by Jeff Clark, GoldSilver:
It’s one of our most popular articles: how much gold and silver will I need to buy a vacation home?
We last looked at these ratios in the summer of 2019, so time for an update.
As you know, gold and silver prices are higher than they were 18 months ago—but so are real estate prices. Partly due to a shift in geographical trends from the pandemic, but mostly a result of extremely low interest rates. Mortgage rates in the US hit an all-time historic low in December, making it easier than ever to finance a home.
So, do the ratios of gold and silver to real estate remain elevated? And where do they stand compared to the last big bull market in precious metals?
It’s an important question, because we’re convinced the monetary crisis ahead will push these ratios back to their all-time lows, and hand those of us with a meaningful amount of bullion the opportunity to buy a house outright. If we’re right, buying a home someday from the proceeds of gold and silver sales could indeed be very affordable.
Gold/Real Estate Ratio
This ratio is derived by dividing the price of the average home in the US by the price of gold. We’ll start in 1975, when gold was legal to own again.
The highs and lows are marked, along with the current ratio as of the end of February.
You can see that the ratio started falling in 2018, but has ticked up again since mid-2020.
You can see that at gold’s peak in 2011, it only took 135 ounces to buy the average-priced home in the US. And it took just 85 ounces in 1980.
We don’t want to count our chickens before they hatch, but we think this ratio will fall over the next few years. It’s even possible it could take even fewer ounces than it did in 1980…
Unlike the 1970s, most major asset classes are in a bubble today, something history has rarely witnessed. The global financial system is also much more precarious, due to negative “real” rates, runaway currency creation, all-time highs in global debt, and deficit spending at levels never before seen in US history.
Add it all up and it is hard to imagine a scenario where gold and silver don’t climb higher—and real estate values weaken. Also, note that house prices actually rose in the 1970s—but the ratio still fell since gold and silver were rising more.
But it’s not the gold ratio that has my mouth watering…
Silver/Real Estate Ratio
Here’s the historical relationship of silver and real estate since 1975, along with the highs, lows, and current ratio (through February).
It takes 15,319 ounces of silver today to buy the average price home in the US.
But it only took 5,521 ounces in 2011, and just 1,464 in 1980!
As our readers know, these low readings are due to silver’s higher volatility. Our strategy is to capitalize on that volatility, as we think a repeat of just three mints cases of silver coins will buy a house again someday. Or if you prefer, 15, 100-ounce bars.
- Just 1,500 ounces of silver could someday buy the average-priced U.S. home (before taxes). It’s probably one of the easiest ways for the average person to participate in a wealth transfer.
That’s an amount even those with a modest budget can handle.
As with gold, though, the ratio could drop even further in the type of crises we see ahead.