What Is a Home Really Worth?
What this chart shows: The blue line is the median St. Louis home price in dollars. The gold line is the price of one ounce of gold in dollars. Both lines go up and to the right, which looks like everything is getting more expensive.
What it really means: Neither homes nor gold actually got more valuable. The dollar just keeps losing buying power. A dollar today buys a fraction of what it bought in 1975. So prices in dollars go up, but the things themselves did not change that much. That is why we need to look at the next chart to see the real picture.
What this chart shows: This is where it gets interesting. Instead of using dollars, we measure everything in ounces of gold.
Blue line (homes): How many ounces of gold it takes to buy a home. Notice how flat this line is compared to Chart 1. In 1975 a home cost about 274 ounces of gold. Today, it costs about 82 ounces. Homes have actually gotten cheaper in real terms.
Green line (income): How many ounces of gold a family earns per year. In 1975, a family earned the equivalent of about 97 ounces of gold. Today, that same job is worth only about 32 ounces. Your paycheck buys less than a third of what it did 50 years ago, when measured in something real.
Orange dashed line (affordability): How many years of full income it takes to buy a home. This has gone from about 2.9 years in 1975 to about 3.8 years today. Homes take about one more year of income to buy, not because homes got expensive, but because wages lost purchasing power.
What Does All This Mean For You?
When measured in gold instead of dollars, a St. Louis home costs about the same (or less) than it did 50 years ago. Real estate is one of the best ways ordinary people protect their wealth from the shrinking dollar.
What cost $39,000 in 1975 costs $340,000 today. That is not because homes got better. It is because each dollar buys a tiny fraction of what it used to. Gold and real estate kept their value. Cash in a savings account did not.
In 1975, a year of family income was worth about 97 ounces of gold. Today, it is worth only about 32 ounces. Even though dollar salaries went up, real purchasing power went down by two-thirds. This is the real reason homes feel "expensive" to buy.
If you are waiting for home prices to "come down," consider this: measured in real value, homes are already near their cheapest in 50 years. The longer you wait, the more purchasing power your savings lose. Buying a home converts your shrinking dollars into an asset that holds its real value over time.
