Saturday, April 23, 2011

Housing vs. Gold

Okay then, when you price the value of the average house in terms of gold, or real money, the average house has lost 47% in value:
At its peak, the housing market in March 2007, the median U.S. home was $262,600, which was equivalent to 340.6 ounces of gold.  Today's median income price is $186,100 or 109.2 ounces of gold.  So in terms of real money, gold, the U.S. median home price has lost 47% since 2007 (Richard Russell from - Source LINK).
Please read the entire commentary I linked.  It's short.  Back in 2002 I suggested to anyone who asked me that housing would lose 75-90% of its value before the coming bear market in housing was finished.  Some of those people are probably still thinking that I was overdosing on LSD.  The good news is that I've never taken LSD (I know that's hard to believe for anyone who knows me, but it's true lol) and my prediction for housing is more than halfway home, so to speak, when viewed in terms of real money (uh, gold).  I must admit that I wasn't thinking about using gold to measure the price of a home - I was using $dollars to measure home value.  I know in many areas, distressed sales are occuring at more than 75% below the peak valuation level for homes.  Having said that, I still believe that the average house will eventually drop at least 75% as measured in dollars and 90% as measured in gold.

There is also a good comparison chart in that link above showing the performance of the Dow vs. gold over the last 10 years.  That the Dow has barely moved higher over that time period, and has plummetted vs. gold, will likely shock anyone who sees those charts.

I probably should start to focus more on the two bubbles that have yet to really blow up and crash - the dollar and Treasury bonds - rather than on housing.  But there are still many people who ask me about housing and most of them refuse to believe that housing can go lower from here.  Oh well.  I guess you can look at it terms of gold like this:  the dollar is going to go a LOT lower which, tautologically speaking, means that gold will go a LOT higher.  So if you buy enough gold to fund 50% of a home purchase today, eventually - and possibly sooner that anyone thinks can happen - you will be able to fund the entire purchase of your dream home with gold you buy today.

To understand why the dollar is going to plummet, please read this quick commentary by James Turk in Eric King's blog:  LINK   Capire a tutti?


  1. I would ask you to give some thought to Bernanke on Wednesday, this upcoming press conference, and thank you for your awesome work btw.

    This guy is , i think, the worst liar i have ever seen, his voice quavers, his lips quiver, he is actually probably a nice person whose mother taught him not to lie.

    He has a big Wednesday coming up, and so do we.

    Greenspan, by contrast was a great liar, almost a gleeful liar, my theory has always been, he is so astonishingly butt ugly, that he did a great deal of masturbating as a young man, perhaps into his twenties.

    He did this dalliance with Ayn Rand, made some unfortunate public statements, an ugly guy looking for girls, and it never changed.

    So, to be loved, he destroyed America, well done Al.

    Now Rickards says QE3 can go unspoken, it can be found in the rollovers, except there is an 80 percent haircut i the purchases, from a hundred billion a month to 17.

    So who buys the poison paper. They will do it on the sly. I call it Qe on the QT.

    I bot my first stock in 64. Inpropitiously.

    I have a sense of terrible foreboding looking at that buck. We will prob get a rally. A meatball rally.

    I have a sense this thing , America, as we know it, is over. I could write a book as to why.

    Trying to time it is preposterously arrogant. Therefore i will.

    Right fucking now. This week.

  2. Thanks for the feedback vamoose. Agree that contemplating what life looks like when the dollar shits the bed is daunting.

    Bernanke for sure can't pull off the pure lies the way Greenspan could. Bernanke reminds me of the whiney, snivelling kid you grew up with who got teased and beat up at recess and who I used to hammer with spitwads during physics class when the teacher stepped out to use the rest room or whatever.

  3. so what if we considered housing in gold 10 years ago as the peak?

    eric de groot's graphs show that the median housing value has already lost ~ 75%, in gold terms, since its top in 2001 (2007 was only near the top in $ terms). a link for these graphs (which i've seen updated regularly) is:

    so you were proven right. i told my friends to stop buying and to not buy houses in the summer of '03 (i was a little late to this game) and then to sell houses and put it into gold (i didn't think of silver at the time) in mid-late 2004. only one listened to me out of all of them, and i'm still waiting for them to take me out to dinner :) and we're still a ways away from any kind of top (gold) or bottom (housing, treasuries, dollar, debt, etc).

    i'm not looking forward to how this plays out, but it will be interesting.

  4. I deeply respect Richard Russell (and you), but....Maybe I'm missing something, but a drop from 340 oz to 109 oz is clearly more than a 47% drop. A 50% drop would have put the median home price at 170 oz of gold. It's closer to a 67% drop relative to gold.


  5. dave

    would you comment on your fund as to being able to invest in it

  6. The easiest story to tell is about the 90% silver quarters. One of these bought a gallon of gas in 1959, and one of them buys a gallon of gas today. A pre-1965 quarter currently has a melt value of about $8.50. That is more than two gallons of gas in the USA.


  8. Dave,

    My sister bought a house 6 months ago with all cash. Considering that the housing market is expected to decline, and there will be rate hikes in the future, would it be wise for her to take out a mortgage on her house and buy precious metals and mining stocks as a hedge against falling home prices? Thanks in advance for the answer. Leilani

  9. Leilani, I think that would the wisest thing your sister do, but good luck convincing her to do that. The other aspect is that you want to be a debtor in high inflationary times because you get to pay back the lender using "cheaper" dollars. That's what the U.S. Govt/Fed is trying to achieve with the QE programs.