Why U.S. House Prices Won't Recover

But consider: After subtracting for inflation, prices are also back to 1986 levels. And 1955 levels. And 1895 levels (see chart).

That's because the natural rate of price appreciation for houses is zero after inflation.

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Houses are ordinary consumable goods: wood, stone and metal bound pieced together through labor. There's no reason to believe they should enjoy a special rate of return distinct from those for, say, apples and shoes. My best guess for the rate of price increase of all three is 2.2% a year over the next 10 years--equal to the rate of inflation.

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To see whether houses are a good deal in your market, start by checking a list of price-to-rent ratios like the latest one published by Trulia.com...