ABC ran a short Odd tOdd video on housing prices that I found very enlightening:
http://abcnews.go.com/Video/playerIndex?id=4614590&affil=wabc
Housing prices were largely stable for 100 years and were not counted on as a source of income or investment growth. Only toward the end of the 1990's did the trend start and really spike. The average home price nearly doubled (85%) in those 8 years - when that kind of real estate spike happened in Japan the collapse lasted 15 years and ended at the levels the spike started from.
I guess I fell into the illusion that home prices have always kind of trickled upwards. Which, I guess, they do... but looking at it from an "investment" standpoint and adjusting for inflation, they remain steady.
(http://upload.wikimedia.org/wikipedia/en/thumb/6/6c/Shiller_IE2_Fig_2-1.png/726px-Shiller_IE2_Fig_2-1.png)
I have overheard several of my wealthy clients say that a home is NOT an investment. One was on the phone with his son, who was apparently fretting over which house he should buy. I remember the client saying, "Its a house, not an investment, its just a place to live. Pick one you like and be done with it." lol
Not affiliated with him, but I have heard Dave Ramsey say stuff like that before. I guess it takes a hard gulp to grasp the fact that we can't all get rich quick in real estate one day.
One market of real estate though I do see people making money in even in markets where home prices are not climbing is when you find a dump, fix it up (do the work yourself) then sell it at fair market value. And now many people wont qualify for a note because of credit issues so you can find more and more people willing to accept a lease to own options which often times increases the the investors net revenue.
I am not sure why this makes money except that I think a lot of new construction pricing is in the labor. I had a plumber tell me once that he charged $2500 a bathroom in labor in new construction.