patrick.net

The second chart is interesting.

Which is it ? Is gold to expensive or is housing too cheap ?

Tim Aurora says

Or it shows inexorable drop in the price of precious metals

Actually it doesn't.

Gold rose every year 2000-2012. That is not an "inexorable drop" It fell last year and is up again this year-clearly beating the Dow.

The gold and silver charts are relative amounts to buy a home not the price movements of precious metals.

Here's better data on gold and silver price movements over time.

Gold holds its value pretty well. Silver not so much but silver has the greatest single year price gains over 44 years.

Gold vs the dow
https://smaulgld.com/gold-vs-dow/

Silver vs the dow
https://smaulgld.com/silver-vs-dow/

tr6 says

or both. This chart shows why selling gold in 2011 and putting the proceeds in real estate was a good idea.

Yep- shows that gold soared from 2008-11 while homes dropped, and how homes found their sweet spot from 2011-13.

humanity says

The second chart is interesting.

Which is it ? Is gold to expensive or is housing too cheap ?

or could be homes are too expensive or gold is too cheap?
or both are too cheap? too expensive?
Hard to make a judgment just basing them against themselves.

My guess is silver is ready for another spike and dive

tr6 says

or both. This chart shows why selling gold in 2011 and putting the proceeds in real estate was a good idea.

One downside to real estate is it is illiquid when you wish to sell so its hard to realize gains if you are late-then you still have carrying costs (taxes, maintenance, mortgage payments)

Too bad monetary policy is driven by the fed and not gold. Well too bad for buyers anyway.

JH says

Too bad monetary policy is driven by the fed and not gold. Well too bad for buyers anyway.

The charts show that buying and holding real estate works long term. Silver is an in and out trade. Gold also works long term

smaulgld says

humanity says

The second chart is interesting.

Which is it ? Is gold to expensive or is housing too cheap ?

or could be homes are too expensive or gold is too cheap?

What the.....?

Your housing in terms of gold chart is near the low end of it's range. That means you would probably want to buy housing and sell gold. And if history is any guide, one side of your position will do better than the other.

So as I said. Either gold is expensive or housing is cheap. (It could be both - but that seems less likely).

The alternative is that the chart goes to new lows relative to the last 100 years, which is entirely possible of course.

http://pricedingold.com/us-home-prices/

humanity says

Your housing in terms of gold chart is near the low end of it's range. That means you would probably want to buy housing and sell gold. And if history is any guide, one side of your position will do better than the other.

Don't think so short term. There is a ceiling on home prices based on wage growth. Interest rates are as low as they can be and home prices have risen to their outer limits.

Gold also could be at its outer limits, but if the Fed decides to not let deflation kick in and the dollar to get too strong, rates will stay low and maybe go lower, in which case real estate won't benefit much right away as it has already benefitted from the low rates.

Gold may respond well to another round of stimulus.

All assets have been boosted and perhaps there is a limit on the price ceilings if deflation sets in

I don't think you get it.

humanity says

I don't think you get it.

Always possible and vice versa

I'm not trying to figure out what gold or real estate is going to do. Just commenting on the graph. It implies that either gold is expensive or real estate is cheap.

See100+ years here http://pricedingold.com/us-home-prices/

It is true that the graph can normalize by both going up, but RE going up more. Or by both going down, but gold going down more.

But both of those are consistent with the idea that gold is expensive or realestate is cheap.

And then, as I said, the one other possibility - maybe even strong possibility, is that the graph drops to much lower lows than its range of the last century. I'm not sure what that would imply. Gold being preferred over land ?

I was only commenting on the technical implications of the spread, nothing more.

smaulgld says

The charts show that buying and holding real estate works long term.

smaulgld says

There is a ceiling on home prices based on wage growth. Interest rates are as low as they can be and home prices have risen to their outer limits.

You need to change your verb tenses. Real estate workED long term. Your current position is that it WILL NOT work, future.

Therefore, as I said:

JH says

Too bad monetary policy is driven by the fed and not gold. Well too bad for buyers anyway.

Just like you said:

smaulgld says

but if the Fed decides to not let deflation kick in and the dollar to get too strong, rates will stay low and maybe go lower, in which case real estate won't benefit much right away as it has already benefitted from the low rates.

humanity says

I'm not trying to figure out what gold or real estate is going to do. Just commenting on the graph. It implies that either gold is expensive or real estate is cheap.

I understood that. It's possible that neither is the case.

The house price gold chart only shows the relative prices to each other. If one or both gold/real estate is/are over valued or under valued there are more interpretations other than gold is expensive or real estate is cheap.

JH says

You need to change your verb tenses. Real estate workED long term. Your current position is that it WILL NOT work, future.

agree

smaulgld says

If one or both gold/real estate is/are over valued or under valued there are more interpretations other than gold is expensive or real estate is cheap.

Okay then, add the word relatively in a couple of spots and you are now getting my point.

humanity says

It is true that the graph can normalize by both going up, but RE going up more. Or by both going down, but gold going down more.

But both of those are consistent with the idea that gold is expensive or realestate is cheap.

Do you understand that for some billionaire, buying real estate and selling gold is a money maker (not super short term) if and when the chart goes back into the middle of it's hundred year trading range ? (not that it has to go back up in to that range).

Putting the charts aside I think silver has the greatest upside potential as it is trading 70X less than gold, is cheap and has increasing industrial uses.

https://smaulgld.com/gold-silver-ratio/

humanity says

Do you understand that for some billionaire, buying real estate and selling gold is a money maker (not super short term) if and when the chart goes back into the middle of it's hundred year trading range ? (not that it has to go back up in to that range).

yes there are arbitrage positions that can be made daily yielding big returns- the gold silver one, I mentioned above is one.

Real estate and gold can't often be traded simultaneously with the same precision as the real estate market is illiquid.

Who cares ? It's a long term trade, that was a much better deal a couple years ago.

1 is definetely true home size has nearly doubled since 1950 while an ounce is still an ounce
2. Rents should not be included for a primary residence
A valid criticism of dow vs gold charts are they dont include reinvested dividends
But the composition of the dow changes
3 . Is the same point but a question arises have the smaller houses built in the 50s 60s grown at rates faster than their larger later built counterparts thus making up for their smaller size in price appreciation?

Stocks should be the winner as they reflect human activity while gold and homes are passive subject to the economy and monetary/fiscal policies

smaulgld says

2. Rents should not be included for a primary residence

Again, you're not making sense. The price of homes is hugely affected by the investment value. As soon as we have laws forbidding owning a home for puroses other then residing in them, then this will make sense. Prices would be affected by such a law.

smaulgld says

Is the same point but a question arises have the smaller houses built in the 50s 60s grown at rates faster than their larger later built counterparts thus making up for their smaller size in price appreciation?

Yes because many were built in high demand areas (and are accordingly smaller). Also, the brick and mortar deterioration should lead to lower prices but does not. These old small houses killed over the past 30 years!

A primary residence by definition doesn't include rental income
The value of homes in the chart is based on average selling prices

Tim Aurora says

smaulgld says

2. Rents should not be included for a primary residence

Equivalent rents ( amount of rent the owner would pay to stay in his house) is a part of housing value.

And as such they are included in the price but there is no "dividend out put" if no actual rents are collected in a primary residence

Tim Aurora says

So , you compare a dividend paying asset with a non dividend paying asset. How convenient.

How the hell does a primary residence pay dividends? On the contrary, it charges maintenance. I agree the charts are wonky, but primary residence, gold, and silver all have something in common: they do not pay dividends. Real estate these days (in expensive areas) has become a commodity and subject to the whims of demand, artificial or real.

Tim Aurora says

smaulgld says

And as such they are included in the price but there is no "dividend out put" if no actual rents are collected in a primary residence

So , you compare a dividend paying asset with a non dividend paying asset. How convenient.

Bottom line is this graph is non starter, has too many issues and should not be looked for any answers.

Ok dont look at it for answers! It wasnt presented to answer questions.

Tim Aurora says

So , you compare a dividend paying asset with a non dividend paying asset. How convenient.

A primary residence is NOT a dividend paying asset- indeed you have to pay to keep it with maintenance and taxes.

The comparison is rough but they are both assets that produce no income.

If you want to compare housing and gold with income/dividends you would need to compare rental properties and mining stocks.

It takes as many ounces as the buyer and seller agree upon. I thought you knew that. Here you hold yourself out to be a money/numbers guy.

mmmarvel says

It takes as many ounces as the buyer and seller agree upon.

True but they use the spot price of gold to determine how many ounces they will deliver for the purchase or how many ounces they will have to sell for dollars to make the purchase

JH says

Tim Aurora says

So , you compare a dividend paying asset with a non dividend paying asset. How convenient.

How the hell does a primary residence pay dividends? On the contrary, it charges maintenance. I agree the charts are wonky, but primary residence, gold, and silver all have something in common: they do not pay dividends. Real estate these days (in expensive areas) has become a commodity and subject to the whims of demand, artificial or real.

What Tim is trying to point out is that no one will pay you money to rent your gold or silver, but they will pay you to rent your house.

For example, my neighbors left on a round the world sailing trip for a year and a half. Not wanting their primary residence to turn to shit while they are away, they found a couple to move in and pay (1) all maintenance (2) all taxes and (3) an extra $2,400 a month to them (effectively paying for their trip and then some).

Tim's point, even if you don't have to worry about items (1) and (2) for gold and silver, only primary residences can attain item (3) which has value which needs to somehow be accounted for.

CDon says

no one will pay you money to rent your gold or silver, but they will pay you to rent your house.

That is not true- gold leasing is very big business.
http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20141012000053&cid=1203

But that is besides the point.

You don't have to account for the lease value of homes or gold

The prices of gold and homes are subsumed in what ever value may be had in leasing.

CDon says

(3) which has value which needs to somehow be accounted for

For the occasional round the world trip? That is a bit dubious

JH says

CDon says

(3) which has value which needs to somehow be accounted for

For the occasional round the world trip? That is a bit dubious

Agree

It's really a non issue. There is nothing missing in the average price of a home that is purchased for the purpose of a primary residence-rent value does not need to be calculated.

The price of homes and the price of gold is a close enough comparison.

If you want to value rental properties you can then compare them to gold mining stocks.

JH says

For the occasional round the world trip? That is a bit dubious

It's like insisting that the gold lease value be included in the value per ounce of gold when it is already subsumed in the price.

Adding rent/leasing value just mucks up what is a pretty straight forward comparison of the average price of a home in ounces of gold

smaulgld says

That is not true- gold leasing is very big business.

Very interesting, I didn't know about that! I guess too you could say that gold or silver could be rented - a la the same way that diamond necklaces or what not are often rented to celebrities for various events (not practical but you get my point).

smaulgld says

The prices of gold and homes are subsumed in what ever value may be had in leasing.

This part I am not as sure about. Assume two identical twins buy gold on their 18th birthdays, and sell it on their 80th. One is a horder and sticks it in the wall, the other rents it over the course of the last 62 years. The guy who rented it out made 10X what the guy did who walled it up for a lifetime, yet their buying and selling price are the same.

CDon says

Very interesting, I didn't know about that! I guess too you could say that gold or silver could be rented - a la the same way that diamond necklaces or what not are often rented to celebrities for various events (not practical but you get my point).

Gold can also be leased via one's ownership in ETF's -the gold you have in there is leased all the time-one could argue the leasing actually REDUCES the value as it increases the supply of gold whereas Tim's point is leasing increases the value of a home.

CDon says

This part I am not as sure about. Assume two identical twins buy gold on their 18th birthdays, and sell it on their 80th. One is a horder and sticks it in the wall, the other rents it over the course of the last 62 years. The guy who rented it out made 10X what the guy did who walled it up for a lifetime, yet their buying and selling price are the same.

The chart was never meant to cover leasing/rental hypotheticals and I don't think it should

smaulgld says

he chart was never meant to cover leasing/rental hypotheticals and I don't think it should

Agreed. I think leasing a gold necklace to a celeb is not so much leasing gold commodity as leasing a value added item.

JH says

CDon says

(3) which has value which needs to somehow be accounted for

For the occasional round the world trip? That is a bit dubious

Ok, but there is another guy who works for the state department and has lived overseas on and off for the past 20+ years, renting his house out the entire time. Whats the value of that?

Both my examples are somewhat dubious but contain an important point. Unlike some commodities where the owners only realize the value upon sale, houses do have a certain dividend value which (per Tim's point) you can account for.