Should Investors Sell Gold and Buy Real Estate?

A worker shows a gold bar ready for sale in Is...

After this week’s poor U.S. housing data, might the average home (NYSE:IYR) be nearing its low? Priced against gold it might be.

Dropping hard as the gold (NYSE:GLD) price doubled and more since 2006, the average U.S. home is now priced at 103 ounces of gold, little more than one market-approved gold bar for settling a 100-ounce Comex gold futures contract.

Housing has only been cheaper against gold, according to the rough-and-ready averages spat out by the U.S. Census and other major estimates, in 26 of the last 121 years. It’s currently priced around half the long-run average of 201 ounces.

Might there be further to go on the downside?
US Housing in Gold
One key difference is that there is no homogeneity in housing. Unlike the fine content of a gold bar (NYSE:PHYS) or coin, no two properties are ever quite an exact copy. So buying or selling the average home, especially in a nation of 313 million souls, can only ever be notional.

Since the housing bust began, the average U.S. home has lost better than 70% of its value in gold (NYSE:GLD). It’s dropped nearly 80% since the gold-market found its own floor back in the early spring of 2001.

All told, swapping gold bars for bricks, whether as investment or a place to live, hasn’t looked this attractive since the inflationary depression of 1981. US housing’s previous low came during the deflation of the Great Depression. Never mind that the average US home doubled in size in between, or swelled another 40% since. Because whichever flavor of depression we’ve got today, the immutable object of unchanging, unencumbered gold has once more whipped back to its pre-20th century value against the ever-changing, credit-reliant market of residential housing.

It’s almost as if the “long boom” of easy credit never happened. At bottom, the average US home cost the equivalent of some 71.5 ounces of gold in 1934. Forty-six years later, it fell below 77 ounces of gold. Today’s 103-ounce price tag isn’t rock-bottom yet. But compared to the top of a decade ago, it’s getting there.

Adrian Ash writes for the Opinions column at Forbes.

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