House prices over long time periods should track inflation, which is, after all, a rise in the price of ordinary goods (or a drop in the value of the money that buys them). To nitpick, house prices should actually lag inflation by an almost imperceptible amount, since houses aren’t consumed like oil and aren’t as durable as gold, but rather decay like cars, only much more slowly. Yale economist Robert Shiller studied house prices from 1890 to 2004 and found they outpaced inflation by just 0.4 percentage points a year. That’s a small enough difference from zero to be attributable to the crudeness of early data, to bubbly 2004 prices or to government-created demand shifts along the way, such as down-payment subsidies, tax incentives for those who borrow to buy houses and so on.

The race between house prices and inflation since 1987. Houses behaved like ordinary goods until around 2000. That year the Federal Reserve began a three-year campaign to reduce core interest rates from 6.5% to 1%, which brought mortgage rates down, too. A giant bubble ensued. Encouragingly, house prices are now converging on the inflation line, where they would have been without the bubble. For the two lines to rejoin, house prices don’t necessarily have to fall further. They could flatten for a couple of years and let inflation catch up.

House buyers perhaps don’t care about the historical relationship between houses and inflation. They care about whether they can afford their mortgage payments, and about whether buying is a better deal than renting. The National Association of Realtors publishes an affordability index that says terrific things about buying houses now, but to use it is to take buying advice from people who are paid to sell. I prefer to roll my own.