The price of gold as it relates to Real Estate
I attended the Oklahoma City REIA meeting last Thursday and there was some conversation concerning Gold and how it relates to the real estate market. Being an electrical engineer and a numbers guy, it intrigued me to do a little research.
I gathered the following information:
- Average price of gold since 1970
- Median Home price since 1970
- Average Home price since 1970
After doing so I calculated the following:
- Cost of average home price in ounces of gold since 1970
- Cost of median home price in ounces of gold since 1970
Here are some facts (constants) that I used to make some assumptions:
- Gold and Homes are both real tangible assets. As inflation rises, so does the cost (in dollars) of these assets.
- Housing demand affects home prices
- Gold demand and the performance of the stock market affects gold prices.
- Gold prices peaked in 1980 and 2011.
- Between 1980 and 2011, gold was at it's lowest point in 2001 which shows as a peak in the "ounces of gold required to buy the median home" graph.
Here are some takeaways from my graphs:
- From 1982 to 2001, home prices steadily trended upward while gold prices remained in the $200-$400 range. This caused the ounces of gold required to buy a median home to increase.
- From 2001 to 2011, gold prices steadily increased rapidly. Home prices continued to rise until 2008 where they began to decline until 2011. With home prices on the decline and gold prices increasing, the ounces of gold required to buy a median home decreased to a level equivalent to the cost in 1980.
I will agree easily with the following statement: As the government prints money and when the banks begin to release it inflation will rise. As inflation rises, the cost of gold and real estate SHOULD increase.
The point being made at the OKC REIA course was that homes are half-price compared to what they're really worth. I don't know if I believe that you can deduct that assumption by graphing gold versus home prices. Gold prices can be altered by stock market returns whereas real estate demand is altered by lending restrictions and interest rates imposed by the banks. I'm a skeptic, maybe some of the biggerpockets heavy hitters can weigh in and provide some clarification on how gold price relates to the real estate market.
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