The year was 1973. The Doobie Brothers were singing “Jesus is Just Alright” on the radio which was playing loudly as people cruised the boulevard in cars that got 15 mpg …but nobody cared because gasoline only cost 35 cents a gallon. You could buy a nice middle class home anywhere in the nation for $28,900 and stock it full of groceries for less than $20 a week.
By 1979 things were already beginning to change. The cost of a home had nearly doubled to just under $56,000 even while interest rates crept up from 8 percent to 11 percent. Five years later homes were well into the $70,000 range and mortgage interest lingered between 13 to 15 percent. By 1990 homes were approaching the $100k level for the first time in history. Real estate would never be the same as the price increases continued to rise each and every year until 2007 at which point Tampa Bay properties experienced its first decline.
The decision to purchase a Tampa home, condo or other forms of real estate is one of the best methods available to build wealth during times of inflation. Just as home prices continued to rise year after year so have the cost of groceries, gasoline, healthcare and college. In fact, nearly everything seems to cost more than ever before. By now you should be asking what Tampa homes will cost in the future especially since inflation rates are rising rapidly. Here is a quick way to estimate the cost of a home in the future:
1. Determine the rate of inflation. A reliable indicator of inflation is provided by ShadowStats which tracks actual inflation based upon money supply and costs in the economy rather than the dubious new model used by the government. The official CPI is estimated to be 5.5 percent while the alternative measure indicates something closer to 9 percent.
2. Use the rule of 72. Simply divide 72 by the inflation rate (for example 9 percent). For example, 72/9 = 8. This means at the current rate of inflation Tampa real estate prices will double in 8 years.
3. Extended Time. If you want to calculate for longer periods of time then double again. For example, if you purchased a Tampa home today for 200k then held it for 24 years with a constant rate of inflation at 9 percent then the price of the home would go from 200k to 400k in the first eight years, from 400k to 800k by year 16 and from 800k to 1.6 million in 24 years. Of course, this is all an approximation and some years inflation goes up more rapidly or more slowly than other years but it does demonstrate the power of real estate to build wealth during rising rates of inflation.