Guest Post: Priced In Gold, Is Housing A Buy?

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Fri, 05/20/2011 - 13:59 | 1296205 Alcoholic Nativ...
Alcoholic Native American's picture

Just don't get a mortgage.  30 year rape contract.

Fri, 05/20/2011 - 13:59 | 1296217 redpill
redpill's picture

You think it's bad now, just wait until they pull the rug out from underneath homeowners and get rid of the mortgage interest tax deduction.

Fri, 05/20/2011 - 14:10 | 1296257 narnia
narnia's picture

wait till the interest rate swap market explodes and every fixed rate instrument immediately goes variable at inflation & fed balance sheet contraction affected rates.

Fri, 05/20/2011 - 14:36 | 1296339 That Peak Oil Guy
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OT, folks, but important.  Our wonderful politicians are working to extend the Patriot Act for another four years.  Please take a few minutes at the below link to tell them what you think of this.  It only takes a moment to get the message to all of your reps.  I know it may not matter, but we can't just sit around and do nothing about this.


Fri, 05/20/2011 - 14:41 | 1296351 What does it al...
What does it all mean's picture

This is so dumb.  Housing is overpriced.  Gold is overpriced.

How about Gold in terms of Silver, or Silver in terms of Gold?

These analysis means very little.  Except that Gold is overvalued and Houses are overvalued.

Fri, 05/20/2011 - 14:51 | 1296376 Citxmech
Citxmech's picture

Overpriced in terms of what?  Inflating fiat?

You've got to measure in terms of something.  Gold and Land are the two most stable measures out there. . .

Fri, 05/20/2011 - 15:12 | 1296467 Alpha Monkey
Alpha Monkey's picture

You think gold is overpriced now... wait until you see what happens when the world central banks start trading their ever-deteriorating USD for whatever gold they can get their hands.

The price you see now is a price based on expected price movements of a paper market.  What will happen when the paper market melts down as the ability to own gold becomes more important than the ability to trade a contract reflecting an artificial price of gold?




Fri, 05/20/2011 - 16:11 | 1296643 zaphod
zaphod's picture

Exactly, this is what Soros means when he said Gold is the ultimate bubble. When/if the scramble for gold hits its full stride, then you'll be able to buy significant amounts of land/other assets with your physical metal. But leave it to TV to inform the public that Soros meant gold is in a bubble today....

Fri, 05/20/2011 - 18:07 | 1296887 Aquiloaster
Aquiloaster's picture

Then economics mean very little. It is the study of how much of x is equivalent in value to y. Its dumb, but has profound bearing on everyone's agency and wellbeing. Wars have  been waged over things that meant as little or less.

Sat, 05/21/2011 - 02:13 | 1297737 jeff montanye
jeff montanye's picture

far, far less: he tried to kill my daddy; throwing two catholics into a pile of manure; the assassination of an archduke.

Sat, 05/21/2011 - 02:35 | 1297750 jeff montanye
jeff montanye's picture

don't forget saying the u.s. wouldn't defend south korea and keeping dominoes from falling.

Fri, 05/20/2011 - 14:38 | 1296350 DavidJ
DavidJ's picture

When the dollar declines dramatically over next decade due to high inflation (or possible currency collapse), those with 30 yr fixed might make out like bandits.

Fri, 05/20/2011 - 14:46 | 1296368 Joeman34
Joeman34's picture

That's the entire [unstated] goal of the Fed.  Repudiate the debt, bitchez!

Fri, 05/20/2011 - 14:56 | 1296387 gofigure
gofigure's picture

You might want to study up on the Weimar Republic, and how they handled the "30 yr fixed" stuff...

Fri, 05/20/2011 - 14:58 | 1296389 Hard1
Hard1's picture

Agree, if your view is hyperinflation and money becoming worthless, you should buy real asset and preferably leverage as much as you can, your $2,000 montyly payment in 10 years will be same as buying gum, so tax deduction or not you should take that fixed mortgage.  Of course if deflations happens then u r screwed. 

Fri, 05/20/2011 - 14:55 | 1296397 gofigure
gofigure's picture

You might want to study up on the Weimar Republic, and how they handled the "30 yr fixed" stuff...

Fri, 05/20/2011 - 22:37 | 1297368 sullymandias
sullymandias's picture

gofigure, care to give us a hint on where to start?

Sat, 05/21/2011 - 02:38 | 1297751 jeff montanye
jeff montanye's picture

imo go refers to the requirement that at least some fixed contracts be paid in gold marks during the institution of the rentenmark (the one that stabilized the highly depreciated prior mark).  however many, many fixed contracts were rendered worthless during the hyperinflation:

Sat, 05/21/2011 - 17:37 | 1298804 Calculated_Risk
Calculated_Risk's picture

If they try to renege on a deal, then step out and tell them to fuck off. It takes at least two to have a contract.


Fri, 05/20/2011 - 15:29 | 1296526 mayhem_korner
mayhem_korner's picture

Yes, but only if the i-rate is fixed AND only if they have enough currency to survive the inflation.

Fri, 05/20/2011 - 14:58 | 1296395 Jack Mayoffer
Jack Mayoffer's picture

30 year?  Shit, I was hoping for a 45 year mortgage.  It's the only way I can afford my McMansion.  It's my God Given Right to buy the biggest house possible.  It's in the constitution.  Look that shit up bitchez.

Sat, 05/21/2011 - 12:23 | 1298228 ManOfBliss
ManOfBliss's picture

That made me laugh out loud. LOL

Fri, 05/20/2011 - 19:20 | 1296991 Silver Shield
Silver Shield's picture

No we still have a long way to go in both markets in opposite directions...

Sat, 05/21/2011 - 08:32 | 1297922 Tater Salad
Tater Salad's picture

Alcoholic Nativ

"Just don't get a mortgage.  30 year rape contract."

Really?  If you, like many on this site perhaps, think inflation immenent then why would you think a 4.5% 30 year fixed rate mortgage, fully tax deductable even if you pay AMT is bad?

You may want to recind your statement.

Sat, 05/21/2011 - 12:23 | 1298231 ManOfBliss
ManOfBliss's picture

Having debt during high inflation may be good in a nominal sense, that is, the inflation puts the lender under water... but having ANY debt in a high inflation is a terrible thing, because you'll be fucking broke from your terribly expensive cost of living, which makes it harder to meet loan repayments, even if they are less nominally.

Fri, 05/20/2011 - 13:59 | 1296208 Badabing
Badabing's picture


Fri, 05/20/2011 - 14:20 | 1296280 MarketTruth
MarketTruth's picture

Agree, now is not the time to trade gold for a home as home prices still have ~10% or more to fall PLUS the very high carrying costs of property tax. As many in the USA know, your home fell nearly 15% yet your yearly tax bill has actually gone up 10%. This means you getting gouged over 25% more in taxes on your devaluating 'investment'. Of course gold has zero carrying cost or cost to maintain while a home has a variety of costs from taxes to insurance and upkeep.

Fri, 05/20/2011 - 14:28 | 1296311 LawsofPhysics
LawsofPhysics's picture

Tax bill on my properties is down 22% YoY.  Have not figured out the catch yet, but I will take it.

Fri, 05/20/2011 - 14:31 | 1296322 Hephasteus
Hephasteus's picture

Bon Jovi pays 100 dollars a year on taxes because his 30 room mansion is a farm.

Which is probably why gov don't want people raising chickens or growing food at home.

Fri, 05/20/2011 - 19:00 | 1296951 Seer
Seer's picture

$100/yr?  Is this hyperbole?

I've got a modest home (below average?) and a fair amount of land, land that's classed as Ag, and I still pay a fair amount (much more than $100/yr!), though a LOT less than those without Ag zoning.

I'd think that it's more of an issue with the commercial food producers than it is with govt (though the two are nearly indistinguishable).

Fri, 05/20/2011 - 20:55 | 1297180 Hephasteus
Sat, 05/21/2011 - 08:36 | 1297926 Tater Salad
Tater Salad's picture

Market Truth,

"Agree, now is not the time to trade gold for a home as home prices still have ~10% or more to fall PLUS the very high carrying costs of property tax. As many in the USA know, your home fell nearly 15% yet your yearly tax bill has actually gone up 10%. This means you getting gouged over 25% more in taxes on your devaluating 'investment'. Of course gold has zero carrying cost or cost to maintain while a home has a variety of costs from taxes to insurance and upkeep."

I think you're way better off buying an investment property right now, I should know as I own several.  Rents are through the roof and carry cost is hugly lower then it was 5, 10, 15 years ago.  We've gone up on our rents so much so that our cash flows grossly out strip deflationary pressures as well as static tax implications.

Here's a better idea, own both!


Fri, 05/20/2011 - 13:58 | 1296212 LRC Fan
LRC Fan's picture

The correct answer: Not yet.  But in due time gold will shoot way up and housing will go way down and then will be the time to buy buy buy.  But no blood runnin in them streets yet. 

Fri, 05/20/2011 - 14:13 | 1296256 Citxmech
Citxmech's picture

Agreed - values will continue to head down.  I'm planning on waiting until the QE pestilance has run its course and a currancy/inflationary panic has set in - then I'm going to be trading some ounces on a nice homestead somewhere.

Fri, 05/20/2011 - 15:01 | 1296404 Captain Planet
Captain Planet's picture

exactly, according to the devils who made themselves wealthy beyond any normal person's mental comprehension: ''when there's blood in the streets, buy property''

that being said, i wish I had the funds for a villa in spain

Fri, 05/20/2011 - 14:03 | 1296219 GeneMarchbanks
GeneMarchbanks's picture

When 5 ozs gets me Miami condo I'll sell... maybe.



Fri, 05/20/2011 - 15:02 | 1296412 Captain Planet
Captain Planet's picture

what else are you going to do with your gold? eat it?

Fri, 05/20/2011 - 14:00 | 1296220 Glasgow Gary
Glasgow Gary's picture

We're eventually headed to the 30's. That's been my call for two years now. 30 ounces of gold will buy you a 150K house (and a nice one too) before this is all over.

Fri, 05/20/2011 - 14:07 | 1296248 beastie
beastie's picture

At minumum. Take into account Gold is getting scarcer and more difficult to mine and housing is plentiful and using cheaper and cheaper materials.

Fri, 05/20/2011 - 14:19 | 1296275 Whatta
Whatta's picture

And you will buy it from the Fed when they become the buyer of last resort in the national post foreclosure era.

Fri, 05/20/2011 - 23:19 | 1297464 mayhem_korner
mayhem_korner's picture

umm...I hope you're meaning post-collapse prices for the house?  'cuz I don't know where y'all live that 150K gets you a nice house, or even a whole one.

Fri, 05/20/2011 - 14:03 | 1296232 trav7777
trav7777's picture

the only question that matters is "are we going to see another housing bubble?"

That is what caused the inflection in the ratio in the 80s.

Fri, 05/20/2011 - 14:27 | 1296304 Yohimbo
Yohimbo's picture

can you not find a more sophisticated avatar?

Fri, 05/20/2011 - 14:43 | 1296362 Sophist Economicus
Sophist Economicus's picture

I like his avatar.  It's subtle and fits his character to a tee

Fri, 05/20/2011 - 15:03 | 1296427 Captain Planet
Captain Planet's picture

are you brain dead travis, or do you work for GS?

of course we (depending on how old you are, but I suspect you havnt been around more than 3 decades) will see another housing bubble.

but if you keep playing the ratios, bubbles are just ways to multiply your wealth....

ah, I get it....your mad you weren't born under the rothschild shield....

Fri, 05/20/2011 - 19:13 | 1296983 trav7777
trav7777's picture

oil supply hadn't peaked until 2008.  2005 for C&C.  Things are different now and shit is not cyclical merely because it has been.

Fri, 05/20/2011 - 14:07 | 1296233 InconvenientCou...
InconvenientCounterParty's picture

At the rsk of stating the obvious, RE as an investment or hedge is complicated so do your homework. It's should be treated like a business, not a carry trade.

Fri, 05/20/2011 - 14:05 | 1296236 cowdiddly
cowdiddly's picture

I prefer dow/gold because housing/gold is so hard to read right now. But I look to at least  55/75 oz to the house given todays conditions. With homes plummeting the way they are and gold in the perfect setup we could see some historic and insane ratios. JHMO

Fri, 05/20/2011 - 14:11 | 1296249 LRC Fan
LRC Fan's picture

Dow/Gold will hit parity before it's all over. 

Fri, 05/20/2011 - 14:18 | 1296255 cowdiddly
cowdiddly's picture

My thoughts exactly 1:1 and Ill cash in. Im glad some people are starting to value metals in something besides 2 ply fiat which is pretty meaningless.

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