In 1970, the median price of a home in Malibu was about $46,000. At that time, a higher percentage of Malibu homes were on the beach—the earliest Malibu settlers understandably plopped down on the sand. By 1980, the median price had increased to $192,000. Prices went up four times higher during the decade.

From 1980 to 1990, the median price increased to $671,000.  That decade’s increase was more than three times higher.

In contrast, the past three decades have seen these increases:

1990-2000: Median going to $1,250,000 in 2000, almost double.

2000-10: Median going to more than $2,400,000, again almost double.

2010-20: Median went to about $4.9 million last year, again about double.

A doubling every 10 years is nice, certainly a decent return, by “the rule of 72” indicating about seven percent average increase per year.

But what is noticeable is how the pace has slowed the past 30 years, in comparison to 1970-90.  Then again, wasn’t 1970-90 the period the country had so much more inflation? There were a few years that inflation was above 10 percent (according to the Consumer Price Index) during that period. Since the late ‘80s, inflation has been under control, hardly a factor in the country’s economic growth. The year that inflation went under five percent to stay was 1991.

Alas, inflation is now back in the news. That beckons an analysis of what Malibu values have really done over 50 years—adjusted for inflation.

The adjacent chart shows the median price for Malibu single family homes (in the 90265 zip code) for every five years since 1970. The inflation of the period is factored in. The adjusted appreciation shows that the past three decades have been comparable to the previous two, after all.

A $1 item in 1970 now costs $6.88—it has increased 588 percent. A median home in 1970 at the same rate would be worth $650,000, but instead is actually worth $5 million in current dollars.

The 1970s had horrendous inflation; $100 was worth the equivalent of $70.20 after just five years. Over the next five years, ending in 1980, a 1975 $100 bill lost 38 percent of its value due to inflation. While the Malibu median was going famously from $46,500 to $192,000, the true value increase after inflation was about $84,000.

During the 1970s, thus, values after inflation essentially went up 80 percent. In the 1980s, it was up 114 percent. The three decades since have been about 140-150 percent each decade, adjusted.

The median figures shown are derived from long ago research and statistical analysis using public records, thoroughly reviewing samplings of home sales for the various periods cited, as well as past newspaper-published reports me long ago. 

Inflation is very destructive to real purchasing power. Inflation at only two percent per year over 10 years will result in a dollar being worth 81 cents at the end of the period. A $1 million house will represent what $810,000 used to be able to buy.

One dollar today buys the same as 17 cents in 1970. What $100 could buy in 1970 now requires $691. And, accordingly, a $5 million Malibu home today is worth $650,000 1970 dollars.

Ultimately, a comparison of appreciation adjusted for inflation is more telling. In that regard, Malibu shines. The chart shows that during the 1970s, for example, price appreciation appeared to increase at 312 percent, but after inflation it was only 80 percent. Meanwhile, over this most recent decade, prices appeared to be up 180 percent, but after inflation, which was so minimal, it was 151 percent. 

True appreciation is occurring in Malibu ahead of inflation, better than ever. Malibu may not be increasing four-fold each decade as it did in the 1970s, but the real increase in value has grown ever better, after adjusting for inflation.

It is ironic that the rate of appreciation in Malibu has slowed over the years but in real terms, compared to inflation, Malibu real estate has prospered at a better actual rate.

Importantly, this is a guide to the benefits of owning hard assets, specifically real estate, and more specifically Malibu real estate, if inflation comes back with a vengeance in the years to come.

What might happen if inflation takes off? Prices in Malibu will surely adjust for inflation—hard assets do that. Meanwhile, mortgage payers will be paying their mortgage with ever cheaper dollars. That is not a bad strategy: Own hard asset real estate in an area that surpasses inflation in appreciation and pay for it with dollars that grow weaker.

 

Rick Wallace of Keller Williams Realty has been a Realtor in Malibu for 33 years and a contributor of real estate columns for 27 years.

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