Stuff isn't getting more expensive. The dollar is simply approaching zero value. Heck, it's already traveled 96% of the way there since 1913.
Frowning takes 68 muscles.
Smiling takes 6.
Pulling this trigger takes 2.
I'm lazy.
Posted on 10/09/2010 6:41:29 AM PDT by blam
Trashed Real Estate, Soaring Gold
Bruce Vanderveen
October 08, 2010
The prop wash from Ben Bernanke's helicopters has yet to spread dollars on the struggling U.S. real estate market. Gold, though, up over 30% in the last year, is a major beneficiary,
Three years ago a typical Florida house (Tampa area) sold for $240,000 and gold was around $450/oz. Now the house value has been cut in half to $120,000 while Gold has tripled and is closing in on $1,350/oz. It took 535 ounces of gold to buy the house in 2006, today it only takes 90 ounces. Why such a large about face?
Since both houses and gold are "real" non-printable assets one might conclude either houses are extremely undervalued and/or gold is extremely overvalued. Is it just a matter of time before the pendulum swings back and the gold/house ratio rises again?
Gold is very much a global commodity, of course, while houses are the quintessential local asset. You can easily move a pound of gold or more around around the world. The real estate goes nowhere.
U.S. real estate has very low liquidity right now. Loans are difficult to get. Anyone can buy gold in vaious amounts easily, either through ETFs such as GLD or SLV. Physical gold is available in the form of bullion or coins at the local coin store or numerous web sites (Be careful!). In 2006 all you needed was a pulse to get a real estate loan while precious metal ETFs were just coming on the scene.
Years ago I went to a real estate seminar. One of the things we learned was how to value houses using the income approach. The "rule of thumb": A good middle class 3 bedroom/2 bath/2 car garage house in a good (not great) neighborhood is a buy if it sells for less than 100 times the monthly rent. For example, if the house rents for $800/month a price of $80,000 (or better) makes it a good buy.
So, with that in mind, how do things look today? The above central Florida house, renting for $800/month, can again be had -- with some negotiation -- for about $80,000 or less. In 2006 the house was valued at about $160,000 -- way above the "rule of thumb" above -- an obvious red flag to those who paid attention.
I believe real estate is now in the process of bottoming and will eventually follow gold higher. Inflation, as evidenced by increasing commodity prices, now seems to be edging out deflation. Real Estate appreciation will follow. However, it will be slow due to liquidity issues and the poor U.S. economic recovery.
The stock market is just like the Housing boom was. It will have to adjust before housing can recover. I remember being amazed at home prices and what people were doing 60k homes were selling and being appraised at 200k. It was insane. Same with stocks now.
Don’t buy houses. Buy dirt by the acre to plant your gold in. :o)
Maybe you can easily move gold around by going to Canada by car, I don't know, but leaving the US by air a pound of gold is sure to set off interest by the border polizei.
The problem with real estate is that it is subject to an asset tax, while gold right now is not.
ML/NJ
If I had it, I would sell gold and stocks to buy property.
But then again, maybe that’s why I’m not rich.
:)
Good thinking!
He didn't get that one right, as Mish explains:
"Things people already own, depend on for a private-sector livelihood, or do not really need, are falling in price. Things people need to buy, such as health care, are not.
"This is neither inflation nor a symptom of inflation, but rather a symptom of an overwhelming deflationary trend coupled with foolhardy government regulation in a completely unbalanced economy. -- Mike "Mish" Shedlock
Government regulation is the biggest factor behind commodity price increases. Real estate isn't starting back on an upward trend for at least ten years, except for a mild uptick in low-end houses - these are popular with investors, who buy them for cash and turn them into rentals.
“The prop wash from Ben Bernanke’s helicopters has yet to spread dollars on the struggling U.S. real estate market.”
And it won’t. Titles smeared and blurry, no one knows who has title to what. CDOs that are backed by impaired and mostly worthless assets. Banks that won’t lend.
And besides, the prices are still way too high.
QE2 is going to be another bank bailout with the same impaired properties sitting there not allowed to fall to their correct valuations and no one buying.
Bernanke is probably the biggest tool we have had yet.
I’d say what I think but I like my freedom at this point in time.
Watch out for the property taxes...
But yeah, especially arable farm land with a water source
> Watch out for the property taxes...
Tell me about it!
We have a small farm that we repurchase every so many years with our property taxes.
About 90% of the money goes to the government school, which we don’t use, since we homeschool.
Until property taxes are eliminated, we don’t really own our property. Better to have a sales tax on non-food, non-clothing items, that way mostly discretionary spending is taxed.
Better yet, eliminate the government school tax, and let the people who use them pay for them. That should bring the costs way down, making the schools more efficient and more responsive and accountable to the parents.
Stuff isn't getting more expensive. The dollar is simply approaching zero value. Heck, it's already traveled 96% of the way there since 1913.
Close, soon it will be buy the vacant lot(s) to plant your garden. Food shortages are just around the corner.
Or are you just a typical government union member?
Or when did you try, fail, and consign yourself to paying rent to your mom?
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