Buying this is supposed to be a major decision? Fairfax, DE: Residence Section. Undated photo.
Bettmann Archive
Buy low, sell high—the axiom of investment. The complaint that today regular people cannot afford homes, it means that they are skittish about buying high. This is exactly what people should be. One does not buy high, according to all the canons of investment. One must buy low. One must chill, have nerve while prices are high, as a buyer, and move only when prices are low.
Here is the outrage: this is where we are supposed to live. How can an investment decision with cosmic consequences be one that also decides where the children play with their toys? Good question! What system has mandated that a gigundo part of one’s net worth is where one lays one’s head? A system of fiat money, that is what.
I have been at pains over the last several months to publicize the absolutely bizarre fact that house prices in the United States were stable at nil for a century before 1971. Buying a house was nothing until we went off the gold standard. And then buying a house became a very big deal, financially. Correlation? Building materials, maybe? The increase in square footage? None of the above.
Houses’ becoming unaffordable has strictly conformed to the world’s hedging of the monetary system. You can carp about California, about Reagan, about the Boomers, about whatever, but to get real about house prices you have to simmer down and commune with the reality that going off the gold standard—1971—caused a massive permanent rush into geology to hedge the currency system.
Geology? Yes, that. Gold is geology. The currency used to be based on gold, a mineral in the ground for Pete’s sake. Isaac Netwon proved you could not create it otherwise. In 1971, the United States went off gold. The dollar is no longer defined by geology? Then we shall buy geology to hedge against its depreciation. Gold, silver, oil, the rest went way up in the 1970s and irregularly after. And so did the granddaddy of geology—land itself. Houses went up because they are a claim on land. This is literally one hundred percent of the reason that houses became unaffordable. There is no other reason.
And what are we supposed to do about it, those of us looking for shelter? Well, when prices are high, rent. And when prices are low, buy. The fluctuations in home prices since the latter 1960s is a thing to behold. Did I say prices went up after 1971, whereas before they had been low? Before the late 1960s, there was not even any variation in house prices, to speak of. Look at the venerable of venerables, the Case-Shiller index, which goes back to the 1890s. The variation was teeny on contemporary standards for seventy-five years, before 1971.
Since the 1960s, variation of house prices has been distinct, as the arc of price appreciation took hold. Prices zoomed up in the 1970s, moderated in the 1980s, and collapsed a bit in the 1990s. The average price of a home in the country was near that in California in 1995, believe it or not. House prices edged up in the 1990s, and then powered up as George W. Bush forgot how to cut taxes the right way in the 2000s. Then prices collapsed after 2007.
What are you supposed to do, buy the whole time? No, you ninny, buy low, sell high. You buy when the market crashed—2010, when low—and not in 2007, when high. You sell when high, like in the post-Covid boom. Houses are unaffordable today? You better unload, if you have one.
It is utterly ridiculous that, aside from farming, the principal use of the land, laying one’s head, has to be a pinpoint investment decision. When we had a semblance of a classical monetary system, it was never this way. Since we have had a fiat monetary system, it has always been this way.
In our new book on American monetary history from the perspective of Bitcoin, we go through the whole saga. That houses are unaffordable is an outrage to democratic sensibilities. But that is not the only outrage. Just as wrong is that every petty transaction has to be made like one is some high-roller investor. Is the market over-pricing this asset, or underpricing this asset?
Again, before 1971, the variation was so tiny it did not matter. After 1971, the variation has been as big as for any asset class. Going off gold was one of the lamest developments in all of American economic history. We live with the consequences today in the so-very-dumb housing market. The best strategy for a potential buyer, again, is to buy low, and wait until those circumstances arrive. A more comprehensive strategy is to militate for a better, more classical monetary system. When that arrives, houses will be affordable for all.