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tts
2011 Apr 2, 6:02pm
Its a rule of thumb, not a hard and fast rule written in stone, and its only one of several. You have to look at wages and jobs too. The bubble was too huge and all debt fueled at that, we're nowhere near a bottom in housing prices. I could see the ratio getting even further out of whack before we bottom when you consider things from the jobs/wages angle. Then there is also supply too don't forget.
Done!
2011 Apr 3, 12:05pm
Well both markets are victims of speculation, RE on the down swing, and Gold ratcheting up tower of terror for a free fall in a mine cart on a hot wheels track.
dunnross
2011 Apr 4, 9:59pm
But Dow/Gold Ratio needs to drop to it's historic 1:1. Right now it's 9:1, so gold dropping at this point is close to impossible, because, the Dow would have to drop to almost 0 to reach 1:1 ratio. If Dow drops to 0, house prices will be close to 0, as well. A much more likely scenario:
Gold: $5000
Dow: $5000
National House Price: $75K (Another 50% from here)
http://www.safehaven.com/article/15434/the-dowgold-ratio-will-decline-further
What do people make out of the idea that the average housing / gold price ratio needs to fall to 100:1 for a real bottom to occur in housing price?
The house/gold ratio of 100 occurred twice in the past century, once in 1930 and again in 1980 during extreme deflationary/inflationary periods.
It's now at 109 since the average US house price as of Feb 2011 is $156k (from NAR), and gold at today's price is $1428/oz.
I read that the historical average ratio is around 200, so we're clearly in the "overshoot" correction period in terms of gold's purchasing power. In fact, perhaps we're near the very bottom because it seems fairly easy to reach 100 soon if you think that the average US house price will fall further to $150k while gold price reaches $1500 in the near future.
One caveat is that the bottom in this housing/gold ratio does not equal to the bottom of the housing price in nominal terms. It's possible that after reaching the ratio of 100, the housing price falls even further while gold price starts falling drastically, thus making the ratio higher than 100 even as the housing price keeps falling.
#housing