Bettmann Archive
Buy low, sell high: the axiom of investing. The complaint that ordinary people today cannot afford houses means that they are reluctant to buy at high prices. This is exactly what people should be. According to all investment rules, one does not buy high. One must buy low. As a buyer you have to chill out, have courage when prices are high, and only move when prices are low.
Here’s the outrage: This is where we should live. How can an investment decision with cosmic consequences be one that also determines where the children play with their toys? Good question. What system has determined that a gigundo portion of one’s wealth lies where one lays one’s head? A system of fiat money, that’s what.
I’ve been in pain above the latter several months publish the absolutely bizarre fact that housing prices in the United States were stable at zero for a century before 1971. Buying a house was nothing until we strayed from the gold standard. And then buying a house became a really big deal financially. Correlation? Building materials perhaps? The increase in the number of square meters? None of the above.
The unaffordability of housing has strictly adapted to the global hedging of the monetary system. You can talk about California, you can talk about Reagan, you can talk about the Boomers, you can talk about whatever, but to get realistic about housing prices you have to slow down and come into contact with the reality that the departure from the gold standard – 1971 – created a huge permanent rush to geology to hedge the currency system.
Geology? Yes, that. Gold is geology. Previously, the currency was based on gold, a mineral that was in the ground for Pete’s sake. Isaac Netwon proved that you couldn’t create it otherwise. In 1971, the United States went off gold. The dollar is no longer defined by geology? Then we will buy geology to hedge against its depreciation. Gold, silver, oil, the rest soared in the 1970s and erratically thereafter. And so did the grandfather of geology: the land itself. Houses went up because they were a claim on land. This is literal 100% of the reason that houses became unaffordable. There is no other reason.
And what should we do about it, those of us seeking shelter? Well, if prices are high, rent. And if prices are low, buy. The fluctuations in house prices since the late 1960s are something to behold. Did I say prices rose after 1971 when they were low before? Before the late 1960s, that wasn’t even the case every variation in house prices, not to mention. Consider the venerable Case-Shiller index, which dates back to the 1890s. The variation was small by today’s standards for 75 years before 1971.
There has been a marked variation in house prices since the 1960s, when the arc of price growth manifested. Prices rose in the 1970s, moderated in the 1980s, and fell slightly in the 1990s. The average price of a home in the country in 1995 was close to California’s, believe it or not. Home prices rose in the 1990s and then rose when then-President George W. Bush forgot how to properly cut taxes in the 2000s. Then prices collapsed after 2007.
What are you supposed to do, buy all the time? No: buy low, sell high. You buy when the market crashed – 2010, when it was low – and not in 2007, when it was high. You sell when you’re high, like during the post-Covid boom. Are houses unaffordable these days? You better unload, if you have one.
It is completely ridiculous that, apart from agriculture, the main use of the land, laying the head, should be a precise investment decision. When we still had some semblance of a classical monetary system, this was never the case. Ever since we’ve had a fiat monetary system, this has always been the case.
In our new book about American monetary history from the perspective of Bitcoin, we go through the whole story. The fact that houses are unaffordable is a disgrace to democratic sensibilities. But that’s not the only outrage. Just as wrong is that every small transaction should be done as if it were a high-roller investor. Is the market pricing this asset too high, or pricing this asset too low?
Again, before 1971 the variation was so small that it didn’t matter. After 1971, the variation has been as great as for any asset class. The disappearance of gold was one of the most lame developments in all of American economic history. Today we live with the consequences of the incredibly stupid housing market. Once again, the best strategy for a potential buyer is to buy low and wait for those circumstances to arise. A more comprehensive strategy is to advocate a better, more classical monetary system. When that happens, houses will be affordable for everyone.
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