Is Your House Worth Its Weight In Gold?

There is a chart, very familiar to many, showing the housing bubble, which shows the median house price since 1970, using Case-Schiller national index since 1987 and U.S. Census data 1970-86.

The median house price, nationally, has come down significantly from the top of the bubble, but is still above the long-term trend line support. It can be argued that houses are still overpriced.

However, by one measure, the average house is underpriced. From http://chartoftheday.com we have the median single family home priced in ounces of gold.

Below we have reproduced the graph and added the 39 year average for reference. Although the average price of houses has still not quite reached historical trend lines in dollars, an ounce of gold buys more house today than it would at the historical average. With respect to gold, houses are undervalued today. It is interesting that the bubble for housing valued in gold occurred slightly earlier in time than for house values in dollars.

Compare the above to the value of houses in another commodity, oil, as shown in the following chart.

The bubble in house prices seen relative to dollars and gold did not occur for oil. Houses are still valued below the 39 year average for valuation in oil, as well as in gold.

Looking at another commodity, copper, we get the chart below. There are marked similarities between the shape of the charts for the price of a house in gold and in copper.

We see a different story when looking at an agricultural commodity, like corn. The price of a house in bushels of corn has had a clear up trend since 1970, with the support line shown in red in the graph below. The price of a house in corn has not yet reached the support line. The chart for the value of a house measured in bushels of corn has a strong resemblance to the chart of house prices in dollars.

These charts are interesting curiosities. It is not clear what significance they have besides being another indication of the decline in the value of the dollar with respect to natural resources. In a facetious vein, one might observe that oilmen and miners are in a better position to buy a house than salaried/hourly workers or farmers.

Comments

[Tom Armistead:]

Time to sell gold and buy a house.

Jun 01 05:35 AM

[duster:]

I find it interesting that with corn, when it bought the most house is also when you should of been buying stocks.

Jun 01 07:05 AM

[Beach Bubba:]

What could all this have to do with anything? Really had trouble making it to the end of the article.

How about price of a double-wide in junk cars?

Jun 01 09:16 AM

[Mad Hedge F...:]

I doubt it. That great sucking sound you hear is the air going out of the housing recovery- punctured by the collapse of the bond market and the spike in interest rates. Interest rates on 30 year fixed rate mortgages gapped up from 5.03% to 5.29% in just one day, up from the 4.50% low two months ago. This underlines what a difficult position the government is now in. While all the stimulus spending is great, the need for epic financing is triggering a collapse of the dollar and the bond market. The resulting soaring interest rates are bound to snuff out any recovery. Obama is truly caught between the Scylla and the Charybdis.

Jun 01 10:27 AM

[Dana H.:]

Interesting charts. Thanks for posting them. Like you, I'm not sure they tell us anything we don't already know, but they are fun to ponder.

Jun 01 11:17 AM

[Steven Hansen:]

the issue is not the relative worth of housing, but the over-supply of houses. the same thing would be true if some hockey-puck invented an method to make gold out of dirt - if would drive the price of gold to the cost of converting dirt to gold.

there is little question housing is affordable. as you know i am trying to sell a duplex in nevada, and i wish affordability was the driver.

Jun 01 11:37 AM

[John Lounsbury:]

Beach Bubba - - -

Sorry the article was not to your liking. I had some pictures and wanted to share them. Recognizing that there was not a lot of analytical depth here, I limited the discussion.

It is rather ego deflating to know that a 340 word article was difficult to get to the end of.

Jun 01 12:49 PM

[Stephen Ros...:]

John,
I appreciate the work you do. Please continue to post. Your insight has been extremely helpful.

Jun 01 12:56 PM

[Howard_T:]

Since the Dutch bought Manhattan from the natives for some beads, blankets, and hatchets, maybe there's a chart for that. I do understand that the Native Americans have some claim to the lower tip of the island. It seems they sold it "Battery not included".

Jun 01 01:27 PM

[John Lounsbury:]

Howard_T - - -

I won't give you a chart, but the purported value of the Manhattan transaction was $24. If that $24 had been given to Goldman Sachs and compounded at 10% for the 385 years since, today it would total $20,000 Trillion. The real estate value of Manhattan is a tiny fraction of that today.

Of course, Goldman Sachs did not exist then, and for most of the intervening years, and the country has prospered, even though the Manhattan natives of 1624 obviuosly did not.

Jun 01 04:09 PM

[TinyTim:]

John-
Great article and unusually short. But I like the clear graphs.

"These charts are interesting curiosities. It is not clear what significance they have besides being another indication of the decline in the value of the dollar with respect to natural resources."

That and assets / commodities are not all on syncronized cycles.

Jun 01 04:17 PM

[Larry House:]

Interesting comparisons. I have decided to keep my house, since it is my home, but I am also buying precious metals and commodities. I have little faith in US dollar denominated investments such as equities. I also like short-term corporate bonds that can be held to maturity.

Jun 01 04:18 PM

[Market Sniper:]

Thank you John. Keep up the good work. Tough to make good sense out of the tangle. This, perhaps, might help. Gold is priced in dollars as well as the home. What happens when you price the home in other fiats? An interesting tid bit on that. At the TOP of the US real estate market (late 2005), priced in Euros, the median priced property was the SAME as in 1998! So, at least up to that point, the real estate bubble was nonexistant if you were a German looking to buy in the US of A. Indeed, it appeared to be a bargin! Just goes to show, we do not have a floating fiat system, we have a system where the fiat sinks at different rates.

Jun 01 10:20 PM

[Donald Ingram:]

One thing that invariably always happens when you have price deflation's, such as the family home, is that the price dives to the trend line only to overshoot and end up below it. Sometimes takes years to climb back to it.
Don't be in a hurry to buy a house. Wait for the price to at least achieve the trend line. Better still wait until the prices bottom.

Jun 01 10:46 PM

[Market Sniper:]

The only question is then how do you recognize a bottom? All real estate is local albeit with national trends. As a real estate broker, appraiser and real estate investor for most of my life, I have found this to be helpful: when the total cost of owning a residence with a normal down payment (whatever the market defines aw "normal") roughly equals the fair market rent for that residence, you are at or very close to a real estate price bottom.


On Jun 01 10:46 PM Donald Ingram wrote:

> One thing that invariably always happens when you have price deflation's,
> such as the family home, is that the price dives to the trend line
> only to overshoot and end up below it. Sometimes takes years to climb
> back to it.
> Don't be in a hurry to buy a house. Wait for the price to at least
> achieve the trend line. Better still wait until the prices bottom.

Jun 02 01:07 AM

[User 364303:]

Well said!


On Jun 01 12:49 PM John Lounsbury wrote:

> Beach Bubba - - -
>
> Sorry the article was not to your liking. I had some pictures and
> wanted to share them. Recognizing that there was not a lot of analytical
> depth here, I limited the discussion.
>
> It is rather ego deflating to know that a 340 word article was difficult
> to get to the end of.

Jun 03 05:43 PM

[Chickenpookie:]

Hmm, so what conclusions does one draw, gold is a natural resource? I would say gold seems to be holding it's value better than real estate at the moment, probably because there are so many homes in foreclosure. Now that the mortgage lenders losses are being compensated and once the lenders no longer have skin in the game, where are the buyers for these homes and who will live in them? (It's late and I've got more reading for tonight).

Why should anybody care how much gold it takes to buy a home as long as GS controls the price of nearly everything including homes? What I don't understand is why GS ran the price of oil up to $145 last year, stopping the consumer dead in his tracks.

Jul 08 02:40 AM