Thursday, February 2, 2012

Aussie Houses Priced in Silver and Gold

With Residex property indices having just been updated for end of year 2011 I thought it would be worthwhile re-charting the series I have been publishing here for the past 18 months.

Data source for below charts:

Key Figures:

Sydney (Ounces to buy a house)
Precious Metals Peak (January 1980): 103oz Gold, 1811oz Silver
Housing Peak (February 2004): 1100oz Gold, 69,143oz Silver
Start of 2011 (January 2011): 491oz Gold, 23,515oz Silver
End of 2011(December 2011): 403oz Gold, 22,019oz Silver

Melbourne (Ounces to buy a house)
Precious Metals Peak (January 1980): 67oz Gold, 1181oz Silver
Housing Peak (February 2004): 661oz Gold, 41,538oz Silver
Start of 2011 (January 2011): 434oz Gold, 20,777oz Silver
End of 2011 (December 2011): 353oz Gold, 19,264oz Silver

Brisbane (Ounces to buy a house)
Precious Metals Peak (January 1980): 62oz Gold, 1091oz Silver 
Housing Peak (February 2004): 600oz Gold, 37,696oz Silver
Start of 2011 (January 2011): 331oz Gold, 15,833oz Silver
End of 2011(December 2011): 263oz Gold, 14,336oz Silver

The cost of housing dropped roughly 18% in Sydney, 18.6% in Melbourne and 20.5% in Brisbane over 2011 when priced in ounces of Gold (due to a combination of both falling house prices and a rising Gold price). The cost also dropped when priced in Silver, but by more subdued levels (6-10%) given Silvers larger fall from the peak price earlier in the year. In fact housing priced in Silver between April 2011 (Silvers peak price) and the end of the year rose considerably, for example a Sydney house was 16,864 ounces in April and as per above 22,019 ounces in December, an increase of over 5000 ounces or around 30.5% more expensive (even though it dropped YOY).

Will Gold and Silver continue to climb against property? I suspect so. With Australians continuing to save and taking on credit at historically low levels, house prices will likely be able to do little more than continue their slow downward melt (with risk of a sharp downward move with any significant shocks to our banking system or economy). This was well explained by Leith Van Onselen in this recent article. Complimenting this for the benefit of the precious metals we have the Fed suggesting a longer ZIRP policy and hinting at further easing.

Will house prices hit the lows in Gold and Silver that they did in 1980 where punters could have traded around 1100-1800 ounces of Silver or 60-100 ounces of Gold for a median house? We'll have to wait and see. I think we'll find out one way or another within the next 2-3 years.

Here are the charts (click on the chart to enlarge):




BB.

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8 comments:

  1. Very interesting BB.

    One question I've been pondering for a while has been this:
    If you were able to negotiate with a seller that you would pay in gold/silver coins to the value of the house, could you claim lower stamp duty?

    Eg. Pay with 400 x one ounce gold dragons that have a stated value on them (legal tender?) of $100.

    The seller would get their asking price if they were to sell the gold themselves after receiving it. The buyer could declare for stamp duty purposes that they only paid 400x$100= $40,000 for the house!

    What do you think?!

    ReplyDelete
  2. I have heard similar suggestions before. As far as I'm aware stamp duty is calculated on the VALUE of the property. I would think in most cases they just use the sale price as the basis of this calculation, but if they worked out it was being sold for lower than it's value I bet you'd be hearing from them. I doubt it would be a viable way of skipping out on stamp duty...

    ReplyDelete
  3. Replies
    1. Stamp duty and agents fees are daylight robbery!

      I actually put an offer in today on our next PPOR. Call me crazy!

      Delete
  4. Hi BB,
    Nice idea to chart this. I'd like to set it on a semi-log scale though given the timeline.

    ReplyDelete
    Replies
    1. Hey Ben, I fail to understand how a semi-log scale would suit the data being displayed. The ratio is range bound, rather than exponential... so I would have thought semi-log would not have been appropriate here? If it is can you explain in more detail why it would be the better choice? Sorry if I'm missing something obvious :)
      Thanks, BB.

      Delete
  5. BB do you think we'll ever hit those 1980 highs adjusted for inflation?

    ReplyDelete
  6. Ever is a long time!

    The inflation adjusted high for Gold is only around $2300 using official figures which I think we will definitely see in the next couple of years. There is Shadow Stats inflation adjusted high (alternative inflation figures) of over $7000 which I think is a possibility.

    If you meant in relation to the above charts... In my personal opinion we will see most cities back to under 100oz Gold within the next 2-3 years through a combination of falling house prices and rising metal prices.

    ReplyDelete