Thursday, January 29, 2009

Quick note on housing valuations in general

I have no idea when I will get back to this blog. I've been diligently clipping Redondo Beach home sales out of the local papers. I've got a stack of Los Angeles Business Journals sitting here in my study and I've more or less been saving data out of DQNews. I haven't been keeping up my homes for sale database as that is quite labor intensive. One of these days, after work slows down a bit, and after I get my taxes done, and I attend to the million other things I have to attend to...

A bearish friend pointed me to an article that discusses historical home prices in terms of the values of precious metals. (This is not specific to Redondo Beach but rather deals with national averages.) I'm sure some of you who used to read this website are wondering how you will know when a bottom is in. This article suggests one valuation metric.

I have a reasonably good idea of when I think the market will bottom and when to begin purchasing. The monetary metals are used to perform mental calculations of value or the pricing mechanism. Currently, an average American home costs about $220,000, 18,333 ounces of silver or 248 ounces of gold. I will begin looking for real estate deals, both commercial and residential, when an average American house is around 500-1,000 ounces of silver or 75-80 ounces of gold.
Run To Gold - Real Estate Conference

So for 80 oz of gold at a somewhat current value of $900/oz, the current national average housing price would have to be somewhere around $72,000 before Trace Mayer would take the plunge. So home prices would have to drop by an additional 66%. Either that, or Trace Mayer would take the plunge if gold rocketed up to $2,750/oz. If this reasoning is correct, I would expect some combination of the two.

Just some food for thought.