To understand if residential real estate may be undervalued or overvalued it helps to measure it vs precious metals like silver bullion. See average house prices vs silver in the USA, UK, and Australia. Unlike fiat currencies which are created from nothing, silver bullion has a limited precious supply.
The Silver vs Home Price Ratio is a way to measure if average home prices are historically undervalued, overvalued, or fairly valued.
We use silver for this measurement because it is one of the most enduring monies we have for measurement.
in order to see true value in charting asset classes, we suggest measuring stuff vs stuff to garner a truer sense of what is under / over / or fair value.
Since 1971 to date, we have been living under a full fiat currency standard. We are talking almost 50 years time. That means, most people who are alive today only know times when nearly each and every currency supply has been expanding.
Today in the year 2018, the United States’ largest generation in terms of population and aggregate wealth (baby boomers) moves into a 65 year old retirement age at a clip of about 10,000 per day. This trend began in the early 2010s and continues until about 2030.
About half of the much younger house buying aged millennial generation currently lives paycheck to paycheck.
Regardless of Federal Reserve medium term policies, by studying and understanding the USA’s median and average price home data to silver values, you can garner a better idea of when housing may be expensive or cheap in terms of silver bullion ounces.
Average US homes were cheap in price perhaps at the peak of the last bullion bull market in 1980 yet financed with extremely high interest rates (+20%) back then.
Compare that versus average US homes being overpriced during the early 2000s US housing bubble and the most recent reinflation of housing prices thanks to record low interest rates (as low as 3.3% in 2012).
Silver vs House Prices 1964 - 2017 (USA)
Perhaps we will see an echo of the last 1970 - 1980 silver vs house price cycle from severe silver undervaluation (see years 1971 & 2003 ) to potential silver overvaluation ( see 1980 & 20??).
It would not surprise us to see average house prices in the USA to peak at or even below 5,000 oz silver vs average US house price. At today’s US dollar price that would require a silver price of over $80 USD oz.
Of course this silver vs house spike could go lower than even the 1980 price peak. Yet we feel it conservative to presume the silver vs home price ratio will eclipse its 2011 high before this 21st Century Gold Rush fully plays itself out.
Even some of the world’s largest bond trading portfolio managers (e.g. Harley Bassman at PIMCO) politely calls for the kind of future precious metal price reversions we expect ahead.
Federal Reserve could Buy Gold at $5,000 USD oz to create needed price inflation
If such a ‘drastic’ scenario were to play out (e.g $5,000 USD oz gold) one would rather reasonably expect the gold silver ratio to tighten lower than its current near 80 level.
A reversion towards a gold silver ratio of just 50, in this higher $5,000 oz USD gold price scenario brings about triple digit silver prices.
Judging by the M0, M1, and M2 data in the Santiago Capital fund's data above, a $5,000 oz USD price would still be deflationary in terms of the amount of US dollars and other fiat currencies in the global financial system today.
A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold