Last week was an interesting one for the investing community. Warren Buffett, CEO of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), released his annual newsletter laden with inspiring economic messages and his general thesis for what could transpire in the upcoming year.

Admittedly, I can't remember a time when Buffett hasn't been anything but an optimist, and this annual newsletter didn't deviate. Even in the face of being wrong, Buffett stands steadfast in his predictions.

Such was the case with a call he made in 2011 that housing was at or near a bottom. In Buffett's own words, "Last year, I told you that 'a housing recovery will probably begin within a year or so.' I was dead wrong." According to the Case-Shiller home price index, home prices fell another 4% in 2011.

Wrong or not, Buffett once again stood by his prediction that housing prices were bound to recover. While being interviewed by CNBC, Buffett commented that:

I would say the single-family homes are cheap now, too. If I had a way of buying a couple hundred thousand single-family homes ... I would load up on them. ... It's a very attractive asset class now.

It's very rare that Warren Buffett and I will not see eye to eye, but I'm on the complete opposite side of the camp on this one. Let me explain why.

This is not an investment
My argument begins with housing price gains over time. Most of today's investors and homebuyers have a very short-sighted view when it comes to what it means to own a home. Prior to 1997, owning a home was not an investment. I can almost hear you all screaming through the computer, "Then why is the home I bought in 1964 for $35,000 now worth $200,000 -- isn't that a nice return on investment?" The answer is "yes," but have you factored in the effect of inflation on your return? Between 1890 and 1990, the average inflation-adjusted return on your home was a paltry 0.21%. It gets even worse if you focus on the period between 1950 and 1997, when the inflation-adjusted return was just 0.08%.

Source: Robert Shiller, Irrational Exuberance.

As you can see from the chart above, only in the past decade has owning a home actually paid off as an investment for most people -- and even then you had to have sold to have turned an actual profit. With 23% of homeowners currently underwater on their mortgage, that didn't happen in most cases.

A nation of squatters
Which leads me to my next point: What are homeowners and banks going to do to get foreclosed properties off the market?

According to data from RealtyTrac, there are currently 1.354 million homes in foreclosure throughout the United States with many analysts forecasting that number to increase dramatically over the coming years. Separately, in October, LPS Mortgage Monitor noted in its study that the length of time from when a borrower begins to miss payments to when the bank actually repossesses the house has increased to a staggering 611 days! That's up from 523 days earlier in 2011 and more than double the 251 days LPS noted in 2008.

As of August 2011, there were more than 4 million homes that were either 90 days behind in their payments or were already in the foreclosure process. In short, the housing market is going to have to absorb somewhere in the neighborhood of 5 million to 6 million foreclosures over the next two years. This isn't good news for housing prices, and it's definitely not good news for a housing market already glutted with foreclosures.

Source: RealtyTrac.

RealtyTrac data released last week showed that foreclosures made up 24% of all property sales in the fourth quarter. Amazingly enough, that's down from 26% in the year-ago period. Based on the rate distressed properties have sold over the past four years (an average of 963,000 per year), it could easily take six years to return the housing market to somewhat normalized foreclosure inventory levels.

The payoff
Home prices since 2006 have fallen at an annualized rate of 9% per year, and a glut of foreclosed properties is a primary reason for the drop. Foreclosures often price well below going market values and, according to RealtyTrac, foreclosed property prices fell another 5% in the fourth quarter from one year ago.

Keep in mind that while home prices are dropping, almost precipitously, inflation data continue to show that the things we buy are becoming more expensive. Historically, deflation is rare in the U.S. and based on consumer price index data from the Bureau of Labor Statistics that go back to 1914, we have averaged inflation of 3.61% over that period. In simpler terms, the things we buy are getting more expensive and our home prices are shrinking.

Now humor my hypothetical scenario.

Let's assume, even with the economic data squarely against Mr. Buffett's prediction of a rebound, that home prices stabilize and stop going down. Let's also assume that foreclosures continue to sell at a rate around 963,000 per year and inflation plugs along around 3.6%.

Based on this data, in a best-case scenario, it would take six years for most foreclosures to clear the market and for home prices to have any chance of heading higher. If you recall, over a 100-year period from 1890 to 1990, home prices only outperformed inflation by 0.21%. Assuming inflation gets a six-year head start on housing prices while they remain stagnant, it would take about 100 years for home prices to break even when adjusted for inflation! The scenario gets even worse if home prices continue to fall.

I would hardly call an asset class that could lose you money for the next 100 years an attractive investment. In fact, I would call that perhaps one of the worst investments you could possibly make and potentially Buffett's worst call of all time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.