Historical House Prices In Relation To Commodities

Housing prices, as they relate to commodities prices, seems like a straightforward comparison, but it is actually fairly complex, particularly if you weigh the effects of different types of commodities. In 2007, with the Northern Rock crisis, the general feeling in the UK was that the housing bubble was due to be popped. Has that happened? It depends on how you define “popped.” If you just look at housing prices by themselves, prices have been fairly stagnant. Experts expect that to be the case through 2011, with perhaps a drop of 5 to 10%.

However, if you look at house prices historically in relation to gold prices, the data since 1968 tells a compelling story. Tom Fischer, Professor of Stochastic Financial Mathematics at the University of Wuerzburg in Germany created a chart showing how many ounces of gold it takes to buy an average house in the UK. With the average UK house price currently around £168,000 and gold trading at around £825 per ounce, it now costs slightly more than 200 ounces of gold to buy an average UK house. That is the same level as it was in 1994, which was when the last housing bear market was at its bottom.

This all ties in with the value of the pound sterling and interest rates as well. Though nobody knows what will happen to house prices and commodity prices, factors to consider include how the unemployment rate, higher food and petrol prices, and low interest rates will affect the average person’s buying power. Some property experts and analysts expect a downward trend in house prices of between 5 and 10% through 2011, and expect that if it gets much worse, the Bank of England will inject liquidity in an attempt to get banks to lend more.

Commodity prices, on the other hand, are increasing due to increased demand from emerging economies like India and China. Additionally, metal supplies are tight, as are grain supplies, due to climate shifts. While no investor should put his or her entire portfolio in one sector, signs point to housing prices remaining stagnant or falling a bit through 2011, with commodity prices showing signs of strength.

By: Adam Carter12

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Written by Adam Carter- an expert in the property field