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View Full Version : House prices in gold (updated, longer series)



*T*
09-24-08, 08:26 AM
I posted this graph a while ago, and I think someone else posted something similar, but now I have history back to 1952. There is a gap where Bretton Woods broke down where I could not find the Sterling price of gold. Note the current bubble is far, far worse than the 60's-70's and we are due some serious pain.
There is still some way to go, but a large correction already. Long-term 'normality' seems to be about 120.

Average UK house price vs. 1 oz gold
http://www.itulip.com/forums/photoplog/images/3871/1_UK_house_prices_in_gold.png
source: Nationwide house index, Bank of England

The Outback Oracle
09-24-08, 08:34 AM
T why do you pick 120 as about normality? Do you have some maths behind the picture?
My guess is everyone looking at this graph can draw different lines on it.

As an observation, in these times, given the pressures that have built up in our societies and economies over a period of 40 years or more, anyone who draws straight line projections on these graphs is assuming far too much about the past turning into the future in a straight line.

*T*
09-24-08, 09:52 AM
I agree 120 is a bit arbitrary. However the ratio does seems to be comparable across nations. I'd be curious to see the Oz, Spanish, German and US data.

WDCRob
09-24-08, 10:35 AM
Someone's (maybe Charles McKay?) has a similar chart that goes back a few centuries IIRC. And it's annotated with a lot of interesting detail as well.

I believe there's a recurring low point where roughly 100oz will buy an average American home.

Andreuccio
09-24-08, 03:34 PM
Someone's (maybe Charles McKay?) has a similar chart that goes back a few centuries IIRC. And it's annotated with a lot of interesting detail as well.

I believe there's a recurring low point where roughly 100oz will buy an average American home.

It was Charles McKay. I tried looking for it (briefly) but without success.

zoog
09-24-08, 04:21 PM
It was Charles McKay. I tried looking for it (briefly) but without success.

I think whatever image hosting he was using no longer has the link active, same thing happened to mine that I posted back in February or so.

So I rummaged around and dug out my chart for the US, annual data 1900 - 2007. No interesting annotations or multiple centuries to look at but, here it is.

http://img65.imageshack.us/img65/2695/goldhousevm6.jpg (http://imageshack.us)

Slimprofits
09-24-08, 04:41 PM
I saved MacKay's chart as a .pdf. It is attached to this post.

If he wants me to remove this post, I will.

jimmygu3
09-24-08, 06:15 PM
I posted this graph a while ago, and I think someone else posted something similar, but now I have history back to 1952. There is a gap where Bretton Woods broke down where I could not find the Sterling price of gold. Note the current bubble is far, far worse than the 60's-70's and we are due some serious pain.
There is still some way to go, but a large correction already. Long-term 'normality' seems to be about 120.


As I have said many times, US median house size has doubled since 1950. Comparing an ever-growing house to a static ounce of gold is like comparing a 1200sf house to smaller and smaller gold coins. The only reasonable metric I can see is gold grams per square foot (gg/sf), as shown in my chart below. It gives the best idea of what that 1200sf 1950's ranch would go for over the last half century, rather than comparing apples and bigger apples. We are below the 1930s now, about to dip below the 1980 century low of 1.8 gg/sf.

http://www.itulip.com/forums/photoplog/images/1651/large/1_GoldPerSF.jpg

As for your observation about 120 oz / house, today that would be $108k, a price for which you can buy a nice 1950's ranch in most of the country. (OK, not in the best areas of big cities or in bubble markets, but a lot of places). :)

Jimmy

bart
09-24-08, 07:41 PM
As I have said many times, US median house size has doubled since 1950. Comparing an ever-growing house to a static ounce of gold is like comparing a 1200sf house to smaller and smaller gold coins.

While that's true, in order to do a more valid comparison you also have to adjust for total acreage on which that median house sits. Acreage has gone down significantly and depending on where the house is located, the land value can easily be over half the price.

*T*
09-25-08, 05:08 AM
If anything the average UK house size has decreased.

I'd love to see Mackay's updated graph.

<shout> MACKAY? YOU THERE? </shout>

jimmygu3 - would that be some kind of hedonic adjustment ;)

It's a timing question for me... I'm feeling we are getting much nearer the infexion point as non-shiny things get cheaper.

WDCRob
09-25-08, 10:41 AM
If houses are bigger only because of screwy financing that subsequently disappears, and real incomes are unchanged or falling what does that do to your gg/sf metric Jimmy?

At some point isn't the size of the median house irrelevant? Isn't it ultimately dependent on incomes?

jimmygu3
09-25-08, 12:18 PM
If houses are bigger only because of screwy financing that subsequently disappears, and real incomes are unchanged or falling what does that do to your gg/sf metric Jimmy?

At some point isn't the size of the median house irrelevant? Isn't it ultimately dependent on incomes?

WDCRob, you always make good points. I don't think size is irrelevant, but you're right that prices are very much dependent on incomes, as well as availability of credit and interest rates. I think future new home construction will be geared toward smaller homes (condos?), bringing the median size back down. EJ also predicts the subdividing of McMansions.

As I outlined in a previous post (http://www.itulip.com/forums/showthread.php?p=42667#post42667), a 1200sf home in 1955 cost 2.65x the median household salary, while the same home in 2008 would cost 2.35x salary. Some people have made poor choices, selecting homes that are too large for their budgets and the market is correcting for that. But apples to apples, homes are cheaper now than they have been for most of our lifetimes.

Unpopularly yours,

Jimmy :D

bart
09-25-08, 12:42 PM
As I outlined in a previous post (http://www.itulip.com/forums/showthread.php?p=42667#post42667), a 1200sf home in 1955 cost 2.65x the median household salary, while the same home in 2008 would cost 2.35x salary. Some people have made poor choices, selecting homes that are too large for their budgets and the market is correcting for that. But apples to apples, homes are cheaper now than they have been for most of our lifetimes.

Unpopularly yours,

Jimmy :D

Indeed, and your observation is also shown/confirmed by home prices fully adjusted by CPI w/o lies.

http://www.nowandfutures.com/images/case_shiller_cpi_lies1900on.png

jtabeb
09-25-08, 03:34 PM
Indeed, and your observation is also shown/confirmed by home prices fully adjusted by CPI w/o lies.

http://www.nowandfutures.com/images/case_shiller_cpi_lies1900on.png

That's why I just told my mom to get out of her rental and buy a house NOW!! She's a fixed income retiree. (Don't worry, her bullion investment will carry her through if I'm wrong.

bart
09-25-08, 03:40 PM
That's why I just told my mom to get out of her rental and buy a house NOW!! She's a fixed income retiree. (Don't worry, her bullion investment will carry her through if I'm wrong.

Here's a chart I built a few months ago on request from a few who wanted a general guideline for real estate buying & selling:

http://www.nowandfutures.com/images/case_shiller_home_month_supply.png

grapejelly
09-25-08, 03:45 PM
That's why I just told my mom to get out of her rental and buy a house NOW!! She's a fixed income retiree. (Don't worry, her bullion investment will carry her through if I'm wrong.

except that extremes over-correct the other way...and we can expect this one to over-correct, which it hasn't yet, and bigtime too. Because of the difficulties financing, which has removed many buyers from the market.

jimmygu3
09-25-08, 03:51 PM
except that extremes over-correct the other way...and we can expect this one to over-correct, which it hasn't yet, and bigtime too. Because of the difficulties financing, which has removed many buyers from the market.

Yeah, if she's able to pay cash, the deals will get better.

jayers4647
10-20-09, 07:45 PM
I saved MacKay's chart as a .pdf. It is attached to this post.

If he wants me to remove this post, I will.


If you review the chart 260 ounces at $1000/oz = $260,000 median house in 2009.

In 2012, if the price of gold is $2500 ounce and the ratio from the chart is 100 ounces, that leaves a nominal house value of $250,000. That could be strangely an accurate prediction in that chart !

Slimprofits
10-21-09, 08:43 AM
copy of Mackay's chart from way back when:

http://i34.tinypic.com/wqv5es.jpg

Jay
10-21-09, 08:50 AM
Hey, somehow he even got the reflation bubble almost right too! Check out the blip.

sn1p3r
12-02-09, 09:05 AM
Hoping to revive this thread, so here goes. How would you think we could account for acreage? What if acreage stays the same? What is the projected low and on what timeframe? Back to @75 oz? That seems high...

lektrode
02-07-11, 03:34 PM
wrote on 2dec09: Hoping to revive this thread, so here goes. How would you think we could account for acreage? What if acreage stays the same? What is the projected low and on what timeframe? Back to @75 oz? That seems high...

yes, please LETS DO REVIVE THIS THREAD, seeing as 26months have passed beneath the bridge?

where are we now, with RE, vs the above metrics - in particular the ratio of au-gram/re-sqft?

while my sense (from absorbing as much of you guys + dr housing bubble (is that our Don?) + patrick.net + what eye see in SLC (where i'm intending on buying a fixerupper, as i'm worried the bernank is intending on pushing the price of lift tickets and hotel rooms out of my tax bracket) is that RE still has a way to go (down) yet and given EJ's outlook is a 10-15year correction tween 2006 and 2016-? - what happens if we get into a burst of high/hyper inflation sooner than expected?

at some point rents will have to climb inversely-proportional to value of $US and/so the question becomes: will house prices continue to decline vs gold?

and wont a change in inflationary expectations drive housing prices higher (if only in nominal $'s), in a shorter time frame than the iTulip thesis suggests?

zoog
02-11-11, 03:39 PM
http://i53.tinypic.com/2mxtmb.png

As someone always points out in discussions like these, houses today are larger than they were in the past (although there was a small decline in 2009, the latest data available). So the following chart shows ounces of gold to buy one square foot of the median home.

http://i51.tinypic.com/29mmw0h.png

Although this gold ratio concept is a neat idea, and both charts suggest we are at or near historic low points, I believe there are other factors to consider. If you are at least relatively well-off, have every reason to believe you will continue to be, and intend to by a home to live in "forever", then using the gold ratio to determine timing is probably a reasonable approach.

For the rest of us, I think that house prices relative to incomes are more important. The following chart shows the ratio of median new home prices to median annual household income. Prior to 1944 I had to use average income data. One might think then that the ratio is too high in the early part of the 20th century, but as averages tend to be higher than medians, it may actually be understated.

At any rate, using this metric, homes have been getting progressively more expensive relative to incomes since the end of WW II. Despite a significant decline in nominal prices over the past few years, this ratio has hardly slowed down.

As a bonus of sorts, this chart also shows income expressed in ounces of gold. It is important to understand the dynamics of the dramatic increase and peak around 1970. After the war, the United States was the only major country left untouched. The industrial base built up for the war effort turned to consumer goods, and the nation prospered. Meanwhile, however, the US dollar gold price was still fixed at $35 until it was allowed to float in 1968. Incomes were rising during those years, roughly three times in nominal terms, but the gold price was flat. This over-exaggerates the increase. After gold was allowed to float, the price quickly climbed, and therefore the income ratio dropped.

http://i52.tinypic.com/24d0gm9.png

Incomes measured in gold are near historic lows. Will they soon reverse? What if they don't, and what if you have to sell sooner than expected... who can afford to buy your house? 1945 was the most affordable time to buy a home in living memory. IMO, either home prices need to continue to drop significantly, or median incomes need to rise significantly (or some combination of the two) to make buying a home affordable.