The big story in the headlines today is that housing has officially entered into a double dip downturn. The housing market has surpassed its previous lows and now is roughly at 2002 prices.
The big issue that everyone is missing here is, of course, value. Everyone still talks about price in nominal terms. That is to say, a home, priced in dollars, has surpassed its previous lows.
This is the chart you probably saw everywhere today:
(Source: Business Insider)
This is the chart you should have seen everywhere today:
You’ll see in this chart U.S. Housing divided by the gold price, that real estate values have been falling against real money since 2005, a few years ahead of the infamous housing collapse.
In other words, pricing houses in dollars is deceptive, because the value of our dollars is steadily eroding. As the second chart shows, the true value of housing, as measured in the amount of gold ounces required to purchase a median-priced, single-family home, fell to 1987 levels in 2009 and kept dropping—even as home prices measured in dollars recovered slightly.
Remember, for the true picture of any market, always think in terms of value—not the nominal price.
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