Home Prices Relative to Gold
By Anna W - June 10th, 2011, 12:07PM
Today’s Chart of the Day comes from Chart of the Day:
“It currently takes a relatively low 106 ounces of gold to buy the median single-family home. This is dramatically less than the 601 ounces it took back in 2001. When priced in gold, the median single-family home is down over 80% from its 2001 peak (to a level last seen in 1980) and remains well within the confines of a six-year accelerated downtrend and continues to close in on its 1980 trough.”
Home/Gold Ratio
(cost of the median single-family home in ounces of gold).
June 10, 2011
Tweet
Facebook
Reddit
Digg this!
June 10th, 2011 at 1:08 pm
Interesting, but what is the takeaway?
What am I to deduce?
June 10th, 2011 at 1:16 pm
to reach the 1980 trough, it just takes another 15% hike in gold price.
June 10th, 2011 at 1:20 pm
Moles…
one of 2 things:
1. If you believe the gold “inflation” story… buy houses, not gold.
2. If you don’t believe the inflation story… buy houses, not gold.
Not sure which one I believe, if any.
June 10th, 2011 at 1:46 pm
The take away is:
Get a FIXED thirty year loan on your gold position, not an adjusting rate, that will assure you a safe, stable retirement since gold prices never go down.
June 10th, 2011 at 1:55 pm
Could there really be a correlation here? I could compare the relative price of a lot of things to median home price but it still might not mean anything.
It’s a fun metric, however.
June 10th, 2011 at 2:35 pm
Dear Barry,
This type of chart does very little for your street cred!
There is no relevance in the chart unless of course you have been physically long of gold for some years and now wish to buy a home with your gold bars or you’re a “correlation geek”.
I have noticed a proliferation of these charts lately in the financial blogosphere. An amusement perhaps but that is all.
Of more relevance I would suggest would be a chart showing the inflation adjusted path of average incomes vs the price of food and/or utilities!
June 10th, 2011 at 2:47 pm
On average, a house costs about 2 grams of gold per square foot today… compared to 3.1 g/sq ft. during the great depression.
But averages can be deceiving. In Detroit you can buy a house for $5000. In Santa Barbara, anything under a million is a fixer.
June 10th, 2011 at 3:24 pm
masdf:
If gold were “real” money, the houseprice/gold ratio should remain fairly constant. Unlike gold, housing always has real value.
June 10th, 2011 at 3:51 pm
@bmz;
That is a very good point. I have always wondered how you best could decide if/when gold is in a speculative bubble. You could probably set 2-300 ounces as a normal. If the ratio is above this level, then we are either in a housing bubble or gold is undervalued. If the ratio is lower than this level, then we either in a gold bubble or houses are undervalued. Currently the traditional parameters would have a hard time arguing that houses are undervalued so we must be in a gold bubble.
June 10th, 2011 at 4:56 pm
Too many variables to be useful.
Gold price is determined globally… house prices are determined in a zillion different US neighborhoods.
Square footage has increased.
Acreage has decreased.
Features, such as air conditioning, have been added.
There has been a migration from rural to urban neighborhoods.
There has been a migration from northeast to west and sunbelt. (Speaking from personal experience, the climate is easily worth the higher price).
June 10th, 2011 at 9:34 pm
a better proxy instead of gold, will be something which i more or less inflation neutral, (and has data available). i would try
1. silver, or platinum, which is less speculative than gold p;us a industrial value
2. better still, will be corn or bean
3. and an even better index, with much shorter history of data, would be the Big Max index or the like. How many Big Macs for a House?
June 10th, 2011 at 9:56 pm
…come on you dingbats..he, he, he
…gold is the constant, the value of a dollar is the variable
…the value of a home is decreasing…in terms of real money…
ok, you say, homes prices reflect inflation…not now, they don’t
house prices are deflating…money is inflating…right, Ben?
June 11th, 2011 at 2:07 am
Yes, gold is the constant.
It does not get consumed and it gets mined at roughly the rate of global population growth (averaged over time).
In other words, global per capita above ground gold stock is has remained roughly constant.
This is why it has a 5000 year history as the ultimate form of money.
June 11th, 2011 at 10:13 am
many will fight against see’g gold horders take over the store .. sorry socialjoe .. the world has matured much (in science) during those 5Kyears
June 11th, 2011 at 10:17 am
If you think that gold is the constant then you would look back at it’s price and say that the value of the dollar (and everything else) keeps jumping up and down several fold within a few years. Kind of makes a lot more sense to think of gold as being subject to severe speculation and jumping all around in response – that is, makes sense unless you are a gold bug.
June 11th, 2011 at 10:43 am
It seems the best presentation rather than home/gold or even oil/gold ratios would be a BJ/Gold ratio. The value of a BJ to the recipient has been constant throughout human history. Me thinks you’ll get a more clear answer about what gold is really worth.
June 11th, 2011 at 5:35 pm
As socaljoe mentioned above, median price means nothing as some neighborhoods have corrected 60% and some have corrected 20%. Take that gold ratio and apply it to your own neighborhood fron 2001 – 2011. Here on the Westside of Los Angeles that ratio is flipped upside down for instance and we all know which way housing prices are heading. Perhaps a better measure of Golds value, is the DOW/GOLD ratio which is 8/1 (2011) versus 1/1 (1980). Either Gold has to go way up, or the Dow way down. My bet is on the DOW crashing.
http://www.westsideremeltdown.blogspot.com
June 12th, 2011 at 2:15 am
http://sun-bin.blogspot.com/2011/06/how-much-food-for-house-in-us.html
ok, here i plotted against a few commodities, corn, crude oil and chicken, for example.
June 13th, 2011 at 9:30 pm
whatev – http://red-pill-blue-pill.blogspot.com/2011/04/gold-price-change-over-last-decade-in.html , it has been a good investment over the last decade…