Is Housing Bottoming Out?

On the surface, it looks like it:


My main caveat here is that the United States is — for many reasons including geopolitics, demographics energy, monetary policy, etc — in a completely new historical period, so it is plausible that we are moving toward a new normal.

The persons-per-household numbers have remained low, even in spite of the house price slump, suggesting there is no latent surge in demand waiting to burst forth and pick up prices:


Most worryingly, prices have kept falling even in spite of the fact that there is very little building:


So while prices are falling to historic lows it is difficult to say where demand will come from. Certainly —and wrongheadedly, because America is relatively underpopulated — America does not appear willing to liberalise immigration laws. In nominal terms, house prices somewhat stabilised due to the post-2008 money printing operations. But in terms of purchasing power (i.e. in ounces of gold, barrels of oil, calories of food) there does not seem to be much reason to believe house prices will be rising any time soon.

Warren Buffett Priced in Gold

Can you say bubble? Or, more to the point, can you say bursting?

Warren Buffett loves to bash gold — claiming that stocks are inherently superior, because they produce a return, whereas gold just sits.  Trouble is, stocks (and all paper assets) are subject to counter-party risk, whereas physical gold isn’t. Gold doesn’t overcompensate its CEOs, it doesn’t leverage its productive capital in toxic derivatives, it doesn’t cause industrial disasters like Deepwater Horizon, its value isn’t dependent on central banking, or securitisation, or American imperialism, or the machinations of the military-industrial complex. It just sits, retaining its purchasing power.

Warren Buffett had a great ride: he grew his wealth and businesses in an era of unprecedented growth powered by OPEC oil, and later by Chinese industrialism. That era — the era of the American free lunch — is coming to an end.  His insights are applicable to that era. Today is a different world.

The Housing Bubble Priced in Gold

In the United States, the post-sub prime housing crash has meant that consumer spending has stagnated. People are simply not remortgaging their homes to buy boats or other such consumer goods anymore, because there is no longer the expectation that price rises will pay for the boat. This is because prices are slumping due to excess supply built during the peak years. For people who don’t own property in the United States, this price crash has allowed them to get a foot on the property ladder, which is broadly a good thing. Keynesians might argue that the slump in consumer spending is broadly a bad thing, but it’s not: it was never sustainable in the first place. Boosting GDP through unsustainable spending is a short recipe for bubbles.

In the United Kingdom, the story is different. Property prices haven’t really crashed:

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