It’s no secret that the value of the dollar has changed over the years. At the same time, the cost of real estate has increased significantly in recent decades.
In the past 50 years alone, housing prices have skyrocketed. Back in 1973, a new single-family home went for around $32,500. That’s the equivalent of $225,296 in today’s money, or a 593% increase.
But the average cost of a new home isn’t $225,296 in 2023. Instead, it costs closer to $503,900. This is nearly a 45% increase.
Considering how much the cost of real estate has risen, you might be wondering how much house you’ll be able to afford in 10 years. While it’s nearly a given that your money won’t go as far in the future as it does now, here are some things worth knowing if you’re trying to buy a house in the next decade or so.
Housing Prices Have Risen Disproportionately to the Dollar’s Value
The cost of homes has gone up pretty steadily over the years, which is a big reason why many financial experts view real estate — particularly commercial real estate — as a solid investment opportunity. But while this is good news for people who already have a decent amount of money to invest, it’s not so great for the average individual trying to purchase a home today or in the next decade.
According to Zillow, the average cost of any kind of residential real estate is just under $350,000 — or $50,489 back in 1973’s dollars. With an average inflation rate of 3.96%, $1 in 1973 would be worth $6.98 today.
However, today’s dollar can only buy about 14.76% of what it could 50 years ago. In other words, your ability to purchase a similarly priced house to what your grandparents had has diminished significantly.
Inflation Directly Impacts Real Estate Prices
While the value of the dollar has diminished over the years, the same can’t be said for housing prices. In general, real estate appreciates more often than it depreciates in value.
So, why might this be? One big reason for this is inflation, which impacts many parts of the economy, including housing prices.
“There are tons of different factors that can influence just how much [real estate] will appreciate each year, but over the long haul — especially in [a] 10-year period — we can strongly predict that values will be higher,” said Doug Greene, owner and operator at Signature Properties.
“My personal opinion is that inflation alone will be a major driver of those higher values,” continued Greene. “Barring any major unforeseen economic events or geopolitical crises, my expectation is the average home price will be more than [the] $350K currently reported on by Zillow, and inflation [will] heavily influence that.”
The Federal Reserve Hasn’t Helped Matters Much
Another possible reason why the value of the dollar has dropped so much while housing prices continues to rise is the Federal Reserve’s monetary policies and how they’ve impacted inflation.
“Without a doubt, the value of the dollar has decreased over time and will continue to be at the helm of above-average inflation,” said Greene. “For years, the Federal Reserve has implemented monetary policy unchecked. Since we moved off the gold standard in the ’70s, it seems that printing more money has always been the answer to boosting the economy or promoting recovery from wars, natural disasters, etc. Now, that is all catching up to us. Without a fixed money supply, the more money that gets printed means the less value that each dollar in circulation has. That is the power of inflation.”
Rinal Patel, licensed realtor and founder of We Buy Philly Home, echoed Greene’s concerns.
“In addition to the Fed’s monetary policy, inflation is chief amongst the reasons for the decrease in value of the U.S. dollar. The truth is, we live in a time where the cost of living is increasing by an alarming percentage,” said Patel. “And what this increase means for the dollar is: more becomes less.”
Real Estate Is Becoming Harder To Afford — and More Desirable
“As these trends continue, real estate will become a more desirable asset class that is going to be difficult to obtain. With interest rates where they are, it’s already difficult to obtain,” said Greene.
So, what about in the next decade or so? Considering it’s unlikely that real estate prices are going to drop significantly any time soon, buying a home is just going to become more difficult.
“As time goes on, we will see many other factors contribute to the challenge,” said Greene. This includes “low inventory of homes, growing populations, higher lending standards, higher home prices and higher borrowing rates.”
Plus, as Patel pointed out, higher costs and rising interest rates have also influenced the cost of building a home. With higher labor and supply costs, the cost of real estate will be greater than ever.
Housing Costs Could Even Out but It Might Not Be Enough
According to Patel, it doesn’t seem likely that real estate prices will drop much in the coming years. However, they might even out a little bit. This change could take a long time, however, if it happens at all. And with the diminishing value of the dollar, it probably still will not be enough to make the dream of homeownership feasible for those who can’t afford it now.
“We have reached a significant checkpoint in the real estate industry, and somehow, it is easy to fall into the temptation of believing that this is the lowest we can come in terms of unaffordability rates,” said Patel. “However, in my expert opinion, I believe that it is going to get harder to afford real estate in the next decade. This time, it would not be inventory limiting the buyers, but all of the debts that they have accumulated on their way up.”
Ultimately, it’s difficult to say exactly how the value of the dollar will change in the next 10 years or so. But one thing’s for sure: The cost of housing continues to rise while the dollar continues to drop in value.
If you want to purchase real estate in the future, you might need to rethink your strategy for how you’re going to get there. Or you might need to adjust your home purchase budget to help combat the effects of rising interest rates and inflation.
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