How would 1970’s style inflation impact US home prices?

One of the driving factors of Real Estate prices is inflation. How would a 1970’s style inflation cycle impact US home prices? Before we can estimate that impact, we would need to know what the actual rate of inflation was during the 1970s, and we would also need to know what the price of housing was over that same period.

The table below comes from two sources. The inflation rate is from the Bureau of Labor and Statistics website (www.bls.gov), and represents the annual inflation rate for the 10-year period representing the most significant inflation years in the 1970s, to the peak of inflation in 1982. The percentage in annual home price increases for that same period comes from the Federal Reserve Economic Data (FRED) website (www.fred.stlouisfed.org), and was computed using difference between the prior year’s data to derive the percentage increase. These data show an average annual inflation rate of 9% per year, and an annual increase in home prices of 9% per year.

What would that inflation rate do to current US home prices, projected over the next 10 years? I took the most recent annual Median US Home Price from the FRED website (for 2016), and then estimated what the annual Median US price would be for 2017 by projecting the average percentage increase over the last seven years (5%) and projected that price for the current year. I then used the ‘70s inflation rate of 9% per year over the next nine years (2018-2026). The result? Home prices would more than double from 2017 to 2026, going from an average of $326K to over $700K. Depending on home prices in your area, the effect would be approximately the same – prices would be a factor of two larger in 10 years.