Real Estate: The Trillionaires Are Coming

Real Estate -- Traditional colonial homeAre you tired of billionaires? Does it bother you to see one billionaire with what appears to be a live raccoon on his head, two others who are trying to tilt the political system because $40 billion apiece is not enough or a billionaire who thinks black people are best unseen — except on a basketball court?

Get ready for something different and maybe worse. The trillionaires are coming.

Yes, I know. A million dollars is a lot of money, a billion dollars is a whole bunch more and a trillion dollars is something we normally associate with the US deficit. Still, trillionaires are on the way, coming to an estate or penthouse near you.

Billionaires and Trillionaires In Our Future

According to Credit Suisse’s most-recent Global Wealth Report, the world is being flooded with rich people.

“Two generations ahead,” says the study, “future extrapolation of current wealth growth rates yields almost a billion millionaires, equivalent to 20% of the total adult population. If this scenario unfolds, then billionaires will be commonplace, and there is likely to be a few trillionaires too – eleven according to our best estimate.”

Before you get excited about millions and billions, consider this: One major reason there will be a lot of people in the future who appear to be very rich is that we’re thinking in today’s dollar values.

Imagine that you had $100,000 in 1963. This was a LOT of money back then — the average home cost $18,000.

According to the inflation calculator at WestEgg.com, the purchasing power of the dollar has fallen into the dumper. If you had $100,000 in 1963 it would today buy goods and services worth $13,354. Seen the other way, to have the equivalent spending power of $100,000 in 1963 you would today need $751,053.

In both 1963 and 2013 a dozen eggs would still be a dozen eggs. The apparent price of eggs has gone up not because the number of eggs in a dozen has changed but because the buying power of a dollar has declined.

Wealth, then, is not measured in cash it is instead gauged in terms of buying power. Fifty years ago $100,000 was a lot of money. If you kept it in a mattress it would today buy about one-seventh of what it could have bought in 1963. This — along with worries about theft — is why holding cash is not the path to great wealth because to have growing worth money must be put to use.

The constant devaluation of cash as a result of inflation is the reason people invest and hold assets. Some argue that gold is the asset which best maintains buying power while others favor stocks. Some believe that real estate ownership has been a good hedge against inflation, keeping up in terms of buying power if not going further.

Real Estate versus Inflation

For instance, the average house that in 1963 cost $18,000 must now be valued at $135,189 merely to keep up with inflation. In fact, according to the National Association of Realtors, the typical home sold for $198,500 in March, meaning that in general long-term real estate ownership handily preserved value and created additional buying power, the real measure of wealth.

Looking toward the future you have to wonder what tomorrow’s billionaires and trillionaires will do with all their money because in the end even if you have a billion dollars in the bank you can only eat so much — and besides in the future a billion dollars won’t buy anywhere near as much as it does today.

Imagine that: A few years down the road  modest, middle-class neighborhoods may well be home to the billionaires next door….

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