Housing Prices, Denominated in Oil

The following graph shows housing prices, denominated not in dollars but in barrels of oil.

Housing Prices, in Oil

The prices themselves are nominal — 1980 is equal to 100, and everything else is relative to that. Oil prices are yearly averages. So the graph displays what 100 arbitrary units of housing cost, in barrels of oil.

The most interesting visual event is the collapse in oil prices in 1998, following the Asian economic blowout. Housing prices jump as oil prices crash, but two years later, we’re right back in the thick of things. Other than that, the range seems relatively narrow, without too many visually stunning features.

Perhaps deeper analysis would yield more interesting results, but the relatively constant ratio (even in the face of large hikes in oil prices, and a supposed housing bubble) seems interesting to me: are changes in the prices of both housing and oil so tied to inflation as a whole, or to the value of the dollar on the world market, that they move largely in tandem, except in the face of gigantic international events? Does this mean that there isn’t a housing bubble? What about peak oil? How does that change things?

For me, seeing that housing prices are and have been declining since 2002 — the year after the dot-com bust and 9/11 — feels rather sobering. Maybe 2003 wasn’t a terrible time to sell my house.

What does the future hold? If the housing bubble pops and peak oil causes oil prices to rise, housing prices (denominated in oil) will be further depressed. But what, if anything, does that mean in the real world?

As to my methods, I found a chart of changes in housing prices in the U.S., from 1985 through 2005 on the OFHEO site, in their 4th quarter 2005 report. (I used the fourth quarter prices.) Elsewhere, I found a chart of crude oil prices in the Illinois basin area; while not exactly equal to prices elsewhere, they seemed close enough for what I wanted to attempt. I used their yearly average prices; probably I should have averaged their fourth quarter, but I’m not an economist. My original spreadsheet is also available, if you care.

Pardon my naive economics, and my naive math; I thought that this was interesting, despite my technical limitations in those fields,