance sheet with bigger numbers that reflect inflation. For example if land has an income of about 9% long term, half might be income and half might be capital gains. But if we have had inflation at 4.5% that actually means the land only produced "real" income of the original 4.5% earned income. Land may have appreciated a little in real dollars because there are more people and higher demand and certain assets might increase in real terms because of greater demand (like to build a shopping mall on it) but generally speaking, a lot of our capital gains are only a reflection of a long term dollar loss of purchasing power.

My dad 40 years ago always related this situation by comparing the price of one of his favorite candy bars, a 3 Musketeers, from when he was a kid and they were a nickel. I think back then when I was a kid they might have been a quarter or maybe a little more. He would also emphasize that it was no small candy bar either, but a larger one than are common today. I think of this story he would tell me when I check out at a store and see the candy bars on display. I noticed at Home Depot the other day they were $1.00 for a bar that was about half size of his day. That makes today's dollar worth about 3-4 cents in purchasing power in the early 1900's, at least for candy bars.

If we had a sound currency, that did not depreciate, there would be little need for asset prices to increase. The income the asset produced would be real, not part of it real and part imaginary.

John