Sliding Down Exter's Pyramid

Some weekend food for thought:

It is a widespread belief that real estate in general, and housing in particular is a store of value that the owner can draw on when they get older and want to downsize due to retirement.

To show that this may not be the case, let us consider the price of single family homes of a major city in Western Canada over the past 15 years.

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When we examine the numbers we notice that the market behaved "normally" with small increments in prices from 1995 until 2000, then rose quickly from 2001 to 2005, and then exploded from 2005 to 2007.  Since then the market has been in a flat to downward trend.

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If we look at this market in a different light, and consider that for the last 5000 years gold has functioned as the world's reserve currency, we see a different trend.

Measuring the house value in ounces of gold we see a steady upward trend from 1995 to 2001, then a flat trend until 2005, then a rapid rise for 2006, with a peak in 2007. The value of a single family dwelling then tanks in 2008 and continues to drop in 2009.

It is interesting to contemplate the onset of the Kondratieff Winter (also known as Economic Winter) in 2001 with the leveling off of real estate in this particular market.  What is most significant, in my view, is the downward trend now established.  Furthermore, this housing market has high dollar prices relative to the average household wage (about 420% if I recall correctly), which is well above the 300% level of a balanced market.  Overall, it appears that this market is likely to drop 20% or more in nominal dollars, and potentially much more in ounces of gold if gold maintains its upward momentum.

So as we begin to slide down Exter's pyramid, in an attempt to preserve wealth, I can only ask - anybody want to buy a house cheap?

I think its time to buy gold with the proceeds and rent an apartment.