The AIA "Advocate for Absolute Returns"
From: The Research and Editorial Staff of
The Association for Investor Awareness, Inc.
July 7, 2005
There's no place like the stock market when it comes to finding contrary opinions. Even the hot housing sector looks cool to some analysts.
For example, Richard Maybury, editor of the "Early Warning Report", http://www.chaostan.com/ believes our real estate market only appears overheated when it's priced in U.S. dollars. In terms of the British pound, Swiss franc, New Zealand dollar, Japanese yen, Canadian dollar, and gold, U.S. real estate prices only rose 4% in four years.
When priced in gold, most U.S. houses are actually less expensive than a few years ago. For example, it took 519 ounces of gold to buy a median-priced U.S. home in September 2001. Today you can buy the same home with 488 ounces of gold. A similar relationship exists when house prices are compared with many commodities that have doubled in price, or more, in recent years.
The alternative view of our housing market indicates prices aren't going up so much as the dollar is going down. By that measure, housing is becoming a hedge against our weak currency. Many economists believe housing is a textbook example of the free market's ability to rebalance itself when something, like the falling dollar, gets out of whack.
Of course, real estate prices can also go down in terms of the dollar, which is likely to happen if interest rates start to climb again. As we discussed last week, however, low interest rates are likely to remain flat, or even decline a bit for several months. Low rates and a strong housing market will help the U.S. economy remain healthy.