House Prices Are Still 10% Too High, Says Barry Ritholtz

House prices relative to gold are still way too high. The U.S. dollar is a biased unit of measure, or what statisticians call a nonstationary time series. Think of it as filling your gas tank on a pump with a leaky hose. Even though the price of gas is the same as a previous fill up, the same amount of money won't fill the tank.

The U.S. dollar median home price, while broken from up trend, appears to be consolidating. Home price in a stable, unbiased currency such as gold, paints a completely different picture. A steep downtrend that started in 2005 has broken to new lows in 2010.

All charts are updated through August 2010.

U.S. Median Home Price (MHP):


U.S. Median Home Price (MHP) to Gold


The homebuilders to gold ratio (HBGOLDR) is on the verge of a consolidation breakdown within a steep downtrend.

S&P Homebuilders (HB) to Gold Ratio:

Ritholtz, who runs Fusion IQ and writes The Big Picture blog, says that the NAR's happy spin is making homeowners too optimistic about the prices they'll be able to get--thus encouraging them to price their houses too high.

In this market, says Ritholtz, houses priced realistically sell quickly. But since the majority of sellers are still dreaming of the good old days, most houses are priced too high and aren't selling. If the NAR would stop spinning and start helping sellers get more realistic, Ritholtz says, the housing market would fix itself more quickly.

finance.yahoo.com