Sunday, August 30, 2015

Australian Houses Priced in Gold / Silver Ounces (2015)

Every 12 months I have been updating the data I keep on Australian house prices measured in ounces of Gold and Silver. Here is the latest update which takes us through to July 2015 (inclusive).

Data for house prices is via Residex (median house price indices).

Data for Gold and Silver prices is via Perth Mint (bid average AUD).

I have added Perth and Adelaide house price charts to the mix this year, but note the time frame is different to Brisbane, Sydney and Melbourne (due to limitations on available Residex data).

Key Figures:

Adelaide (Ounces to buy a house) 
Housing Peak Against Gold (February 2005): 501oz Gold
Latest Figures (July 2015): 282oz Gold, 21,439oz Silver
Based on Current Spot Price: 271oz Gold, 21,375oz Silver


Brisbane (Ounces to buy a house)
Precious Metals Peak (January 1980): 62oz Gold, 1091oz Silver
Housing Peak Against Gold (February 2004): 600oz Gold
Latest Figures (July 2015): 321oz Gold, 24,448oz Silver
Based on Current Spot Price: 309oz Gold, 24,375oz Silver

Melbourne (Ounces to buy a house)
Precious Metals Peak (January 1980): 67oz Gold, 1181oz Silver
Housing Peak Against Gold (February 2004): 661oz Gold
Latest Figures (July 2015): 450oz Gold, 34,253oz Silver
Based on Current Spot Price: 432oz Gold, 34,150oz Silver

Perth (Ounces to buy a house)
Housing Peak Against Gold (July 2007): 642oz Gold
Latest Figures (July 2015): 342oz Gold, 26,078oz Silver
Based on Current Spot Price: 329oz Gold, 26,000oz Silver


Sydney (Ounces to buy a house)
Precious Metals Peak (January 1980): 103oz Gold, 1811oz Silver
Housing Peak Against Gold (February 2004): 1100oz Gold

Latest Figures (July 2015): 670oz Gold, 51,028oz Silver
Based on Current Spot Price: 644oz Gold, 50,875oz Silver
 
(Spot Price ratio calculated on A$20oz for Silver, A$1580oz for Gold and July house prices)


A point of interest, Gold has outperformed most capitals since the last update, rising from $1360 in June 2014 to $1518 in July 2015. This has resulted in most cities seeing the ratio fall. That is with the exception of Sydney where house prices have outperformed Gold and rose a blistering 21% YoY to July 2015.

It's also interesting how much later the peak for Perth property (to Gold) came as house prices boomed there into 2006/2007.

My view going forward has not really changed from my update last year: "Over the same period (next 3-5 years) I expect rising precious metal prices and a lower Australian Dollar, so do think investors stacking ounces for the eventual purchase of a house will be rewarded (even those in Sydney). Only time will tell if I'm right."

Here are the charts (click any to enlarge).








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Wednesday, August 26, 2015

The Religion of Gold Hating

A lot of finance commentators have poked fun at those who own Gold (aka 'Gold Bugs') over the years, likening them to members of a cult or religious group.

Articles such as '5 more reasons why investors shouldn’t worship gold right now' and 'Let’s Be Honest About Gold: It’s a Pet Rock' where the author concludes that owning Gold is "an act of faith", are recent examples of authors trying to portray Gold owners as devotees of the metal. This is nothing new though, one well known Gold hater, Joe Weisenthal, even wrote a post half a decade ago titled '9 Ways That Gold Is A Religion Masquerading As An Asset Class'.

One amusing aspect of all this Gold hating is that (when aggregated) much of it ironically resembles the same culture they are criticising. It has the same comradery, the same obsessiveness and the same unwavering faith (just in the opposite of what Gold stands for: fiat currencies, sensible government or other financial assets, with no allocation to those which are tangible).

Many Gold haters spend a great deal of time trying to convince anyone who will listen not to own Gold. They ridicule those who do own it and usually make no differentiation between those who allocate a small or large portion of their portfolio to Gold. They try and mold any argument for or against Gold to their own nonobjective viewpoint while claiming to be "asset agnostic" as if their view doesn't suffer from the same subjectivity as the rest of us.

Here are some recent examples of Gold hating from one of their favourite pulpits (Twitter).

Cullen Roche (speaks for itself):



Joe Weisenthal (retweeted this link to an August 6th article on the Gold crash costing Russia and China $5.4 Billion, when the price had already rebounded to around the pre-crash level.):


John Aziz (suggesting a price drop in Gold should result in investors who own the metal "rethinking the world", does that mean those who don't own Gold should have been rethinking the world when it was at US$1900?):


Stephen Koukoulas (whose Gold commentary over the years has lacked sense, see here and here):


Barry Ritholtz, is another prolific Gold hater who I've written about recently (here and here).

A lot of the Gold hating is less obvious than this (i.e. snarky tweets on Gold, that most would brush off as attempted humour, but a pattern can be identified when watching over time), but evidence of it exists across the feeds of many Twitter finance 'elites'. It also flooded the mainstream media over July and early August (marking a significant bottom?) until the price started to rise again.

I agree Gold is like a religion to some owners (but not all of them as the Gold haters would have you believe), but even though that's the case, wouldn't it be rational for investors (who recognise this fanatical group of Gold owners and buyers) to hold a position in the metal knowing of this devout participation in the market? Wouldn't it also be rational to own Gold knowing there are billions of people living in a society with deep cultural ties (many based around religion) to the metal and who are likely to be the same people whose wealth is set to increase the most over coming decades?

For me owning Gold is more of an atheistic position (for the most part, among other reasons). Disbelief (or lack of faith) in governments being capable of navigating the excessive debt that's built up in the financial system today to a growth model moving forward without a significant reset, mass default, global crash to restore some resemblance of sustainability. I think Gold will be one of few assets to benefit from such an event or environment so a healthy allocation is warranted.

Gold Bless,
Bullion Baron.

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Thursday, August 6, 2015

Is Property More Affordable Today Than 30 Years Ago?

This is a continuation (that I have written) of a conversation written by fellow Adelaidean Peter Koulizos, see here for the prologue.
 
[Son enters room]
 
Son: Hey dad, I just heard you spinning a whole lot of nonsense to sis about housing affordability.
 
Dad: What do you mean son? I was just telling her how it was back in my day.
 
Son: Well you know finance and history aren’t her strong points…
 
Dad: Speak nicely of your sister please.
 
Son: Ok, as I was saying, you claimed that it took mum and you longer to save a deposit, because a 25 per cent deposit was required to buy, but isn’t it true that some building societies loaned up to 95 per cent, meaning similar loan to value ratios were available even 30 years ago?
 
Dad: Well, yes, but the interest rates were often higher than the major banks...
 
Son: But isn’t it also typical today for the lenders offering the easiest credit conditions to have higher interest rates?
 
Dad: You have me there son.
 
Son: And isn’t it true that in the early to mid-1980s that the First Home Owners Scheme was far more generous paying up to $7000 in benefits, equalling more than 10% of the purchase price you mentioned?
 
Dad: That is true. Your mum and I took full advantage of that and the First Home Owners Grant isn’t nearly as generous today.
 
Son: You did pay 17% interest rates for a short period of time, but isn’t it true that the higher level of inflation at the time reduced the real value of the loan rather quickly with wages rising faster than they are today?
 
Dad: Yes, but it was tough for the first few years…
 
Son: Didn’t you brag to me one time that you paid off your first home in less than 10 years because interest rates fell in the years after you purchased allowing you to pay off the mortgage much faster? Do you think that it will be made so easy for sis who would be borrowing at historically low interest rates with rate rises more likely in the future?
 
Dad: I hadn’t considered that.
 
Son: You mentioned her trip to Bali, but you know she got those tickets for only $300 return and the accommodation, food and entertainment over there is far cheaper than in Australia. In real terms wouldn’t her week in Bali be cheaper than the long weekend holiday you told us you took to the Gold Coast in the early 1980s while saving for your first home?
 
Dad: You are probably right.
 
Son: It’s also the case that a median house in Adelaide today will be on a far smaller block than you got in 1985. In fact if I recall correctly you said your first home was on a subdivisible block once the council changed the zoning, do you think sis will be able to do that with the typical 375sqm blocks of today?
 
Dad: No, I suppose not.
 
Son: Look, I know you think you had it tough with the mortgage and for the first couple of years that may have been the case, but if sis takes a larger mortgage today, to buy a smaller block, in a lower wage growth environment, with the possibility that interest rates may rise making it difficult to make the repayments in the future, isn’t she taking a greater amount of risk?
 
Dad: If you look at it that way...
 
Son: And shouldn't being able to afford something take into account the level of risk associated with doing so?
 
Dad: I’ve had enough of this, I am going to watch some TV in the lounge.
 
Son: Weren’t you going to have some dessert?
 
Dad: I’m going to put it aside until your sister returns from her friends place so we can sit down and eat it together while I explain that I wasn’t as right as I thought.
 
Son: You don’t say.
 
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