-- Posted Friday, 29 January 2010 | | Source: GoldSeek.com
By: Michael "Woody" O’Brien ChFC
In the interest of full disclosure, I must confess that I’m not a fan of home ownership.
If fact, if not for the need to keep a wife happy, I would be a near life-long renter.
Why? The math that your home is a great investment requires a substantial amount of accounting fraud to justify.
A few years back, I sold an average home after holding it for 11 years for a gross profit of 79%. Not bad on the surface. However, when I did the math and added up all the cost of all the maintenance, taxes, and other ownership costs I paid over the years, I actually lost 10% vs. the cost of renting the same property.
Only when measured in gold, whose price fell -25.55% during those 11 years, does my home investment look less bad.
Because the value of our debt-based, fiat-created federal reserve note is never a constant, using gold to measure historical real estate prices yields some interesting data on current home prices.
In 1970, as Nixon was about to hack the dollar from its gold peg (still the worst policy blunder in my 50 year life), the medium home price in America was $23,000 - or a very expensive 605 ounces of gold.
Soaring inflation into 1980 may have boosted the medium home price to $62,000, but measured in the real money of gold, home prices fell to just 101 ounces of gold.
For the next 16 years, and into the real estate bubble top in 2005, the medium home price rose to $225,000 or 545 ounces of gold.
Since 2005 it’s been all downhill with the medium home price now down to $178,300 or 162 ounces of gold.
One does not need to be a genius to see we are in the process of retesting the 1980 low where about 100 ounces of gold bought an average home. Obviously many local real estate market's average homes are already below 100 gold ounces (think:Detroit).
So is gold giving us a heads-up that it’s a good time to buy a home?
Well, all I can tell you is that this career renter, (who sold his last house into the 2005 top) thinks we are very close.
Just like with horseshoes and hand grenades, close counts when it comes to any major market turn in real prices (measured in gold). Homes selling for less than what they cost to build just a few years ago is another hint that we may be near a long-term bottom.
Given the catastrophic potential for MUCH higher mortgage interest rates in coming years, anybody borrowing money to buy should not wait. However, those paying with cash may want to keep their house money in gold a while longer.
I, for one, look at every farm that goes up for sale in my area.
I'm not going to buy a farm because I like owning real estate; I don’t. I want to buy a farm because I like to eat.
When Bernanke's bailout hyperinflation finally hits, food and fuel prices are going to go to Pluto. Homeowners and renters without the capacity to grow some of their own food are going to be caught in that trap.
When a realtor recently showed me a fantastic custom home in foreclosure for only $50 a square foot on a very small rocky, sloped lot, I quipped it looks like a great house for somebody else to go hungry in.
Bottom line: Gold is telling us we are very near a bottom in home prices and owning a property that can produce some food will very likely validate the idea that success favors the prepared mind.
Michael "Woody" O’Brien ChFC
mwoodyo@hushmail.com
-- Posted Friday, 29 January 2010 | Digg This Article
| Source: GoldSeek.com
