Question/Comment: Paul, in 1965, my dad bought our house in a suburb of Los Angeles for about $3,000. In 1979, he sold it for about $80,000. Why did the market jump so much in just 14 years? This has been a burning question of mine all my life, and I have never understood the dramatic market change in the 1970’s.
Paul Solman: Well first off, there was inflation, which made that $3,000 worth closer to $7,000 all by itself. Then there was economic growth, which would get the number up near $10,000, all else equal. The question, then, would be why a house in LA increased eightfold, after adjusting for inflation and economic growth, in just 14 years.
I haven’t a clue. But my guess is that L.A. boomed in that period and the home’s neighborhood boomed more.
My father bought a summer cottage north of Boston in 1967 for $11,000. I don’t know what it was worth in 1979, but it’s up around $350,000 today. Inflation would get the $11,000 up to $71,000 today. Include economic growth and you get to around $150,000. The rest? The demand for housing seems to have run ahead of the supply. Just like in L.A.