California Home Prices in Ounces of Gold
I resisted the urge to have a clever title to this post like “California Housing: Not as Good as Gold”. Call it editorial restraint.
In any case, I thought it would be interesting to compare California home prices with an ounce of gold. From 1996 to 2005, CA housing did pretty well vs. gold. Over that period housing more than doubled in value vs. gold.
The interesting thing is that CA has erased 20 years of gains vs. gold. The ratio is now at 1988 levels. I don’t know if this means that housing is getting ready for a rally. As I have mentioned in other posts, I think that housing is level to softening, which isn’t consistent with a rally. Also, as you can see from the chart, the trend is almost straight down so you need to see some leveling off before you can see a recovery. I have a trend line on the chart, and we are well below trend right now, though I’m not sure that it really means anything.
But, these things are cyclical. Investors seem to take their cues from the echo chamber. Conventional wisdom one day is dismissed the next (and investors will pretend that they never subscribed to the previous day’s conventional wisdom). So you can never be surprised when the investors, who had been avoiding housing like the plague, are right back to doing deals like there never was a bust.
I have a follow up post which will compare CA housing to the S&P 500. Stay tuned.
Home price data is from Freddie Mac Conventional Mortgage Home Price Index using annual averages. Price of gold also used annual averages. 2009 data point is based on Q1 data for home prices and Wed. closing price for gold.
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