Australian Property priced in Gold & Silver [Archive]

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Serpo

11th September 2011, 06:16 AM

Relates to property anywhere I would think.....

http://www.bullionbaron.com/2010/09/australian-property-priced-in-gold.html

You may have noticed a recent surge in the number of commentators/articles/blogs making note of Australia’s housing bubble. Jeremy Grantham (US Investor and co-founder of global investment management firm GMO) said in an interview earlier this year that prices would need to come down 42% to return to the long term trend, The Economist magazines latest global survey found that Australian property was 61% over valued, even Mike Shedlock (or Mish, registered investment advisor representative for SitkaPacific Capital Management) has mentioned that Australia’s housing bubble exceeds that of the recently collapsed US bubble.

There are several measurements we can look at to gauge whether house prices are over valued or under valued. The Economist has used a measurement of purchase price vs rents, Jeremy Grantham used price vs multiple of income and this blog takes a brief look at house prices measured in Gold & Silver.

The Perth Mint is a fantastic resource for historical prices (http://www.perthmint.com.au/investment_invest_in_gold_precious_metal_prices.as px) on Gold and Silver, not just in AUD but several major currencies. For the purpose of this comparison I used the monthly data (http://www.perthmint.com.au/treasury/monthly.csv) provided by the Perth Mint (AUD, ASK, Average). I averaged the monthly data over each year* to provide an annual figure which I then divided into the median house price in each of Australia’s capital cities to obtain the number of ounces (of Gold/Silver) required to purchase one. The averaging of Gold/Silver prices over 12 months smooths out any unrealistic ratios caused by large spikes in the Gold/Silver price like the one in early 1980. For example in 1980 Sydney's median house price was $68,850 if we divide that by the average Gold price for the year ($541.88) we get a price of 127 ounces, if we use the average price of Gold for the month of January 1980 ($610.99) we get a price of 112 ounces and if we divide by the daily price on 21st January, 1980 ($752.50) it would only cost 91 ounces of Gold to buy the Sydney median. Realistically you aren't going to be swapping your Gold into property at the height of such a spike, so using a yearly average makes sense.

In 1980 you were able to purchase a median house in any Australian capital city apart from Sydney for under 100 ounces of Gold. How have prices tracked since? The below chart shows the Sydney and Melbourne medians priced in ounces of Gold for the last 35 years:

Figure 1 (Sydney)
http://1.bp.blogspot.com/_gmV5tHqYzEI/TJnaVR7Af2I/AAAAAAAAABg/rwARbCa5U2g/s400/600wSydney.png (http://1.bp.blogspot.com/_gmV5tHqYzEI/TJnaVR7Af2I/AAAAAAAAABg/rwARbCa5U2g/s1600/600wSydney.png)

Figure 2 (Melbourne)

http://4.bp.blogspot.com/_gmV5tHqYzEI/TJna_X1jAkI/AAAAAAAAABo/hJ67bX8TBoY/s400/600wMelbourne.png (http://4.bp.blogspot.com/_gmV5tHqYzEI/TJna_X1jAkI/AAAAAAAAABo/hJ67bX8TBoY/s1600/600wMelbourne.png)

As can be seen in Figure 1, Sydney soared to an incredible 987 ounces of Gold in 2004 (from 127 in 1980), it corrected to less than half that price between 2004-2009 (987 to 425) and currently sits around 468 ounces. Melbourne rose to a height of 597 ounces in 2004 from a low of 72 in 1980, corrected back to 346 in 2009, but with strong housing growth in early 2010 this has seen the median Melbourne house jump back up to 422 ounces of Gold.

It's also interesting to note the contrast between the Silver/Gold ratio over the last 35 years and how that affected housing priced in Silver. Using the average figures for 1980 we saw a ratio of 1:27 (Gold:Silver),while today's ratio stands at 1:61. This means that housing is even more overpriced in Silver today than it is in Gold. During 1980 in Melbourne, Brisbane & Adelaide one was able to buy a house for under 2000 ounces of Silver. 2000 ounces of Silver today wouldn't even cover a 10% deposit in any of these cities. Even before Silver started it's parabolic run when it was priced around $3.75 to $5.25 an ounce (1975-1978) it still only look 6000-8000 ounces of Silver to buy a property in those cities, whereas today it takes around 22000-27000.
There is plenty of room for Gold/Silver to increase against the price of houses and still maintain a reasonable ratio. Will we once again be able to buy a median house with 100 ounces of Gold or 2000 ounces of Silver? Only time will tell.
BB.

* For 2010 the first 6 months were averaged
# Note that $ figures quoted are AUD based prices

PatColo

11th September 2011, 06:38 AM

I opened at the source link, take note article is dated
Wednesday, September 22, 2010

Much has happened with Au/Ag since then, as well as the Oz RE market has begun to turn.. finally. Check patrick.net (http://patrick.net), and esp their archive page (http://patrick.net/housing/2011links.html), use your browser's word-search (CTRL-F) function to highlight all occurrences of "australia".

Sparsely populated Western Oz is still a relative mining boom town, real estate remains firm accordingly. Rumors are you can get a shovel & pick-axe and with a hard days work, find yourself a nugget...

palani

11th September 2011, 07:02 AM

Glass

11th September 2011, 04:53 PM

If you believe Harry Dent:

'Tsunami' to hit Australian real estate
Australia's love affair with property is about to turn sour as an "economic tsunami" looks set to hit world markets, American economic forecaster Harry Dent says.
Mr Dent, who arrived in Australia on Sunday, predicts the world will experience a second, deeper downturn, which will arrive between the beginning and the middle of next year.
Starting in Europe, the downturn will spread to the US, China and eventually Australia, he said.

" The world will experience a second, deeper downturn" ... Harry Dent.

"Australia is probably the best place in the world to survive this, but we do think Australia will not escape as well as it did from the last crisis (in 2009)" Mr Dent told AAP.

At the centre of the coming debt crisis is real estate, the forecaster says.

"People in places like Sydney or Tokyo or Miami say, 'Hey, real estate can never go down here, we're a great place, everyone wants to move here, there's not much land for development', and what I say is that is exactly the kind of place that bubbles," Mr Dent said.

"Outside Hong Kong and Shanghai, Australia is the most expensive real estate market in the world compared to income."
...............

...............
To survive the incoming "economic tsunami", Mr Dent said investors should sell their excess real estate and buy up assets in US dollars.

"Gold and silver are going to crash, they're a bubble," he said.
Full article @ the Age (http://theage.domain.com.au/real-estate-news/tsunami-to-hit-australian-real-estate-20110912-1k4lv.html)

Serpo

11th September 2011, 05:03 PM

The way I see it is that the reason property is still holding up in Australia is the investment of people who already own a house are allowed to negative gear a further investment house and get tax advantages for this.Young people instead cannot afford a house and so have to rent.Too me this is wrong and unjust.

Serpo

11th September 2011, 05:04 PM

PatColo

11th September 2011, 08:44 PM

Value as it relates to property is subjective. It is relative to the mind of the present tenant and the one planning upon becoming the new tenant. The owner remains the government no matter who occupies. If the price the present tenant demands to make the place vacant is too low then the state will come in and examine the transaction because they have an interest in the transfer fee. Don't believe this? Try to sell to a relative at a preferred rate and watch government engage in the play.

buyer/seller mindsets surely play a role- the old saying is, your _______ is worth, whatever someone is willing to pay for it!

But the other half of that equation for big-ticket items like RE where bank financing is the norm, is loose vs tight lending policies, IE:

2005: lenders willing to loan 110% of purchase price (to help home-borrower move, furnish, and get a big TeeeeVeeee for the living room) NINJA Loan (http://en.wikipedia.org/wiki/No_Income_No_Asset) to any buyer who could fog a mirror.

2011: require 20% down good job, credit, etc

So banksters have, and surely use (http://gold-silver.us/forum/showthread.php?27547-CBS-60-Minutes-Mortgages-Walking-Away), this power to inflate or crash RE markets... in fact, they're all about it! ;)

But your larger point is interesting, about gummit coming knocking when a house is transferred at a "suspiciously low price"... what do they say or do after knocking? This issue pits the "free will/market of the given buyer & seller" against gummit wanting their cut - not to mention the neighbors frowning upon having a publicly recorded sale price of their neighboring house, being dramatically lower than "the norm" since "comparables" are the main yardstick in determining "the norm" (IE avg price/sq ft for the 'hood).

palani

12th September 2011, 05:00 AM

But the other half of that equation for big-ticket items like RE where bank financing is the norm, is loose vs tight lending policies, IE:

2005: lenders willing to loan 110% of purchase price (to help home-borrower move, furnish, and get a big TeeeeVeeee for the living room) NINJA Loan (http://en.wikipedia.org/wiki/No_Income_No_Asset) to any buyer who could fog a mirror.

2011: require 20% down good job, credit, etc

In 2005 soon after closing your mortgage would have been recorded and sold very shortly after closing (after being bundled with a bunch of other similar papers). There were many buyers ... loans secured by assets.

In 2011 there are available far fewer purchases of these mortgage bundles. Most previous buyers of these bundles have concluded they were sold nothing tangible as in Law they are prevented from any action unless the original note and mortgage can be produced TOGETHER.

But your larger point is interesting, about gummit coming knocking when a house is transferred at a "suspiciously low price"... what do they say or do after knocking? This issue pits the "free will/market of the given buyer & seller" against gummit wanting their cut - not to mention the neighbors frowning upon having a publicly recorded sale price of their neighboring house, being dramatically lower than "the norm" since "comparables" are the main yardstick in determining "the norm" (IE avg price/sq ft for the 'hood).

In the plane they operate in the government and being considered the legal owner the government can withhold their approval from a sale. More likely they will establish their own value, take the difference between the sale price and their price, apply appropriate "gift" credits and consider the remainder an "income" that somebody needs to pay tax on.

There are alternatives to operating within the governments "commercial" venue. An example is a father who wanted to split his land so that his son could build a house on it. The son built the house but did not bother to record the land transfer. He lived in the house property tax free for 15 years. Then he decided upon some improvements but the bank checked on the land status and found he had nothing they could seize in the event of default. The bank told the son he would have to record the property before they would approve the home improvement loan. As soon as he did this the property tax started but he got his loan.

The inference here is that private property is still private until enrolled in the public tax role and that private property has no value to any government entity because it is not subject to seizure. The situation changes quickly once enroled. Pay your taxes or suffer the financial consequenes.

Registering a security is a choice. I would think that doing business with a bankrupt government would give someone pause to consider whether to register or not but once registered there is no backpeddling.