Homes In These Two Cities May Shelter Better Than Gold

Gold is on the rise this year as investors seek shelter from the volatility in the stock and oil markets. While 90-day annualized volatility of oil, around 50%, is the highest since April last year, and is near its 2001 peak, it’s not near the high levels of 2008 or 1991. Also, the open interest that usually collapses near peak volatility and oil bottoms continues to be high.

Source: S&P Dow Jones Indices. Bloomberg.
Source: S&P Dow Jones Indices. Bloomberg.

This may indicate there will be further trouble in the oil market so is bad news. It’s not only bad news for oil but as commodities and stocks have become more correlated, the fear is spreading across all risky assets. Many times when this happens, investors turn to gold, as they are now. Just as stocks and commodities are each on the brink of a 10% loss year-to-date, gold is up 13% in 2016.

Source: S&P Dow Jones Indices.

Source: S&P Dow Jones Indices.

Given the near zero correlation of gold to the S&P 500, it makes sense to use gold for diversification, but given its near 30% loss in 2013, viewing it as a safe haven is arguable. However, when the S&P 500 loses more than 10% over 12 months, gold has returned positive 62% of the time with an average of 2.7%.

Another asset class with near zero correlation to stocks is real estate. In particular, the S&P/Case-Shiller 20-City Composite Home Price Index that measures the value of residential real estate in 20 major cities in the U.S., has 0.08 correlation to the S&P 500 using monthly data since Jan. 2000.

So, can your home price protect as well as gold in a stock market crash?

It depends where you live, but seven of the twenty cities gain on average during stock declines bigger than 10%. The cities include Boston, Dallas, Denver, Minneapolis, New York, San Diego and Washington, D.C. The home prices gain on average 6.0% in Boston and 4.7% in New York that far exceed the 2.7% gold offers. Washington D.C. and Denver are close seconds to gold, gaining 2.4% and 2.3% on average when the S&P 500 loses more than 10% in 12 months.

If you are in Las Vegas, you may be better off betting on gold for safety as their local housing market loses 7.4% on average, only behind Phoenix that loses 8.8% on average when stocks lose.

S&P/Case-Shiller Home Prices on Tuesday January 26th

Home prices have been climbing throughout 2015. On Tuesday, January 26th S&P Dow Jones Indices will publish the November report and see if the gains continue.  The chart shows how the 20 cities have done since the S&P/Case-Shiller National Home Price Index bottomed in January 2012.  San Francisco is up almost 70%, Cleveland and New […]

Looking at Home Prices

Four cities have set new all-time highs for prices, two are more than 20% above their pre-crisis peaks: (click on table or chart for larger image) Home prices are much more volatile than rents and are rising a bit faster currently: With inflation quite low, the real and nominal home prices track one-another, unlike the […]

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Prices of existing single family homes, as measured by the S&P/Case-Shiller National Home Price index, are rising is single digit terms.  However, the price changes that matter – the real or inflation adjusted changes – may be higher than many suspect. Backing out inflation, as shown in the chart, gives real increases averaging 6.3% annually […]

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Bob Shiller on Home Prices and Job Growth

These charts are from Bob Shiller. The first scatter gram compares the unemployment rate with the change in home prices in the 12 months through April, 2015.  There is no obvious pattern orrelation between unemployment rates and the change in home prices.  The second scatter gram tells a different story: the faster employment grew over […]

From This Morning’s S&P/Case-Shiller Release

The table shows the high and low index levels and dates for the 20 S&P/Case-Shiller Home Price Index cities.  The chart shows the recent evolution of the year-over-year change in the S&P/Case-Shiller National Index.  Since late 2013 the year-over-year gains have dropped from an unsustainable double digit pace and now may be leveling off with […]


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