At the suggestion of Keith Weiner and reader Sundar, here are two charts on home prices, one in terms of gold, one by a CPI deflator.
Both charts are from Chart of the Day. I published the deflator chart recently. The Inflation-Adjusted chart gets you back to 1978 prices and the gold ratio chart gets you to the early 1980s. Please see my article “Case-Shiller Down 5.1% Q1 2011 From Q1 2010” which has a discussion on affordability.
Price-to-Rent is what I follow.
Thanks Jeff. The house price/gold ratio is hovering somewhere in the 115-120 range and I think that we can see that go to 70 or even lower, if the currency debasement continues.
I think it was Jim Grant who said recently “Gold is the reciprocal of the world’s confidence in the likes of Ben Bernanke. I think the price will go higher.”
Another key observation is from Nouriel Roubini (http://www.washingtonsblog.com/2009/09/merrill-lynch-gold-is-inversely.html):
“Gold is inversely correlated to global short-term interest rates and there is a race right now towards 0%. Production is down 4.0% y/y while fiat currencies globally are being created at a double digit rate by the world’s central banks….As for all the talk of a ‘gold bubble,’ it would take a nearly 625% surge in gold to over US$6,000/oz and a flat stock market to actually get the ratio of the two asset classes back to where it was three decades ago when bullion was in an unsustainable bubble phase.”
The present market circumstances are all looking great for gold, as malinvestment in housing continues to bleed.
I agree Sundar, except I think even if currency debasement stops gold will continue to go up (as we approach the day when the currency collapses due to unpayable debts). And even if gold stopped going up, housing prices will keep falling because we built far too many houses and now people are losing their jobs and their access to credit.
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