NZ Housing to Silver Ratio

How to buy a median priced house in NZ freehold, for only $54,663…

A sensational headline alright we agree.  And just like the headlines in the NZ Woman’s Weekly there is more to it than meets the eye – but it’s a basic premise that we want to demonstrate.

Anyway, if you’ve read our recent article on the “NZ Housing to Gold Ratio” you may have cottoned on to our line of thinking already.

This $54,663 figure is based upon the below chart which shows the NZ Median House Price to Silver Ratio (black line) since 1975.  It also plots the NZ median house price (red line) for comparisons sake.

The housing/silver ratio is simply the median NZ house price divided by the current silver price.  The resulting number shows how many ounces of silver it takes to buy the median NZ house at a given point in time.

NZ Housing to Silver Ratio bottom in 1980 at 1000 ozs

The below chart shows that at the end of the 1970’s precious metals bull market it took slightly less than 1000 ozs of silver to buy the median New Zealand house – 914 to be precise in 1980.  This rose until 2005 where it peaked at 31,500 ounces!  Silver was very cheap in New Zealand then!  (Or was housing expensive?)

How many ounces of silver to buy the average NZ house today?

At the end of 2010 the NZ housing to silver ratio stood at just a hair under 9,500 ozs.

nz_housing_to_silver_ratio_chart

Sold! – to the guy at the back with 1000 ounces of silver!

So the premise for our headline today is thus…

1. That if history repeats, and the ratio again touches 1000 ozs in the not too distant future,
2. And you’d bought that 1000 oz’s of silver today at NZ$54.66 per ounce,
3. Eventually you may be able to buy a median priced NZ house with that $54,663 (in today’s terms) worth of silver.
4. Voila – a house for $54,663!

Granted we haven’t taken into account that you’ll possibly get slightly under the spot price of silver when you sell it.  Also it will no doubt be difficult to pick the absolute bottom in the ratio, but nonetheless the exercise demonstrates that silver is likely still undervalued on a historical basis, comparatively to property at least.

How does NZ compare to the USA?

We were inspired into crunching the numbers on silver versus housing here in NZ, after posting a recent article from Jeff Clark of Casey Research “The Silver/Housing Ratio: How to Buy a Vacation Home

This article showed that in 1980 in the USA, housing bottom against silver at 1258 ozs.  So the numbers are not too dissimilar to our own.  And just like here in NZ, house prices might have gone up during the inflationary 1970’s but in silver terms (just as in gold) they actually went down overall in that decade.

This scenario seems to be repeating currently, check out the chart since about 2006.  Nominal house prices (red line) have risen or at least are currently holding steady, whereas when priced in silver (black line) they have fallen quite dramatically – about 66% in fact.  Think you’ve missed the boat with silver?  If history repeats they could have almost 90% further to fall yet!  We could be wrong of course but it makes for an interesting speculation we reckon.

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