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Home prices - in dollars and gold
Saturday, January 10, 2009
It never occurred to me to plot home prices in dollars and gold, but it did occur to Jake over at EconomPicData, the chart below being the result.
We sold our Southern California home a couple years before the market peaked and we are still renting, but, fortunately, a good portion of the proceeds were directed toward the yellow metal making those lost housing gains a little more palatable after looking at this graphic.
4 comments:
Some FT person (Authers IIRC) said that in effect the world has been running a Yen based monetary system. Check the same graph in Yen :-).
Also the other interesting feature of this graph is that like just about all other graphs of financial quantities it has a trend break around 1995-1996, when the Great Credit Bubble started.
This chart has some serious implications.
The last housing market bottom occurred around August 1996. The ‘home price in gold’ for ’96 of just over 200 ozs./home correlates with today’s price; while the home price in dollars remains significantly elevated.
Relying on Shiller’s 118-year chart of inflation-adjusted home prices; I have always assumed that the housing market wouldn’t bottom until at least 2012. Indeed, when looking at the ‘updated’ Shiller chart (posted a week or so ago on Barry Ritholtz’ site) it appears the correction in housing still has a long way to go.
If this is the case, then a number of possibilities arise:
1) The housing market, in terms of real value (gold), has essentially bottomed, or,
2) Housing was overvalued, in terms of real value (gold), when the current boom began in 1996, or,
3) Gold was undervalued, in terms of real value (housing), when the current boom began in 1996, or,
4) Gold is currently overvalued.
Since I find it unlikely that the housing market has already bottomed, or that housing was historically overvalued in 1996, this means either that gold was undervalued in 1996, or it is overvalued today.
Scary implications
(disclosure: currently long gold)
I think if you chart it compared to real income, it will look a lot more scary. Unfortunately we aren't on a gold standard so the affordability of housing compared to the ability to live our lives is still way out of wack.
I would like to see this chart extended back to 1971 when Nixon broke Bretton Woods.
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