Wednesday, February 2, 2011
How much silver do you need to buy a house?
In 1970, it took 14,067 ounces of silver to buy a median-priced US home ($23,000). By January 1980, it had dropped all the way to 1,603 ounces, based on silver's average price that month of $38.80. The ratio bottomed at 1,258 at silver's record high of $49.45 (London PM Fix) on January 21.
The ratio peaked in 1990 at 22,616 due to silver's average price that year of only $4.06, and was still at 18,365 in July 2006, the pinnacle of the real estate boom. However, look what happened to the ratio in the four years and three months since: it's dropped 66.1%, to 6,213.
You may think the ratio won't fall further since it's already declined 69.2% in the last ten years. To counter, I would point out that it collapsed 88.6% during the 1970s - and that was amid a 170% rise in home values! Only economists on government-laced Kool-Aid could fathom home prices rising that much over the next decade.
All this adds up to one thing: the number of ounces to buy a median-priced home at some point in the near future will likely fall below 2,000. And given the unrelenting abuse to fiat currencies, it's very possible it could hit a measly 1,000 ounces. Now that's affordable!
The fine print, of course, is that you actually sell when the silver price is high, and that you pay the tax on the gain from another source. But I would argue that even a modest budget could come up with a few extra ounces to offset the tax bill.
Think silver is too volatile to use as a savings vehicle? The price fluctuates, no doubt, but ask yourself this: if you were to put ten grand into a savings account and another ten into silver, which asset would have more purchasing power five years from now? Even with the savings account earning interest, you'd be able to purchase much more with the stash of silver when you went to spend the proceeds.
Peter Schiff wrote in the Wall Street Journal last month that home prices would have to fall another 20% just to revert to the mean. Doug Casey is insistent real estate hasn't bottomed because we're on the cusp of a depression. They both think the silver price won't be stopping when it hits $50. If they and other voices in the wilderness are right about these trends, that million-dollar property you spotted on Nag's Head a few years back could be had for less than 2,000 ounces of silver.
Vacation home, here I come!