This graph shows the real estate price adjusted by gold, from 1889 to 2021. As we are seeing a record increase in housing prices this year, the gold adjusted housing price actually is very low, at a historically low level.
The minimum was reached in 2011, and from 2011 to now, there was not much increase.
Does this mean that the nominal housing price increase we are seeing in recent years is merely a reflection of inflation?
Shall we still buy into this market?
@David Song Interesting plot. I dont know, but wonder if you have ideas :)
Is it as relevant now, with the decoupling of the currency from gold decades ago? The graph may speak more to fluctuation of the gold to USD conversion rate, with housing mixed in. This graph below is real prices including inflation (as opposed to nominal)It seems without the attachment to gold, everything is relative. Housing prices depend on a number of factors, including inventory, but also the ability of folks to pay...on purchasing power and incomes to service housing loans and rents. This relationship of price to rent Ive always found interesting. It says something about long term baseline housing costs for homeowners and renters.
@Alex Forest nice plots.
Since fed is printing money like crazy, I thought that using gold to replace US dollar to measure housing price makes more sense and can provide us a more realistic view of how expansive it is.
My current feeling is that the price is relatively low, and I might keep buying for a while.
if the real estate price normalized by gold increases above 700, I will sell.
The gold seems to dominate. I think with the decoupling of the USD to gold decades ago, the relationship for the metric you posted doesnt hold up. We wont go back to a gold standard. Why not use the CPI inflation to measure the effect (real prices)?
Take a couple scenarios. First, what if a, hypotheticallyspeaking, massive new source of gold were discovered for mining....of a new technique allowed for more extraction than before. Price of gold would go down, along with that ratio but it would have nothing to do with housing.
Second, take an example of where median house value today is $200k with gold at say $250 and ounce. Say in 5 years, the median value becomes $170k with gold at $100. Your ratio goes up considerably nearly doubling. That isn't inflation though. In 5 years, you can buy the same amount of gold for less, that's increased purchasing power and deflationary pressures. That's when folks start waiting to buy and put off buying to see if it will be cheaper in a year or two. Becomes harder to sell and prices drop. So this metric alone doesnt inform well enough is my take. Still interesting to see though. :)