September 03, 2007

HP'ers, I can't believe I'm saying this, but even we may be shocked at how bad this crash is gonna get: Economist predicts 50% drop in home prices


Close your eyes and think of what a 50% drop in home prices looks like.

AAAAAAAAAAAAAAUUUUUUUUUGGGGGGGGGGGGHHHHHH!!!!!!!!!!!!!!!

Phoenix, Vegas, Miami, Sacramento, LA, Tucson, Naples, Tampa, .... there's gonna be some bubble cities, those whose economies were based on housing speculation, mortgage fraud, REIC jobs and homebuilding, that are gonna see economic collapses straight out of '29.

Even if (and when) the Fed lowers rates to 0% (hello, Japan!), it won't matter. When home prices soared 100% for ABSOLUTELY NO REASON in these cities (as incomes and rents remained flat), well, it takes a 50% haircut to get us back to reality. And look over there, right on schedule, here comes reality, and it's cold, and it's hard.


Two top US economists present scary scenarios for US economy; House prices in some areas may fall as much as 50% - Housing contraction threatens a broader recession

US homes may lose as much as half their value in some US cities as the housing bust deepens, according to Yale University professor Robert Shiller. Meanwhile, Martin Feldstein of Harvard University says that experience suggests that the dramatic decline in residential construction provides an early warning of a coming recession. The likelihood of a recession is increased by what is happening in credit markets and in mortgage borrowing. Feldstein says that most of these forces are inadequately captured by the formal macroeconomic models used by the Federal Reserve and other macro forecasters.

“The examples we have of past cycles indicate that major declines in real home prices — even 50 percent declines in some places — are entirely possible going forward from today or from the not too distant future,” Shiller said in a paper presented last Friday at the Federal Reserve Economic Symposium in Jackson Hole, Wyoming.

61 comments:

foreclosureboy said...

50% discount in los angels and SF means it will STILL BE WAY EXPENSIVE!

1.7 million for what is considered a 'trade up' five bedroom home with 3 car garage has become 'normal' in all of coastal CA.

A mere 5 years ago only big time movie stars and brain surgeons could spend that much on a home.

what really sux nowadays is you can spend 1.7 million for a simply 'ok' house on a 12,000 sq foot lot!

WTF!!!! inflation is bad but no where near like that.

the crash could indeed be WORSE than 50% in some areas. just look at redfin.com and check out how many endless thousands upon thousand upon thousands of homes in Coastal CA are for sale for WAY over 1 million. Dont miss the 1.5 millino dollar 2 bedroom condos everywhere. crummy ones but with granite counters.

Anonymous said...

http://nevercoldcall.typepad.com/scottsdale_sucks/

50% off in Scottsdale will be a godsend:


Then things changed. Housing crashed. Credit tightened. Most of the subprime mortgage companies that funded the Scottsdale lifestyle disappeared, and the few that remain require you to have a 720+ credit score and 20% down if you want a loan. Oh yeah, and now you even have to prove your income with pay stubs or certified copies of your tax returns - what a concept!

The garbage scum that invaded Scottsdale from 2002-2006 is now getting flushed out. It's going to hurt for a while ... all the nice restaurants and shops are closing now that no one in Scottsdale has any spending money. But the adjustment will be worth it. In a few years, the nice friendly down-to-earth Scottsdale of the 1990s will return. To some degree, anyway. At least I'm hoping that the town will be somewhat liveable again for those who are stuck there due to jobs, family, or what have you.

Here's to the demise of the Scottsdale phonies!

Anonymous said...

well of course, houses are going to go back to 1996 prices .. and then some.

Yoski said...

Here in Miami prices went up 300%. A 1000 sqft shack in the slums that sold for $80K pre bubble went for $250+ at the peak of the frenzy. Currently prices for such a gem are down to around $180K and falling fast. Funny thing is that NOBODY is buying this crap right now. I've been tracking several of these properties since January. Not one has sold since. Nobody that can come up with that kind of money wants to live in the slums. As investment property, you spend as much between taxes and insurance as you might get out of your dead beat tenants. Crack purchases have strict priority over rent payments. Even if they would pay rent, you're still stuck making the mortgage payments.
Some sellers are still asking in the $250-$300K range while others reduced their prices several times to the $150-200K range. Neither is selling right now.

Anonymous said...

I'm wondering... When Schiller says 50%, is that his best guess, is it what he believes the most, is it just a nice round number, is he out to shock, or is it a concervative estimate on his part?

Anonymous said...

.

add to that list,

Warren Snyder, co-owner of Carriage Realty based in Torrance, Ca.

"Snyder has sold real estate in the South Bay for 45 years, and believes he is witnessing the fourth housing downturn in his career."

"This will be the worst we've ever had! It involves so much more of the economy than ever before. So many owners have turned homes into ATM's."

"If you'd done loans 10 yrs. ago the way they're done today, you would have been thrown in jail for fraud. So many people are in homes they can't afford. This will be a Tremendous problem over the next 18 months."





.

LauraV said...

Since this is the biggest RE bubble in history, and prices have been so obscene since 2000...I predict we will see more of a 80% drop in prices. Especially here in the bay area where things have skyrocked since 1998.

I say this because....

This country lost its manufacturing basing to China,
and all our once high paying jobs are now outsourced.

This country really needs to go back to a time when it only required one income families to buy a house. We need this in order to live correctly by saving money instead of spending every penny on necessities.

LauraV said...

Anon said:"well of course, houses are going to go back to 1996 prices .. and then some".


Agree! They can, and they will.

LauraV said...

Anon said:"I'm wondering... When Schiller says 50%, is that his best guess, is it what he believes the most, is it just a nice round number, is he out to shock, or is it a concervative estimate on his part"?


Agree, it's always considerably more than they predict.

Anonymous said...

.




Kyle Kazan, owner of Beach Front Real Estate Service in Long Beach, Ca.,

"I believe the Death spiral is on, and it will deflate the values in R.E."

"The crazy appreciation in r.e. in the last few years is now in reverse"



.

SPECTRE of Deflation said...

Having listened to my Grandparents talk about the Depression, I'm honestly not surprised that this will be much worse than even we can imagine. Nobody, and I mean nobody, thought about a deep Depression during the roaring 20's, so why should we be any different as a society today?

The one thing we HPer's do have is we are going into this with our eyes wide open, while most will be shocked. We can prepare as much as is humanly possible for this debacle which is unfolding.

The very worrying part for me is that periods like the one we are experiencing usually includes war as in World War. Social order breaks down, and it leaves a vaccum where evil is allowed to supposedly fix the problem. Look at Weimar Germany for an example.

Anonymous said...

You dopes! Housing will never fall 50% because.............well, just because.

You HP'ers and your panic mongering. You would never hear a real economist calling for a 50% price drop in house prices.

Oh, some did?

Nevermind.

Westchester Chick said...

2001 prices would be fine with me. It wasn't rock-bottom 1995 prices but prices were not completely out of line with reality either. I'm over the whole need-to-buy-a-house thing but I would buy again if it ever became the cheaper thing to do and 50% would probably do it for me.

Anonymous said...

Yup, I've seen this before. 50% is a very conceivable number. In 1979 median prices were $120K in Portland, Oregon. Due to local recession (led by 21% interest rates decimating construction), by 1984, median rate were $60K. Further, homes above $200K were going for 75% off peak during bank inventory liquidations just to get the gone off the books.

The off-shoring of so many jobs will become apparent as the real estate bubble industry evaporates and leaves a bunch of very desperate, unemployed, and broke people in it's wake. No prospect for a job? We have positions in Iraq for you.

Anonymous said...

And millions will lose their jobs

Anonymous said...

This is likely the dominant enabler of bubbles: real asset price histories are kept well-out-of-sight.

http://homepage.mac.com/ttsmyf/RD_RJShomes_PSav.html
http://homepage.mac.com/ttsmyf/newestHousData.gif

Please show real asset price histories to the public!

Anonymous said...

Spectre of Deflation said : "The very worrying part for me is that periods like the one we are experiencing usually includes war as in World War. Social order breaks down, and it leaves a vaccum where evil is allowed to supposedly fix the problem. Look at Weimar Germany for an example."
--------------------------------

Agreed: As the housing market contracts, people will lose jobs, and tempers, frustration will flare. Citizens who cant get even low paying jobs will vent against illegals who do "jobs nobody else wants". Since we already are in a culture WAR with MEXICO, this could spread to a race war between Mexicans and Americans (e.g. whites, blacks, and asians). The battleground will be places such as California, Texas. Dont believe me? Just listen to all the hate rhetoric coming out Nation of AZTLAN.

Also, a currency war that already exists with Europe will only increase and Americans will need to save tens of thousands of dollars just for a simple trip to Europe.

There may be one way out of this mess! The Japanese have always wanted Hawaii. In fact, this is their top foreign travel destination. Solution: Sell Hawaii to them for $2 trillion- and then pronto, use that money to pay off our debts.

Anonymous said...

50% off?

In real dollar terms how about 75%!

There will be many false bottom calls by trolls along the way.

Anonymous said...

The big difference between the Great Depression and today is that we really can't have "out in the open" bank failures, only minor ones, so that places like Citigroup and BoA can keep their doors open and make appearances that everything's ok.

What that means is a 1980s Brazil where the middle class's effectively split up, with half falling into the lower classes and the elites, rich class, kept their wealth and privileges. In effect, what Brazil became was a two tiered society of haves (then shrunken middle class), havenots (a majority), and elites with the haves (a.k.a. survivors of the devaluation, recession, etc) joining up with the elites for their own security. All and all, a lot of people emigrate to the US, Canada, and other countries during this time if they had any education or contacts abroad. I suspect we'll be seeing a similar fate.

AmazingRuss said...

The very worrying part for me is that periods like the one we are experiencing usually includes war as in World War.

We are way, WAY overdue for a world war. Fear of nuclear weapons stopped up a natural culling cycle. The human race is like a huge forest that has not been allowed to burn for 100 years.

The coming depression will act as a gigantic lightening storm. I bet at least a billion people die this time.

Anonymous said...

.


Homes will Never drop by 40 to 50%






........wait mine did!






no Sh*t

Anonymous said...

Bush thinks Americans should have to work three jobs in order to survive.

RiperDurian said...

"...inadequately captured..."

What a delicate way of putting it, i.e.,

The "formal economic models" used by our Government and The Federal Reserve Private For Profit Corporation Which Stole The Right To Print The Money Of US Citizens And Profits Madly From This Power are lies used to perpetuate this arrangement and keep the sheeple feeding meekly from their hands.

BitterRenter said...

As long as the top 5% are doing ok nothing will change.

Remember, many of you voted for this greed-based culture when you voted republican.

Halifax said...

To Anon September 03, 2007 2:41 PM

When Schiller says 50%, is that his best guess, is it what he believes the most, is it just a nice round number, is he out to shock, or is it a concervative [sic] estimate on his part?

===================================
shiller graph:
http://www.investingintelligently.com/wp-content/uploads/2006/09/shiller.gif

shiller analysis:
http://cowles.econ.yale.edu/P/cd/d16a/d1610.pdf

SeattleMoose said...

Yawn....since we bubblebusters have been predicting this same sort of number for the past two years, the only real news is "MSM Discovers Light As Collective Heads Are Removed From Collective...."

stocksystm said...

Shiller’s estimates are mild compared to what John Templeton said a few years ago (the dollar would eventually drop 30% and house prices by up to 90%)!

Bush's plan to ease the fallout from mortgage defaults is really a warm-up for what is coming...a massive multi-hundred billion dollar bail-out of epic proportions next year. This bursting bubble is going to severely impact the collateral (housing) that backs our ponzi-based economy. A recession is a 100% certainty.

k.w. - southern ca. said...

Shocked about how prices may fall?

Why ... it's logical, and expected since the *paper worth* of residential property far exceeded the true market value.

The disaster we're witnessing now really comes down to people not being able to borrow to pay for more-and-more expensive things any longer - they have to *use their own money*, a whole new concept for so many people., but one they'll be forced to get used to very quickly.

My advise to those in debt out there ... Downsize to something you can afford, and stop putting emphasis on how *wealthy* you appear to others - it's all bullox.

Besides, it's *you* and not *them* who have to live with the stress of ever increasing payments and mounting debt.

k.w. - southern ca. said...

I'm sorry to say just how correct
you are about your prediction.

Again, it's all so logical isn't it.

This country was founded in large part because of the struggle to move away from the two-tier class system of "haves" and "have nots".

We've come full-cirle now, in just over 230 years, where are own administration is encouraging the two-tier class system to happen that much faster.

~~~
Anonymous said...
The big difference between the Great Depression and today is that we really can't have "out in the open" bank failures, only minor ones, so that places like Citigroup and BoA can keep their doors open and make appearances that everything's ok.

What that means is a 1980s Brazil where the middle class's effectively split up, with half falling into the lower classes and the elites, rich class, kept their wealth and privileges. In effect, what Brazil became was a two tiered society of haves (then shrunken middle class), havenots (a majority), and elites with the haves (a.k.a. survivors of the devaluation, recession, etc) joining up with the elites for their own security. All and all, a lot of people emigrate to the US, Canada, and other countries during this time if they had any education or contacts abroad. I suspect we'll be seeing a similar fate.

BitterRenter said...

I have been predicting that we would someday look like South America since the 80s.

Thank republicans, conservative fiscal policy and the ignorant middle class who voted against their own interests out of their fears of "socialism, their spoiled mindset and their distaste for the poor.

Now I don't care how many suffer.

k.w. - southern ca. said...

It appears you are having second thoughts now about your own assumptions.

The cat's out of the bag my friend ... and housing - at a *minimum* - will fall 50% in some areas.

Present a plausable argument as to why housing will *not fall* 50%, besides "just because".

The only *real economists* out there were the ones who have told people (warned us all) for over 2 years now just how bad things were going to get.

Denial is now being replaced by acceptance amoung even the heaviest cheer-leaders for housing now - you know this be to be true.


~~~

Anonymous said...
You dopes! Housing will never fall 50% because.............well, just because.

You HP'ers and your panic mongering. You would never hear a real economist calling for a 50% price drop in house prices.

Oh, some did?

Nevermind.

Anonymous said...

Well, at least Warren Snyder, co owner of Carriage Realty, based in Torrance, California could easily
change the company name to a more suitable name reflecting the forward going business... Perhaps
Carnage Realty would be "just what the doctor ordered"....

Anonymous said...

bitterloser,

south america is socialist, so you should feel right at home if your predictions come true.

Anonymous said...

Man I have to admit it takes real balls to continue living in a house that will be worth 50% less than when you bought it. I gotta wonder what kind of heart medicine these folks are on.

Anonymous said...

The top 5% are doing fine in Cuba and Venezuela. That must be why socialism never changes. The rich stay rich and the poor become poorer while no middle class exists.

Anonymous said...

Once again quoting the venerable Boss Hogg-

I'll give you 50% of 50%!

http://en.wikipedia.org/wiki/Boss_Hogg


.

there's no place like home said...

WELCOME TO OZ!

FREE HOMES!

There are a few home builders in Michigan that are now giving away new homes for FREE*! (*just visit their open house, sign-up on their mailing list, and you may be the big winner!)

Toto, I don't think we're in Kansas anymore.

Anonymous said...

BITTER RENTER said:

"I have been predicting that we would someday look like South America since the 80s.

Thank republicans, conservative fiscal policy and the ignorant middle class who voted against their own interests out of their fears of "socialism, their spoiled mindset and their distaste for the poor"

You're very naive if you believe that the Democrats are the saviors of the middle-class. They abandoned the middle-class sometime in the 70s or 80s. Take their leading presidential candidate for example. Hillary has a well-established record of supporting businesses that send jobs to India as well as supporting illegal immigration so that local businesses can get more cheep labor. She has wealth that most people can never imagine and you're foolish if you believe she gives one rat's ass about the middle-class.

The smarter people on this board know that both parties have sold out the middle-class in this country.

Anonymous said...

One word: inflation.

Let's see, almost 10 years since 1998, that's 40% even using the government's phoney-baloney 3.5% inflation rate. Actual inflation has probably been higher, just look at commodity prices over the same period. Many of those commodities are things you need to build houses BTW. So even if you stipulate that all of the gains in real house prices since 1998 are due to the bubble, you are still talking only a 30% drop in nominal prices.

Is that gonna happen in a single year? Sure, in areas where there are more homes than people like Miami or parts of the inland empire, and in lower-income neighborhoods where all the toxic loans were sold. But that nice house in that nice neighborhood you are lusting after? Don't expect that to crater overnight, more likely a decade-long flat/down period to equalize.

Oh yeah, and what do you think is gonna happen if the Feds do cut interest rates to nothing and the dollar tanks even further? Well, if the inflation rate goes up, cash will lose purchasing power while tangible assets like commodities and, yes, RE, will hold their intrinsic value, whatever that is. For you gold bugs, you might want to think about how much of the price is set not by intrinsic value but by, in effect, speculation and hoarding. Is gold's intrinsic value so high that it will climb relative to RE in an inflationary period? You can't eat it or live in it.

Anonymous said...

"Bush thinks Americans should have to work three jobs in order to survive. "

That's true, but Hillary supports sending IT jobs to India.

Anonymous said...

It is already starting to happen on that course...in Miami condos that sold at the peak for $500K are already being listed at $250K. South Florida is going to be a bad hit area...my old house has already gone down in value by $100K from the person who bought it 6 months ago...a drop like the one forecasted would put my home at around $50 more than I paid for it..it would not even be enough equity to move me to another home...

Larry Yun said...

As an economist, I can only laugh at the priced-out renter math. Homes have gone up 100%- if they only lose 50% now, the shrewd homeowners are still up 50%! (100-50 = 50)

Anonymous said...

When will Canada's Housing Bubble Burst?
Anyone?


Canadian Beaver

Osman said...

Certain markets saw double digit appreciation over the past 5 years. Assuming 15% appreciation, a 50% haircut to prices would bring prices back to about where they were in 2002. For the frothiest bubble areas, that's not entirely outrageous. Although for the record, I'd still be surprised if it happened in nominal terms over a short period. That kind of thing is more likely to play out over 5 years in real terms, if it does at all that is.

Anonymous said...

Speak for yourself Keith! I'll be shocked, SHOCKED!!!, if houses don't fall at least 50%.

Here's why: A home that went for 80K in '97 is on the market for 340K in '07. In the meantime, wages have fallen or remained flat.

OF COURSE houese will fall 50%. 80% is more like it and, after the initial shock, we'll all be better off.

I'm seriously looking at 80% to get back in line with incomes. Getting houses back in line is not a bad thing. Getting them out of sync with incomes was the bad thing.

Juppinjoe said...

Who cares if housing goes down by half if were going into world war 3? I just hope I can get a deal for a bombshelter to be built from one of those out of work construction workers!Mabey they will do it cheap?

Kevin Cottrell said...

Hmmm.

Wait a minute. The "stable" midwest home of 3-4% price inflation and supposed immunity from price declines is showing a 30% decline in the pending ratio in the market in Saint Louis MO. Will this spill over into price declines given the lack of rapid asset appreciation in the market? Who knows. Right now its a standoff between fewer buyers and sellers who think they're still in 2005.

hendry said...

I'm seriously looking at 80% to get back in line with incomes.

House prices here went up about 40% since the late 1990's so I don't see a drop of 80%. An 80% drop here would mean a 2200sf 4/2 house built in the late 1990's in a good neighborhood would sell for $36K.

Budvar said...

"Is gold's intrinsic value so high that it will climb relative to RE in an inflationary period? You can't eat it or live in it."

Can you live in or eat dollar bills?
Can you eat a house or live in a jacket potato?

Now for the moment you've all been waiting for folks, the HP awards for stating the bleedin obvious. In 3rd place we have Joe in Florida with "You cant shave using a squirt of whipped cream and a slice of mango". In 2nd place we have Jethro from Arkansas with "Lettin yer young un with teethin trouble chew on the barrel of a loaded shotgun can be dangerous". The winner being Anon with "Gold you cant live in it or eat it!!"


OK enough of the fun now, it's not nice to mock the afflicted. Gold gets its value from the fact it takes blood, sweat and tears to dig it out the ground, if it's nominal value was f*ck all, people would leave it where it was.
Dollar bills (or any fiat currency for that matter) do cost practically f*ck all to produce, and it costs the same to print a $1 bill as it does to print off a $1000,000,000 one!!

BitterRenter said...

The top 5% in Cuba and Venezuela fled to America when told they'd have to start sharing the wealth. America is a magnet for the selfish, the best deal going for people who want to suck the life out of a culture and not be forced to support it.

As for the democrats being as bad as the republicans: there is no alternative. They were forced to the right by an ignorant and misguided middle class fascinated with the selfishness and greed promoted by Reagan (may he burn in hell). If it weren't for democrats, most of you would still be sh*tting outdoors, living in a pseudo-feudal system.

The widespread resistance to socialism makes it even more fun to watch American sludge suffer.

Bob Reno said...

>>Larry Yun said...
As an economist, I can only laugh at the priced-out renter math. Homes have gone up 100%- if they only lose 50% now, the shrewd homeowners are still up 50%! (100-50 = 50)<<

Larry:

That assumes you bought before the price went up. How about the millions who bought at or near the peak? You now own a home that is worth 50% less than what you paid for it.

Where is your equity God now?

Out at the peak said...

40% to 45% is the needed reduction in Sonoma County, CA. It'd still be 25% more expensive to own than to rent, but that's fine.

Although even my coworkers who agree with me with the past and present, they still cannot imagine the future with such a drop.

It needs to happen unless we get large wage inflation -- which is even more inconceivable.

Anonymous said...

budvar, you seem to have missed the point. Gold is a commodity and like anything else is potentially subject to a speculative bubble. People who bought gold at $800/oz during the last metals bubble are still waiting to be made whole 3 decades later.

The question is whether gold's price accurately reflects its intrinsic value or not. It has not suddenly gotten 2x harder to mine and refine it, dude. Nor has industrial demand suddenly jumped 2x. Nor has it suddenly gotten rarer relative to everything else. Does platinum take less effort to mine and refine? There's a metal that's 15x rarer than gold, irreplaceable (unlike gold) in many applications, and where most of the production is from South Africa and the F.S.U., yet trades at just 2x the price of gold.

I'm not saying gold is overpriced at $660, just saying it's not necessarily underpriced either, nor is it guaranteed to outperform any other tangible asset if a period of high inflation returns. What we do know is that tangible assets should outperform cash because as you say dollar bills have no intrinsic value.

Anonymous said...

I think 50% is a good easy number to start with. I feel prices will collapse more than that. When they do, the mentality to get back into the market will take consumers some time. It's going to be a maga avalanche and only the first few snowflakes have started moving.

Anonymous said...

Lots of people got tired of waiting on gold in the 90's,

They've lost interest in it.....but for how much longer?

It will make a comeback in a big way!

Budvar said...

Gold was $800 30 years ago etc etc..

Now to put things into perspective, it took interest rates of 21% to bring the economy back into line.
What do you think the likelyhood of 21% interest rates at this time?
Gold (I include all PMs in this) has been a bit volatile of late, I truly believe this is in most part margin covering.
Spain has dumped tons of gold on the market these last 3 months, mainly because they're on the verge of bankruptcy. Other CBs have also been dumping gold on the market, what you need to ask yourself is who exactly is buying all this gold and why? Someone is as it's selling.
Gold mine production is down year after year after year, also if you take all the gold mined since the dawn of time, this includes Tuthankamuns coffin, niggaz grylls, grannies wedding ring etc etc, and divided it all up equally between every man woman and child on the planet, there'd be less than an ounce each to go around. If you give me time, I can find all the figures to support this.

Anonymous said...

"..Is gold's intrinsic value so high that it will climb relative to RE in an inflationary period? You can't eat it or live in it..."

-------------------

Gold climbed relative to RE in the 1970s, as well as in the past few years. Now RE is just starting to come off a historic bubble. What do you THINK is going to happen?

You can't eat gold or live in it, but it seems that hard money that can't be mass produced by the corrupt and incompetent government has some value after all.

Anonymous said...

Out at the peak said...
40% to 45% is the needed reduction in Sonoma County, CA. It'd still be 25% more expensive to own than to rent, but that's fine.

Although even my coworkers who agree with me with the past and present, they still cannot imagine the future with such a drop.

It needs to happen unless we get large wage inflation -- which is even more inconceivable.

September 04, 2007 4:17 PM

-----------------------

Thanks to all the offshoring, illegal immigration, and H1-B visa indentured servitude (thank your elected representatives of both parties), any wage inflation that happens will be a lot lower than the general inflation level. It will not enough to maintain home prices at their current ludicrous levels.

Anonymous said...

Anonymous said...
budvar, you seem to have missed the point. Gold is a commodity and like anything else is potentially subject to a speculative bubble. People who bought gold at $800/oz during the last metals bubble are still waiting to be made whole 3 decades later.

The question is whether gold's price accurately reflects its intrinsic value or not. It has not suddenly gotten 2x harder to mine and refine it, dude. Nor has industrial demand suddenly jumped 2x. Nor has it suddenly gotten rarer relative to everything else. Does platinum take less effort to mine and refine? There's a metal that's 15x rarer than gold, irreplaceable (unlike gold) in many applications, and where most of the production is from South Africa and the F.S.U., yet trades at just 2x the price of gold.

I'm not saying gold is overpriced at $660, just saying it's not necessarily underpriced either, nor is it guaranteed to outperform any other tangible asset if a period of high inflation returns. What we do know is that tangible assets should outperform cash because as you say dollar bills have no intrinsic value.

September 04, 2007 4:40 PM

-------------------

No, gold is not a commodity "like anything else," it is money. What has happened over the years to the supply of gold relative to the supply of fiat? Yes, gold has become far, far rarer relative to dollars, yen, euros, and all the other forms of counterfeit money out there.

You can have a bubble in anything, regardless of whether or not it has intrinsic value. Yeah, people who bought gold at $800 in 1981 made a poor investment choice, just like people who bought 40 year old starter homes in questionable neighborhoods in SoCal for $600K in 2005 made poor (potentially crippling) investment choices. So what? If the question is which inflation hedge is CURRENTLY better, RE or gold, the answer should be obvious.

Captain Ned said...

Hey, even at a 50% decline I still have equity. Who'd have thunk that a 30-year fixed and a small HELOC for capital improvements (drawn & repaid several times over) was the right way to go.

[/sarcasm]

Anonymous said...

Larry Yun said...
As an economist, I can only laugh at the priced-out renter math. Homes have gone up 100%- if they only lose 50% now, the shrewd homeowners are still up 50%! (100-50 = 50)


Actually Larry,
If a house was worth say 100 bucks, when it went up by 100%, it became worth 200$. Now when a 200$ house drops by 50%, it actually drops by 200$-100$ = 100$.

As an economist , you should work on your arithmetic ;)