Is buying this supposed to be a major decision? Fairfax, DE: Residence Section. Undated photo.
Bettmann Archive
Buy low, sell high – the axiom of investing. The complaint that today ordinary people cannot afford houses means that they are purposely buying high. This is exactly what people should be. One does not buy high, according to all the rules of investing. One must buy low. One should relax, be nervous when prices are high, as a buyer, and only move when prices are low.
Here’s the outrage: this is where we’re supposed to live. How can an investment decision with worldly consequences be the one that decides where children play with their toys? Good question! What system has mandated that a gigundo part of one’s net worth is where one rests one’s head? A fictitious money system, that is.
I have been hurt above the latter several months to publicize the absolutely uncanny fact that house prices in the United States were stable at zero for a century before 1971. Buying a house was nothing until we got off the gold standard. And then buying a house became a very big deal, financially. Correlation; Building materials, perhaps? The increase in square footage? None of the above.
Making houses unaffordable has strictly complied with the global monetary system offset. You can talk about California, Reagan, the Boomers, whatever, but to understand house prices you have to slow down and communicate the reality that the breaking of the gold standard – 1971 – caused a huge permanent rush in geology to offset the monetary system.
Geology; Yes, that one. Gold is geology. The currency was based on gold, a mineral in the ground for Pete’s sake. Isaac Netwon proved that you couldn’t create it otherwise. In 1971, the United States went gold. Is the dollar no longer defined by geology? Then we will buy geology to compensate for its depreciation. Gold, silver, oil, the rest went up a lot in the 1970s and erratically after. And so did the granddaddy of geology—the earth itself. The houses went up because it is a land claim. This is literally one hundred percent of the reason the houses became unaffordable. There is no other reason.
And what are we to do about it, those of us seeking refuge? Well, when prices are high, rent. And when prices are low, buy. The swings in house prices since the late 1960s are something to behold. Did I say prices went up after 1971 when they were low before? Before the late 1960s, it didn’t even exist any variation in housing prices, so to speak. Look at the revered of the revered, the Case-Shiller index, which dates back to the 1890s. The variation was small by modern standards for seventy-five years, before 1971.
Since the 1960s, house price fluctuations have been distinct, as the arc of price appreciation has prevailed. Prices zoomed in the 1970s, moderated in the 1980s, and collapsed a bit in the 1990s. The national median home price was close to what it was in California in 1995, believe it or not. Home prices rose in the 1990s and then rose as George W. Bush forgot how to cut taxes the right way in the 2000s. Then prices collapsed after 2007.
What do you have to do, buy all the time? No, you nini, you buy low, you sell high. You buy when the market crashed—2010, when it was low—rather than 2007, when it was high. Sell when it’s high, like in the post-Covid boom. Are houses unaffordable today? Better unload if you have.
It is completely ridiculous that, apart from agriculture, the main use of land, the head, should be an expensive investment decision. When we had the appearance of a classical monetary system, it was never like that. Ever since we’ve had a fiat monetary system, it’s always been this way.
In ours new book on American monetary history from the perspective of Bitcoin, we go through the whole saga. That homes are unaffordable is an affront to democratic sensibilities. But that’s not the only outrage. Equally wrong is that every trivial trade should be made as if it were a high level investor. Is the market overvaluing this asset or undervaluing this asset?
Again, before 1971, the variation was so small that it didn’t matter. After 1971, the variation was as wide as for any asset class. The gold withdrawal was one of the most disastrous developments in all of American economic history. We live with the consequences today in such a dumb housing market. The best strategy for a potential buyer, again, is to buy low and wait until these conditions come. A more comprehensive strategy is to fight for a better, more classical monetary system. When that arrives, homes will be affordable for everyone.
