Are homes really overpriced?

Uncategorized Jun 19, 2024

There has been a great deal of discussion about homes prices and affordability. There are all kinds of ways to measure things like affordability or if a home represents true value or not. The reality is, since value is a subjective term, and that each of us bears the cost of shelter, we can use a variety of tools to measure and compare values.

I was speaking to one of my clients this week who shared some information he read in an article about inflation and prices. It was actually very interesting to look through a very specific and measurable lens to compare a very measurable set of values. I took the conversation a little further and wanted to just share what I discovered. The conversation was about the price of gold per ounce and the cost of an average house over time. To add a little more context to this, I inserted new car prices as an item to help add to the picture. While certainly not a scientific study or a deep dive into all the causation, I thought this might be interesting to share.

The USA came off the gold standard in 1971 when gold was about $36 per ounce. So, I took that number and made it a starting point. Then I took a point in time 25 years later in 1996, and then came to today.

1971 – Gold was $36 per ounce, an average house was $30,000, and the average car was $3,700. So, it took 833 ounces of gold in 1971 to buy an average house and 103 ounces to buy the average car. Oh yes, 30-year mortgage rates were about 7.5% and minimum wage was $1.60 an hour.

1996 – Gold was about $390 an ounce, the house was $140,000 so it took 359 ounces to purchase; the car was $18,000, so 46 ounces to secure, and mortgage rate was about 7.8% and minimum wage was $4.75 an hour.

Today – Gold is about $2,300 per ounce, the house is $400,000 so 174 oz to buy, the car is $47,500 and 21 oz to buy; rates on mortgages are 7% and the minimum wage ranges from $7.25 to $17.00 per hour.

Like I said, not scientific, but certainly an interesting discussion, Thanks G for the nudge to explore this topic. If you have any questions or comments: [email protected]


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