House Prices Collapse – But Happy Days Are Here Again

In past writings at nzgold.org we suggested that house prices were becoming the new “opium of the people”. Indeed a whole new genus – the house price bores – seemed to be emerging globally. This ever more frenetic body of monetary boasters were always eager to harangue their victims at dinner parties and other social events. Their modus operandi was predictable: “Do you know how much number so & so sold for”? would come the rhetorical question. Of course this enquiry was designed not so much to confirm the exalted price but to either ‘rub the listers nose in it’ or to provide another opportunity for self-congratulation to fellow members of the ‘house-price pack’. Learning from the great wordsmith himself, Winston Churchill, the house prices declarers par excellence had even learned to “pause for effect for emphasis” before delivering the Pauline revelation as to how much had been made.

Of course in recent years the house price addicted, unless they are fortunate enough to be living in places like the better parts of London, have had to accept a dose of cold-turkey. This has especially been the case in the United States. Yet even in New Zealand, where the house price obsession is almost ecclesiastical, the market has been soft. Understandably the authorities do not like this. For a start weak house prices leave bank balance sheets swimming with red ink and, as former Director of the Bank of England Sir Josiah Stamp once reputedly noted, “bankers rule the earth”. Secondly such a hiatus in the march to the promised land of magical house price induced Shangri La leaves the peasants getting restive. So at all costs upward trajectory in prices must be restored and it is interesting to note the emergence of some reflationary success here in New Zealand. To borrow from those 1930s characters the Ovaltenys: “happy days are here again”.

Yet the discerning are not fooled. They know the underlying conditions are deeply deflationary and that ‘nominal’ house prices are a mere chimera.  So they turn to the monetary sentinel – gold – for more objective analysis. Well, well, what is this? Study below the long-term chart from 1992 and what do we discover – house prices measured against gold ounces have gone almost nowhere. Look further at the second chart, which considers the relative performance of NZ houses versus gold during the past four years (the period during which we have been preparing a monthly long-term metals analysis in $NZ for nzgold.org). House prices have effectively collapsed. Go further and study average earnings in NZ from 1992 when compared to house prices. Earnings have effectively collapsed.

For the second two of the three charts we have simply taken the start and finish points for the periods in question and thus eliminated any undulations. In reality the topography is, of course, never ‘linear’. Yet this does not alter the fact that, in the last four years, gold has massively outperformed housing or, in the last twenty years, housing has massively outperformed earnings. In this regard we believe our charts “paint a thousand words” – at least to the discerning. To those immune to the establishment’s propaganda this suggests something unpalatable – that we are living through an era of accelerating monetary debasement and that all the talk about ubiquitous house price wealth is misleading. Dare we suggest that house values (as opposed to nominal prices) only appear to have gone up because money is being subtly debauched – thus ever greater multiples of declining real incomes are needed to maintain and accelerate the scam. What is particularly sobering is when we stop to consider that New Zealand has, arguably, been faring better than countries like the United States, Britain, and the ‘EU’.

The bottom line is that house prices can be whatever politicians – and the bankers who command them – want them to be. In extremis just add a few zeros to the currency after London & Wall Street’s doctrine of global quantitative easing has finally failed. House values are something completely different. The vast majority of the general public do not understand this (but gold does). Most people know that their wage or salary is being spread ever more thinly but they still believe rescue comes via the hosing market as headlines tell them what they want to hear. House prices are on the move. So come on Kiwis let’s join the Ovaltenys in a rousing chorus because: “happy days are here again”.