Home Price/Gold Ratio - Do Interest Rates Really Matter?

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Home Price/Gold Ratio - Do Interest Rates Really Matter?

Mike Roy
Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes

Hi All - I'm curious to hear how much stock you all put into the US Home Price/Gold Ratio:

https://smaulgld.com/wp-content/uploads/2015/03/US...

Personally, I like to look at the price of assets relative to other assets because it controls for inflation.  While it will never tell you if that asset is ABSOLUTELY expensive/cheap, it does tell you if it is RELATIVELY expensive/cheap in relation to the asset you're comparing it to. 

The chart seems to be telling us that, right now, gold is relatively expensive and housing is relatively cheap.  Obviously, you'd want to look at other data, such as home price/median income ratio, in evaluating whether housing is absolutely cheap, but home price/gold is an interesting data point.

What I also find interesting is that home price/gold seems to suggest that interest rates do not have a substantial impact on the relative value of home prices, despite conventional wisdom.  Housing went from being extraordinarily cheap in 1980 to sky-high bubble status in 2005 back to cheap again, and interest rates were generally falling the whole time.

Do any of you use this ratio as a long-term metric in evaluating your overall exposure to real estate?

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  • Edward Briley
    None · Virginia Beach, VA · Member since 2014 · 126 posts · 50 votes
    11y

    Housing prices only increase during a time when interest rates are reasonable.  A zero to .25 percent discount rate by the Federal Reserve is not reasonable.   This hurts the price of housing, and the working people as well.  What this rate is doing is favoring a small group of people and banks.   This causes a lopsided economy in which small banks have a difficult time to operate in and small businesses find it difficult to compete.   This also increases stock values, for the sole reason that people invest money in their 401K and like accounts, and in the stock market to drive stocks above their worth.  Your 401K can be worth millions of dollars on paper, however, until you have made use of it, it has created nothing.   A four percent discount rate will drive the economy, drive up home prices, and believe it or not, more working class people will be able and will want to buy homes.  Real estate is the driving force behind the US economy.  I have made a post earlier today on how a reasonable interest rate helps, rather than hurts the economy.  Gold prices will come and go in any market condition.   How I feel about gold is this:  I cannot buy any amount of gold that I can grow food on, or produce an income from.  However, I can buy a property, and use it to provide income in any market.   I have properties now that create more money within a single month than an ounce of gold is worth. 

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  • Mike Roy
    OP
    Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes
    11y

    I wasn't trying to make a point about the value of investing in gold vs. real estate; rather, I was highlighting that real estate priced in gold might offer some insight about the relative value of real estate on a long-term average basis.  I think this ratio is telling us that real estate is generally a buy now despite all the talk of another bubble, that's all.  

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