> I think there is something else going on in real estate. This is the only asset class with significantly above average gains for decades. It does go down once in a while but it comes roaring back in relatively short time. Even when dropping, it rarely goes below 25% protecting most of the principal. This is about the only item that had massive inflation in past 7 years.

This is incorrect. The median new house price in the US hit a pre-recession peak in March 2007 of $262,600. In Nov 2015, the price was $305,000. An investment in a theoretical "median real estate" fund would have returned 16.4% over the 7 year period. [1]

An investment in the S&P500, say through SPY or the Vanguard ETF (if it had been available pre 2009) would have returned 27.9% over the same period, or 53.1% if you had reinvested your 5.0% annualized dividends. [2]

At a more granular level (using Zillow data) - the median housing price in San Francisco over the same period increased from $786k to $1.12m for a return of 42.4%. Cambridge, 47.0%. Manhattan, 66.6%.

San Diego? 3.5%. Boise? -12.6%. St. Louis? -22.9%. Detroit? -49.6%. Did you know that the median sales price of a house in Detroit is currently $38.4k?

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> In economics, you can make anything a currency which cannot be manufactured easily and is available in quantity that is very hard to grow. Economists are puzzled why the tons of money poured in to system through QEs isn't producing any inflation. I think QEs are indeed producing massive inflation but it all goes in to real estate. Funds like Blackstone eventually ends up with significant chunk of QE money and guess what is their major investment activity these days? The easy "inexpensive" money is the best way to inflate real estate.

Economists are (for the most part) in agreement that QE is not causing inflation due to a lack of aggregate demand. Here is an article [3] in which Brad DeLong (UC Berkeley, Keynesian-adherent) agrees with Joseph Stiglitz (Nobel Laureate, voted 4th "most influential" economist in the world today) when he makes the following assertion:

The economics of this inertia is easy to understand, and there are readily available remedies. The world faces a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity...The only cure for the world's malaise is an increase in aggregate demand. Far-reaching redistribution of income would help, as would deep reform of our financial system -- not just to prevent it from imposing harm on the rest of us, but also to get banks and other financial institutions to do what they are supposed to do: match long-term savings to long-term investment needs. [4]

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What does this have to do with the higher real estate prices in urban centers? I believe that what is truly happening is that many are flocking to a decreasing number of cores (usually around universities that churn out well-educated but low-paid graduates) for fewer aggregate job opportunities in select sectors: finance, tech, entertainment, business services (consulting, HR, accounting, etc.), and services (food, drinks, nail salons, etc.). This has happened in a relatively short amount of time as the employment market is generally more fluid and less regulated than the housing market, which is restricted and regulated in the extreme in high-demand, high-price markets. It takes 2-3 years for an org to restructure its work force, but it takes decades to make meaningful changes to the way a city is built.

[1] https://www.census.gov/construction/nrs/pdf/uspricemon.pdf

[2] http://dqydj.net/sp-500-return-calculator/

[3] http://www.huffingtonpost.com/brad-delong/global-economic-de...

[4] http://www.huffingtonpost.com/joseph-e-stiglitz/world-econom...