www.shadowstats.com and the rule of 72

[dr_white]

Enough with the stock market! How about a change of scenery - CPI!!! Known as inflation in some circles. The website, www.shadowstats.com, is obviously conspiracy theory-ish, but what fun would it be without?? Let me get to the point. In that website, the author is saying that CPI/inflation is really more around 9% per year. That leads to the following I got in an email:

"Wish you had a way to predict what homes will cost in the future?

3.    Take the inflation rate (for example 9 percent) then divide into 72 [72/9 = 8]. This means at the current rate of inflation prices will double in 8 years.  Let's say you want to know an approximate value of a property if you held it for 16 years instead...the entire amount would double again. For example, if you purchased a short sale property for 100k then it could double to 200k in 8 years and reach 400k in 16 years. Of course these are estimates since some years go up much faster than others..."

So, every 8 years, huh? There are lots of houses built 100 years ago. I happened to find a cost of a house in 1896:
http://www.tighsolas.ca/page646.html
Granted, it is from Quebec, but it will have to do unless someone can find a more accurate price for houses from the 1900's. Anyways, that house cost $2,817.35.
With 112 years to work with, and doubling every 8 years, that's 14 doublings until the year 2008:
$2,817.35
$5,634.70
$11,269.40
$22,538.80
$45,007.60
$90,155.20
$180,310.40 <-- this is in 1944
$360,620.80
$721,241.60
$1,442,483.20
$2,884,966.40
$5,769,932.80
$11,539,865.60
$23,079,731.20
$46,159,462.40....

If anybody here knows how to sell a house from the 1900's for $46 million, please, I need to know your sales secrets because I know of hundreds of them that are currently being offered for less than $100,000.

Anyways, this exercise was kinda for my own self-awareness. I come across graph after graph being sales pitched by numerous people about the exponential qualities of house price increases over time. I deduced from common logic quite a while ago that house prices don't continue to increase forever. I had just never put it onto "paper". Enjoy!

 Dean

[Damivon]

Looks like the CPI is a dominating factor in the math. If you take a 3% CPI instead of the 9% the value will double every 24 years....

1896    2,817
1920    5,635
1944    11,269
1968    22,539
1992    45,078
2016    90,155

[furnishedowner]

As for inflation, 6 months ago we bought a small microwave oven at Wal-Mart. It cost $34.00.

It broke 3 months ago and we bought a second identical one for $38.00.

We just replaced it again (it has to fit a very small shelf) and now it is $44.00! Fortunately under warranty again.

We are looking for a space-saving microwave/refrigerator combo. Or maybe a trash can/microwave combo.  Just kidding...

Also the Tuesday night Kentucky Chicken special has gone from $1.99 to $2.29.  Everything is going up here.

Furnishedowner

[Dave T]

The problem with the math is that the CPI increases are not linear.  There were years where the CPI went down.  What was the CPI doing during the depression?