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Priced in Gold, Is Housing a Buy?

In terms of the median price, it took almost 600 ounces of gold to buy the median priced house in 2005.

Then housing collapsed, and gold rocketed from $500/oz to $1,500/oz. As a result of housing declining by 40% and gold tripling, the ratio has plummeted by 80%, from 500 to just above 100.

How low can the ratio go? Some might look at the second chart and conclude that the previous bottom around 90, in 1980 when gold shot up to $800/oz, might well mark a bottom in the ratio. Those who believe that 90 is the bottom would then sell their gold and buy housing at that point. Since the ratio is currently at 110, that point is still a ways off.

I am not so sure, as there is plentiful evidence that we are entering an unprecedented era. The Baby Boom numbers about 65 million, and the generation behind them (Gen X) is considerably smaller (45 million). That suggests there won’t be enough buyers to buy all the houses sold as Boomers downsize/retire.

As the U.S. economy grinds toward its event horizon, the generations behind the Boomers are less wealthy–their wages have stagnated, and they will inherit less wealth as assets in general fail to keep pace with inflation (i.e. loss of purchasing power).

http://www.oftwomind…ousing5-11.html

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