Real estate prices in gold hitting a 20 year low

[blazespinnaker]

I was thinking about gold prices lately and surfed this up:

For those who want to buy gold instead of real estate as a hedge against inflation, you might want to think twice.

http://www.sharelynx.com/chartstemp/USHLSPOG.php

Just a note, the charts are out by about a quarter. Gold prices have gone up significantly, and RE prices have declined significantly since that came out.

[grapejelly]

Re: Real estate prices in gold hitting a 20 year low

I was thinking about gold prices lately and surfed this up:

For those who want to buy gold instead of real estate as a hedge against inflation, you might want to think twice.

http://www.sharelynx.com/chartstemp/USHLSPOG.php

Thanks. This is interesting. But your conclusion is not so: we can go from 400 ounces to 100 ounces to buy a house and still be on the "normal" curve...yet that is a huge percentage loss from where we are now!

[blazespinnaker]

Re: Real estate prices in gold hitting a 20 year low

The ratio is at 333 right now.

And if you think 20 year lows isn't enough, I guess you truly are a gold bull

Don't forget also that RE has a significant positive yield, whereas gold has a negative yield (though it is a small one).

[jk]

Re: Real estate prices in gold hitting a 20 year low

The ratio is at 333 right now.

And if you think 20 year lows isn't enough, I guess you truly are a gold bull

Don't forget also that RE has a significant positive yield, whereas gold has a negative yield (though it is a small one).

re doesn't have a positive yield unless rents are high enough to cover capital and expenses. we're not there yet.

[grapejelly]

Re: Real estate prices in gold hitting a 20 year low

Yep, very true, jk.

Real estate is going down, baby, because it is a creature of easy credit and that is gone.

It's all about cold hard cash now. And when things bottom out, you will be able to get a very nice positive cash flow buying real estate and a super good cap rate.

[GRG55]

Re: Real estate prices in gold hitting a 20 year low

Yep, very true, jk.

Real estate is going down, baby, because it is a creature of easy credit and that is gone.

It's all about cold hard cash now. And when things bottom out, you will be able to get a very nice positive cash flow buying real estate and a super good cap rate.

Isn't this essentially the same ratio chart the Charles MacKay put up on another thread last year?

[blazespinnaker]

Re: Real estate prices in gold hitting a 20 year low

re doesn't have a positive yield unless rents are high enough to cover capital and expenses. we're not there yet.

You're thinking about leveraged RE investments... If you're buying all your gold on margin, you'll have a storage fee + interests expense as well.

Generally, when you're comparing apples to apples, you're better off not mortgaging them into oranges.

[touchring]

Re: Real estate prices in gold hitting a 20 year low

American real estate can go down another 30%.... Didn't soros say we are at the end of 60 years of credit expansion? The last 60 years trend might not be accurate then!

Yep, very true, jk.

Real estate is going down, baby, because it is a creature of easy credit and that is gone.

It's all about cold hard cash now. And when things bottom out, you will be able to get a very nice positive cash flow buying real estate and a super good cap rate.

[Guest]

Re: Real estate prices in gold hitting a 20 year low

BlazeSpinnaker -

I can't know this of course, but there's got to be something missing or misleading - some conceptual component at variance with observable realities on the ground all around us - when assessing the chart you posted. Buyers of a home in San Diego today are piling into purchases still well outside the historic affordability ranges. And these homes have already dropped an easy $100K to $150K in the median ranges just this past year.

I moved out of New York City in 1991. At that time one could buy a small brick two or three story 1500 square foot house in Boerum Hill, just down the street from the Brooklyn Bridge, for about $350K to $450K. I just checked those prices again last week, and those same homes in a very humble neighborhood, are selling at a median price of 1.5 Million! That's not just one or two - the entire area - and you only saw $200K discounts after traveling a further 3 miles southward into the rest of Brooklyn. This is far, far beyond the budget of even well paid New Yorkers.

The price of homes in San Diego in many middle neighborhoods is vastly lower than that. Perhaps there's a 30K difference in the median income of San Diegans with New Yorkers. Yet the affordability index for a home here in San Diego is totally off the charts still even when homes can be found for 500K. You look around at purchasing power, and Gold seems dirt cheap as an asset in these conditions.

What about Finster's charts on the recent 'is gold expensive' thread? They show the price of gold going nowhere when compared to other assets, as opposed to tracking it in nominal OR inflation adjusted dollars? Going nowhere when pegged against a basket of other assets - for the past seven years?

Finster was pointing out gold 'has not even moved yet' in it's purchasing power vs. a broad basket of goods and services. Even without the benefit of that chart, and it was indeed an eye-opener, most of us can tell that compared to other asset classes gold prices still seem 'cheap'. Employing William's (Shadowstats) 1980's inflation metrics gold is nowhere near it's old highs ($5000++), and the fundamentals besieging the entire world's fiat currencies today totally dwarf the currency debasement issues of the 1970's.

If we can look around and find so many different metrics all pointing at how relatively cheap gold still is in it's real purchasing power, it would seem the task of this thread is to find out what's wrong with your chart, rather than trying to examine what's wrong with the thinking of all those who still regard gold as cheap. I say this with full respect for the point you are raising. But doesn't it still feel 'cheap' to you when you look at the price of all assets around you?

[grapejelly]

Re: Real estate prices in gold hitting a 20 year low

There are dollars and there are dollars...

I think it's the FIRE vs. P&C economy...gold is more in the P&C economy. Housing in FIRE. Fueled by FIRE credit dollars...A housing dollar is a fraction of a P&C dollar...

[blazespinnaker]

Re: Real estate prices in gold hitting a 20 year low

I don't think anything I've said contradicts what you've just said (not that I necessarily agree with Finster or the other threads).

Housing is at or at least very near a 20 year low relative to gold.

You can't argue with math. I'm not stating this as an opinion or speculation, but merely an observation of the facts. The chart is just a summary of well known price levels you can find anywhere (kitco, economagic, federal reserve board, etc)

If you wanted to doubt the usefulness of this observation, you might point out that there is a historical (ie: 20 year time frame) overbundance of housing overbuild relative to the historical overbundance of gold inventory (if there is one!)

That is certainly possible. I guess if there is, then perhaps the last thing the US wants to do is kick out all those mexicans..

[zmas28]

Re: Real estate prices in gold hitting a 20 year low

A complicating factor might be the drop in the value of the trade-weighted dollar. Since gold trades internationally, the increased price of gold in dollars reflects the fact that the dollar has dropped big time over the last several years. This is not true of US home prices.

[zoog]

Re: Real estate prices in gold hitting a 20 year low

I don't think anything I've said contradicts what you've just said (not that I necessarily agree with Finster or the other threads).

Housing is at or at least very near a 20 year low relative to gold.

You can't argue with math. I'm not stating this as an opinion or speculation, but merely an observation of the facts. The chart is just a summary of well known price levels you can find anywhere (kitco, economagic, federal reserve board, etc)

If you wanted to doubt the usefulness of this observation, you might point out that there is a historical (ie: 20 year time frame) overbundance of housing overbuild relative to the historical overbundance of gold inventory (if there is one!)

That is certainly possible. I guess if there is, then perhaps the last thing the US wants to do is kick out all those mexicans..

I've been wrinkling my brow at this thread and the linked charts, and I just don't see it the way you do. Looking at my gold / median house chart below, I believe we're only about halfway down for this round. I suppose one could argue that houses are now "fairly valued" in ounces of gold, but I'm pretty sure they're going to go ahead and keep dropping down to "undervalued".

[blazespinnaker]

Re: Real estate prices in gold hitting a 20 year low

Great graph, Zoog..

Yes, if we go back 60 years, you're right, we'll find another low.

I did say 20 year low

I think there has been a fundamental shift in wealth and spending patterns, however, since that time .. and since then the house, with all it's multi media rooms and the extra time we have to spend on it, the mortgage equity withdrawls, the greater liquidity, the tax incentives, and what not.. it has become more central to our financial lives.

Truly, I was thinking of buying gold lately. I check the price of gold every day for the last .. year or so. But after studying these charts, I have to say I'm comfortable with the decision not to buy gold at this time.

[blazespinnaker]

Re: Real estate prices in gold hitting a 20 year low

A complicating factor might be the drop in the value of the trade-weighted dollar. Since gold trades internationally, the increased price of gold in dollars reflects the fact that the dollar has dropped big time over the last several years. This is not true of US home prices.

Absolutely, you can even go further saying that we are entering a high period of stagflation where high unemployment will put a downward pressure on housing prices (at least one equal to that of inflation) but not gold.

I agree with those sentiments. However, I think even the most adventurous speculator should take pause and realise that 20 years is a long time. They better know their history well if they plan to do battle with it.