Thursday, September 8, 2011

House Prices Have Fallen by 60%; Measured in Gold

If, as I keep harping on about, gold is real money, then how has housing performed against gold since the highs of 2005? Can we buy more of a house now than we could back then with our real, constant money? Here's some facts.

The gold ounces to house price ratio peaked in May 2005 at 470 ounces to buy the average NZ house. I am going to take this as being the height of the property boom (as measured in constant money - gold) even though the average house price at the time was $275,000 (compared to the high in March, 2010 of $360,000)

According to the July,2011 data from the Real Estate Institute of New Zealand, the average New Zealand house now costs $345,000.

So, in 2005 the average house cost 470 ounces of gold equivalent. For July 2011, this average NZ house price dropped to 186 ounces of gold. So, from that high to July 2011, houses have dropped by 60% against gold.

What is also noteworthy, is that since Jackson Hole, August 2010, prices have decreased by 11% against gold or 24 ounces of gold.

So, even though, at the average price of $345,000 in July 2011, house prices have increased by 25% in dollars since May 2005, they have actually decreased by 60% when measured against gold. Or, it now takes 284 ounces of gold less now to buy the average house.

If you had sold your house in May, 2005 and bought 470 ounces gold with it, you could now buy 2.5 houses with that same 470 ounces in July 2011.

Some commentators in the UK predict that houses there should be around 100 ounces of gold before they have bottomed. Some even go as low as 55 ounces.

Tomorrow I hope to have the figures for Auckland only, because, like other large cities worldwide (this goes for Sydney and London at least), house prices in Auckland have held up better than the national average.

Gold in New Zealand dollars: $2177.68 per oz
Previous all time high: $2279.35 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $49.74 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

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The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
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