The Phaserl


The Gold To Housing Ratio As A Valuation Indicator

by Daniel R. Amerman, Gold Seek:

The Gold to Housing ratio is a quite useful measure for evaluating relative values between real estate and gold, and also has an interesting historical track record for identifying turning points in long-term gold price trends. In light of the surge in gold prices in 2016, and the continuing strength in housing – it is worthwhile revisiting this basic measure, because the results aren’t at all what most people likely think they are.

The Gold to Housing ratio is a measure of relative value between gold and real estate. It is the number of ounces of gold required to purchase an average single family home in the United States.

Now people often buy gold and real estate as alternative investments, either because they are seeking fundamental diversification from financial assets such as stocks and bonds, or they are concerned about inflation.

However, while real estate and gold are each tangible assets and can be powerful inflation hedges – they don’t tend to move together in real terms.

This can be clearly seen when we adjust historical prices for inflation, as shown above. Both investments do oscillate up and down around long term averages over the 40+ years, but they so in quite different cycles, with their peaks and valleys occurring in different years.

When we take the $243,301 current median national price for an existing single family home and divide it by the $1,350 price per ounce of gold as of August 18, 2016, we come up with a Gold to Housing ratio of 180, meaning it takes 180 ounces of gold to purchase an average single family home (detailed methodology notes are available here).

Key Current Analysis Results

Below is a quick summary of 15 key points about the Gold to Housing ratio in 2016. I have been writing about these subjects for some years now, and for long-time readers I specifically point to the investment implications within that much larger body of work. The great majority of the information should still be clearly understandable for a first time or recent reader.

I have been writing about these subjects for some years now, and for long-time readers I specifically point to the investment implications within that body of work. The great majority of the information should still be clearly understandable for a first time or recent reader.

1) Gold and housing are each above their long term averages in inflation-adjusted terms, with gold being much higher relative to its average valuation than we see with housing.

2) Both gold and housing have risen sharply in price in 2016 – but the increase in gold prices is much greater, on a percentage basis.

3) Gold is not acting as a “stable store of value”, because that is a myth in modern times. Instead gold has been acting as something much rarer and more desirable – which is as a contra-cyclical crisis hedge. This can be clearly seen with the two spikes in value that correspond to crisis and perception of crisis, and led to gold valuations in inflation-adjusted terms that were more than four times as high as the lowest annual average. However, this can be problematic for buy and hold strategies at current price levels, when people think they are buying a stable store of value, particularly when inflation taxes are taken into account.

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3 comments to The Gold To Housing Ratio As A Valuation Indicator

  • Craig Escaped Detroit

    I like the information about what happened in Wiemar Germany in 1922-23 during their bout of hyperinflation.

    It is very instructive. In NORMAL times, a family typically pays about 30-40% of their income for their housing expenses (buy or rent, makes no difference).

    And perhaps 20-25% of their income for food, and some percentage for clothing, heating, etc.

    But in 1922-23, when the paper money was losing all of its value, the cost of housing dropped down to less than 5% of income, but food, clothing, heating took up to 90-100% of a family’s income.

    Mike Maloney speaks of the number of ounces of silver that are needed to buy a house, and how to understand at what point, the silver goes SO high against the house prices, that it is time to unload almost all your PM’s (that are now in a true bubble), and move into the next thing that is UNDER priced. In the past, he has mentioned 300-400 ounces of silver, but it’s possible, in a hyperinflation like 1923 Germany, it might only take 100 ounces of silver to buy the “median” home.

    We are seeing very similar things in Venezuela. Dozen eggs, from $100-$150 (of AMERICAN money). (It has been reported) that a SINGLE ounce of Silver can sometimes purchase SIX months of food for one person. (It was reported that it has the purchasing power of $2000 AMerican dollars.)

    It also was reported that a person can buy a decent, or even a NICE house, for less than 5 ounces of gold. I cannot remember how many ounces of silver though.

    So, when a hyperinflation crisis hits, the value of housing crashes super deeply in relation to the number of ounces of PM’s needed to pay for housing.

    In normal times, yes, it may be expected that we would need to exchange about 200-250 ounces of gold for a house, but there is historical as well as current evidence to show that those same houses can sometimes be “bought” for as little as 3-20 ounces of gold.

    That would be a good time to capture a lot of valuable real estate at very low prices except for one, very toxic cancer that is always part of real estate= PROPERTY TAXES controlled and formulated by the greedy government who always wants to steal your land just because you happen to “own it”. They just increase the annual tax bill, 200%, 500% 10,000% and in just a single year, you owe more than you can pay, and VOILA! It’s transferred to the government.

    I have no easy answer of how to own real estate and never get robbed by the tax department.

    I suppose, (depending on the national & local laws) a person could purchase everything, if not directly from a church, or take over a large church operation and keep it “tax exempt” as a church, etc. (Not all countries exempt religion from taxes.)

    Buying some piece of critical “infrastructure” (toll bridge, toll road, food production facility, water treatment, power generation, mines, etc) there is the real risk that the government will “nationalize” it for national security.

    You could play it like the banksters play it. Organize yourself as a “savings & loan company”, and fund it with your gold, and then have your legal team start writing loans with people putting up their houses as collateral, and go into the business of repossessing houses.
    I personally find it repugnant to be making money from other people’s suffering and to make them suffer MORE. For me, this is not what I would be doing, but banks and housing repo’s get some special tax breaks, etc.

    Countries may not “recover” from the next crisis for a long time, so things like Toll roads and bridges might go bankrupt if people cannot afford cars, fuel, insurance, or to travel.
    The number of houses that will be taken away for back taxes is likely to be staggeringly high.

    The cost of rent is likely to be ridiculously cheap (in terms of PM’s) for the next 10-40 years after the crisis arrives. Food will be very valuable, but nobody will have and real money to pay for it. It’s possible we will fall back to “indentured servant-slave” for food & housing.

    Share-croppers, etc.

    I keep thinking about those dozen chicken eggs in Venezuela for $120-150. But chickens also need a steady supply of “feed”. How about guinea hens? Do they survive better only on forage? Ducks? (farm ducks who stay out of the water, don’t eat seaweed, etc, have the most delicious eggs, much better than today’s chickens. If anybody remembers what chicken eggs used to taste like in the 1960’s, then you have a good idea of what “dry land” duck eggs can taste like.)

    I used to raise a few Peking ducks, Farm Mallards, and Muscovy. The Muscovy ducks had meat that was so RED, it reminded me of BEEF, and not as much fat as regular ducks.

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