Real Estate

(Buyer Beware)

As of 3-15-18 R.E./Gold Ratio 182 to 1 (Rounded)

DYI:  Just as the Dow/Gold Ratio helps us maneuver between stocks and gold the Real Estate/Gold Ratio will give you a picture of valuation in order to make informed decisions [between R.E. & Gold].  Currently the R.E./Gold Ratio is at 182 to 1.  182 ounces of gold to purchase the U.S. median priced single family house as reported by the National Association of Realtors.  Latest statistics medium priced home is $240,500 divided by latest gold price from Yahoo.com is $1320 equals 182 (rounded) ounces.

The ratio has an interesting historical track record for identifying turning points in long-term gold and real estate price trends. When exactly is one of the assets "cheap" and what is "expensive"? Answering that question is where the Housing/Gold Ratio is quite useful. As there is no dollar component in the ratio itself, inflation concerns drop out, and we are left with the value of two of the most popular tangible investments relative to each other.

What this chart is telling us residential single family homes median U.S. cost is moderately priced as compared to gold.  I’m searching the net for the average R.E./Gold Ratio (no luck so far).  However, just eye balling off the chart looks around 350 to 1.  This places R.E. right where you would expect; costs are no longer outrageous but housing is no super bargain as illustrated during the early 1980’s.  Simply put moderately priced.

Intervention:

• Massive World Wide Central Banks
• World Wide Fiscal Spending

All of the Kings men – central bankers and politicians – have attempted with some degree of success in pumping up real estate prices; all at the expense of massively distorting the U.S. economy.  As with any speculative event this will eventually end in a trail of tears.  In order to stem off real estate defaults [and save the banks asses from bankruptcy] interest rates were pounded down to sub atomic low levels and in Europe to negative territory!  Outrageous deficit spending propelling our Debt to GDP to 105%!  As this continues to increase someone is going to blink and demand higher interest rates.  Unless we experience a huge downturn in the economy rates have most likely bottomed in 2012 with our bell weather 10 year Treasuries at 1.4%!

Real Estate is a Function of Interest Rates

When interest rates go up the price of real estate goes down and conversely when interest rates go down the price of R.E. goes up.

This can be interrupted either way only by through a depression or a scorching red hot economy.  These are very sparse events such as the 1930’s Great Depression or the Great Recession of 2008 – 2012; the Roaring 1920’s; late 1960’s; and lastly the late 1990’s.  For the most part R.E. once these hot and cold economies pass prices will revert to the function of interest rates.

As of 3-15-18...2.81%

The Party is Over!

Unless the U.S. experiences an economic smash driving interest rates lower possibly negative the party is over for declining rates.  The days of making money in real estate hand over fist is over on an across the board basis.  As we move through the years; rates will rise.  No doubt the Fed’s will fight the rise as rates increase in a saw tooth manner.  This will put a depressant downward effect on after inflation adjusted prices.  R.E. will once again be all about location and cash flow.  There will be cities due to some positive economy will experience a short term flurry [lasting briefly] of speculative excess but those will be an outliner and not the general U.S. trend.

My suspicion we will see R.E. bottom at the depths shown on the R.E./Gold Ratio of the early 1980’s.  At that time sell your gold and purchase real estate either physical or through an REIT.

DYI

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