US Home Prices and Global Gold Demand

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US Home Prices and Global Gold Demand

Two Data items today:

Item #1: US home prices. The S&P/Case-Shiller US National Home Price Index is 12 percent higher than a year ago through the latest data available (February 2021). That beats the best comps from the post-Housing Crisis period (October 2013, 11 percent). The only time this index has shown larger year-over-year gains was during the peak of the 2000’s housing bubble: April 2004 to February 2006.

Those waypoints are all visible on this graph (home prices are the black line, left axis), along with one cause: 30-year fixed mortgage rates (red line, right axis). The liftoff in the black line (home prices) over the last 21 months corresponds directly to the drop in the red line (mortgage rates) over the same period. So does the prior peak for home price increases in 2013, by the way, but not the 2004-2006 housing bubble visible on the left side of the chart. That was caused by lax lending standards much more than mortgage rates themselves.

Now, here’s another chart to consider: Google Trends search volume data for “buy a house” (blue line) back to 2004. We’ve also included the search volume data for “buy a home”, “buy an apartment” and “buy a condo”. While the first (“home”) has kept up with “house” to some degree, “house” dwarfs “apartment” and “condo”. And, amazingly given the recent ramp in prices, “buy a house” searches are at near all-time highs right now.

Takeaway (1): this is the “suburbanization of America” trend Jessica has been describing recently, and between the Google and Case-Shiller data it seems clear US home prices are going to remain hot (+10 pct annual increases) for the remainder of the year. The pandemic kicked off this trend, to be sure, but it has a life of its own now. On balance, this is very good for the US economy. Lending standards are solid – this is not 2004-2006 all over again.

Takeaway (2): so many people are worried about a “Housing Bubble 2.0” that they’re missing what’s going on here. The Google Trends data is super-clear: there is a secular shift underway in American society towards home ownership. Yes, mortgage rates are low, and that helps a lot. And no, home prices can’t go up double digits forever. But anyone who’s ever bought a house knows there’s 6-12 months of additional spending to turn it into a “home”.

Item #2: Gold prices and fund flows. The World Gold Council is out with April 2021 global fund flows for physical gold investment products. The data here captures global flows, so it’s more accurate than just US domestic data.

As you can see in the far right of this chart (2016 – present), April 2021 flows were negative (-$1.1 bn), but they were better than the last 5 months (average -$3.7 bn). Investment flows were a key driver of gold prices last year (visible towards the right side of the chart), and once they turned negative gold declined along with them. Gold picked up a bit in April, and that fits with the reduced level of fund outflows. Worth noting: India is an important market for physical gold, and with their current pandemic challenges it’s likely that fund flows will play a dominant role in setting prices for several months to come.

Takeaway: it’s clear from the WGC data that financial asset buyers (not physical bullion, jewelry, etc.) will be the key driver for gold prices this year. We’ve just seen 5 months of strong outflows, followed by April where flows stabilized. With several months of hot inflation data ahead of us, flows should tip positive again and that would be positive for gold prices. We have a standing recommendation that gold is worth a 3-5 percent position in diversified portfolios.


World Gold Council report: