Adrian Ash

The broad sweep in housing-gold ratios is just as broad and as sweeping as both gold bulls and bears might hope…

Even the UK’s small, tightly packed mainland, floating off the edge of Europe, includes disparate and distinct real-estate markets. Glasgow is as different from London as Cornwall from Cheshire. But in the main (and the mania), and with a peak of 185,000 new dwellings under construction in 2006, the broad sweep of house-price inflation…followed by an inevitable slump lasting six years or so…tends to apply across the nation.

In the United States, in contrast, new housing starts at the peak of what pundits, economists and investment bankers clearly felt was a coast-to-coast boom in 2006 approached 1.63 million amid a total housing market of 128 million units spread across 3.5 million square miles.

By necessity, that makes the idea of an “average” home price more slippery. But let’s not let such quibbles clog up our spreadsheet! Not after math PhDs, applied to mortgage-backed zeroes, clicked and dragged the answer “AAA” whenever asked. And not before we contend with the data itself.

This first chart’s solid enough, thanks to the certainty with which the Census Bureau dispenses its data.

It shows the median price of new US housing, at sale, divided by the ounce-price of gold, monthly average. And as you can see, new housing has swung wildly – measured in ounces – over the last 45 years. Quite clearly, one made a better home for investment than the other over distinct periods, as the mid-way price of new homes (half the market paid less, the other half more) was rocked and rolled by booms, bubbles and busts in both bricks and bars.

Second up, existing homes bought on the secondary market – and the same picture, but only on an annualized basis (and with the National Association of Realtors thrown in as a source) for the Census Bureau’s less lengthy, less detailed data.

You can see, between the two charts, how new housing during this last real-estate boom (2000-2006 in nominal prices) began and topped out much sooner when priced in terms of gold. New units also reached further above existing-home prices too, peaking at $243,000 in 2006 – then 550 ounces of metal – or some 10% higher than the secondary market.

Perhaps that extra cash paid for new homes’ expanding foot-print. But it’s also worth noting, turning aside from Gold Investment for a moment, that new US home prices this decade also saw the mean outstripping the median as never before. The gap between average and mid-point prices, in fact, gaped from one-fifth or less (1975-1999) to as wide as 30% during the summer of 2006. Which might show, we guess, a growing number of super-priced units way up at the top-end of the market…bought and paid for, perhaps, with bonuses skimmed off mortgage-backed bonds sold against the sub-median half.

Finally, the money shot…

True long-run figures for housing, like the concept of “average” itself, are more sketchy than Mel Gibson after a night on the sauce.

We’ve used Robert Shiller’s invaluable numbers, of course, but they only come as an index, itself built from five sources stretching back to 1890. Rolling those numbers back from today’s current average ($175,000 according to the NAR) only throws up big gaps with the Census Bureau prices collated and published every 10 years starting with 1940. It also puts the price of US housing above $4,000 in 1900 – and in 1900 dollars, too – when average wages were just $2 per day.

Okay, so home-buying was yet to meet democracy through that great 20th century liberator, the securitized mortgage loan. And yes, two-thirds of US homes had yet to gain running water, let alone electricity. But as in the UK data, Gold Bullion regained its Great Depression value in housing as the Great Inflation of the 1970s peaked out, suggesting (to us, at least) that its utility as a store of value was little diminished by new bath fittings and copper wiring.

The broad sweep – smoothed out to fix those anomalies which our quick desk-bound research, a mere 5,000 miles from the Library of Congress throws up – remains as broad and as sweeping as either gold bulls or bears might hope to spy.

From here, the bottom in housing may still be to come, at least priced in gold. Broad-sweeping investors are invited to draw their own conclusions.

Regards,
Adrian Ash
BullionVault

May 6, 2009

Adrian Ash

Formerly the City correspondent for The Daily Reckoning in London and head of editorial at Fleet Street Publications Ltd, the U.K.'s leading financial advisory for private investors. Adrian Ash is also the editor of Gold News and head of research at BullionVault. SPECIAL REPORT- The Endless PAYCHECK PORTFOLIO: In three simple steps, unleash a steady flow of work-free income... starting with up to 75 automatic "paychecks" deposited directly into your account.

  • http://www.whiskeyandgunpowder.com Gary Gibson

    I’ve been thinking of any future home purchases in terms of gold and silver. It wouldn’t surprise me in the least if a 715-oz bag of old silver dimes — which could have been picked up for around $3,500 a couple of years back — will be able to purchase an entire house in a decent area at some point in the future.

    Well, our views on the socialization of medicine brought all the Canadians and commies out of the woodwork. My poor inbox nearly caught fire. Language, people!

    Well let’s get started…

    “You are totally wrong in your views of socialized medicine. In Canada physicians earn a lot more than the so-called $100,000 as you espoused. Pathologists are guaranteed $350,000 in Ontario and that is minimum. If you look at your system, you will find that a huge percentage of funding goes directly to non-essential work such as employing massive numbers of people to simply track the billing of poor saps who may have to lose their houses and belonging for your private system.

    “As for university education, you will find that our standards are a lot higher than yours and the graduates are extremely qualified and rewarded because of this. There are no graduating “forced thru” football players. In other words get your facts straight before printing such rubbish!”

    We try, good reader, we try…but there are so many conflicting reports and they seem to depend on whether or not the reporter constitutionally favor getting out more than they put in based on “need.”

    Here is a snippet from a very good email from “a retired physician/naturopath/nutritionist who has been a board certified family physician”…

    “The biggest problem will come if private medical care is not allowed. Hillary Clinton tried to do this. It is already virtually impossible for a Medicare patient to get appropriate medical care since Medicare does not allow their recipients to get appropriate care even if they are willing to pay for it themselves if Medicare does not pay for it. In other words, people are already being denied the freedom to get the medical care they need and want. I cannot imagine any country, which claims to believe in freedom, denying the most basic freedom to its citizens. The governments of other countries that offer socialized medicine allow a very thriving private practice. If the government controls all access to medical care, then that is a stranglehold on the population and the government then becomes a dictatorship.”

    I wish I had the room to run the rest of the good doctor’s letter in its entirety.

    Here’s another e-mail that didn’t involve someone calling my contributors and me a pack of lying idiots…

    “C’mon boys and girls — if the Constitution can justify giving loads of money we don’t have to the Wall Street gang, we can surely find enough wiggle room in the old document to underwrite our collective healthcare!!

    “Having lived under ‘socialized medicine’ in Australia in the late 70’s, until we were all rescued by Mr. Fraser, I can tell you that it can be quite painless when administered by an educated, dedicated, and vigilant civil service — especially in a country with less than 12 million people. Herein lies the real problem. The U.S. civil service is mostly inept. They can no longer deliver mail reliably, police the scoundrels (on Wall Street and elsewhere), and if you have ever tried to even call the Social Security folks or Medicare you will be lucky to even speak to a real person who can, or will, be able to assist you.

    “For anyone in Congress to believe that with a population closing in on 300 million people (many of whom will take advantage of any government program they come across) that we can administer a larger version of what we now have, they must live in total isolation from anything real. What are they smoking — or drinking??

    “We just don’t have the proper people to run any type of socialized anything, period!!

    “Still Farming in the Desert ”

    But here are portions of a letter that resumes the yelling and cussing (not that there’s anything wrong with that)…

    “I know you love to inflame, but I’ve gotta say that the tired, old, ill-informed bullshit that you yankees trot out about the perils of “socialized medicine” is really wearing a bit thin.

    “I’ve lived in 3 countries with public + private health insurance (Australia, UK, Netherlands) and have found my dealings with doctors and hospitals were fine. And in all of them, the same old thing applies: if you can afford it you will get better service, but if not, the basics will be covered. In all 3 countries there are health insurers making good profits, doctors and nurses that choose their career paths and some great hospitals and some mediocre hospitals.

    “They’re not perfect, but a whole lot better than the basket case that the US has.

    “What the f*** is wrong with you people? Whenever I hear yankees crapping on this way about “socialized medicine”, it’s like their brains have switched off and otherwise normal people become completely irrational. Public health affects productivity. A basic level of public health is essential for a functioning society. We all suffer from the same sorts of things, mostly, but occasionally circumstances mean some of us need better care. Those that can afford it will get it.

    “The image you project to the world is like some hick retard with a cellar full of machine guns and hand grenades for ‘Home Security’, while refusing to pay for his mother’s hospital bill.”

    I’m all for paying my mother’s hospital bill. I just don’t feel it’s right to force others to help me do so by means of the ballot and the gun.

    That’s where socialism apologists trip up. They conflate who’s responsible for what.

    If you find yourself in paroxysms of joy at examples of socialized healthcare that seem to work, understand that you are taking joy in government redistribution. You like playing with other people’s money.

    That’s the thing about mobs and voting. Things that are criminal at the individual level become virtuous when the majority approve.

    But why do folks stop at healthcare? Isn’t the need for food much more basic and immediate than the need for a doctor? And what about housing? People who are well fed and properly sheltered are more likely to be healthy, aren’t they? Why not address the Root Causes?!

    Hallelujah, I think I’ve seen the light.

    I think all you socialized medicine people are misdirecting your energies. The federal and state governments should institute a program of food insurance and house insurance first.

    We could start with legislation that provides for unwed mothers. Sure some folks may take advantage of it and form collections of children from different fathers, but the goal is noble enough to take that chance.

    Eventually, maybe we can insure that all citizens everywhere under some arbitrary level of income have access to food, housing and health for which someone else pays. What a glorious and equitable world it will be.

    Till tomorrow,
    Gary Gibson
    Managing Editor, Whiskey & Gunpowder

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  • oldmanriver

    Gary… we already do have socialized food and housing. Ive farmed for about 30 years and in a typical year i receive between 75000 to 100000 per year from the government. if thats not socialism I dont know what it is. The government has had a cheap food policy for decades. We have programs for low income housing too as well as in recent history we were giving money out like drunken sailors to everyone that wanted to buy a house. Now we are all paying for it. Kind of a convoluted socialism but we all end up paying for it anyway. While the prospect of the government telling you what to do and how to live is not very enticing even worse is that basically large corporations are running the country. I trust the government more than I do some faceless corporate suit, at least I get to vote for the government.

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  • http://www.whiskeyandgunpowder.com Gary Gibson

    I know. I was just being sarcastic in an effort to demonstrate how incredibly wrong the argument for government redistribution and meddling are.

    All those who are for it won’t ever change their minds, however.

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