Mid-Day Market News & Commentary by Chris McLaughlin, November 18, 2008
http://www.shortsalesriches.com/welcome.html
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We have a fr’ee webinar scheduled for tonight! “Government Morons Just Made the Foreclosure Crisis Worse. How you can Profit from Their Stupidity.”
So go now to register for the webinar that’s held TONIGHT at 9 PM EST, 6 PM PST, while there’s still room (only 7 spots left):
http://shortsalewebinarsignup.com
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The buyers are coming out…for some areas on the country.
The National Association of Realtors announced today that housing prices had fallen in 120 out of 152 metropolitan areas. In addition, distressed sales—either short sales or bank owned properties—made up for 40% of all transactions. The shear amount of distressed properties brought the national median existing single family home price to $200,500. For comparison, a year ago the median home price was $220,300.
The hardest hit areas of the country were Riverside-San Bernardino where the median priced dropped 39.4% from a year ago, followed by Sacramento-Roseville which dropped 36.8%. The recent drop in prices has brought about a lot of multiple bidding, according to Lawrence Yun, NAR chief economist.
“A pattern of sharply higher sales in areas with large price declines is well established,” Yun said. “Affordability conditions have consistently been a major factor in driving sales. Historically during recessions, buyers have responded to incentives and it’s important for government to keep that in the forefront of stimulus decisions.”
Around noon EST the financial markets were higher, with the Dow Jones Industrial Average up 139.30 to 8,412.88, the Nasdaq up 7.61 to 1,489.66 and the S&P 500 was up 10.38 to 861.13.
Now, on to our real estate investing education section…
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Real Estate versus Gold: Hedging Your Bets in Uncertain Economic Times
Within the last few weeks, given the craziness in the stock market, gold has recorded the largest ever advances. Just a few months ago, gold reached a record-breaking $1,000 plus per ounce for a short period of time. Considered by many to be “Gods Money”, gold has enjoyed a long and illustrious career as a “hedge” during periods of rapidly escalating inflation or other economic uncertainty but does it deserve the reputation? Should you run to liquidate holdings and buy gold bullion? Most of all…how does it compare to real estate when the going gets tough?
To answer these – and maybe a few other burning questions – today we will spend a little time discussing real estate and gold as a hedge during uncertain economic times. Every portfolio has room for both but use these facts when deciding what percentages to allocate to each:
Fact #1: Real Estate as an Index. The Gold Standard is long gone. Whatever your opinion of removing the dollar from the gold standard, the fact is the dollar is a fiat currency without a gold backing. That has been – and remains – the current state of affairs. The fiat – or paper currency – has not been backed by gold for decades and despite the occasional lone voice crying in the wilderness, little serious attention has been given to restoring the currency to a gold-backed standard. During a period of time when many doom-and-gloom types are calling for a complete collapse of the dollar, savvy real estate investors may well turn to the Weimar Republic as a working example of what happens after a currency collapses: Germany turned to real estate (rather than gold) holdings as the foundational index for the newly created currency!
Fact #2: Shelter is a Primal Need. As any student of psychology or human behavior knows, during times of uncertainty, people tend to seek out the most basic needs of food, clothing and shelter. Although gold is an item of intrinsic value, it does not compare to that of shelter. The worse the economy – the more people return to the values of home and hearth. In fact, much of the value of gold is due to its ability to be used as a unit of exchange for food, clothing and shelter during times of need. On the other hand, if you own real estate – ie, shelter, land able to grow food, water and other essentials then you have the most sought after commodity of all.
Fact #3: Gold can – and has – dropped significantly in the past. Like all recent investments, gold has seen highs and lows. Real estate has experienced 20 percent drops in price but so has gold. Looking back at the late 70’s and early 80’s, gold momentarily reached a high of $845 per oz only to steadily decline for the next 20 years when it finally bottomed out at approximately $250 per oz…NOT adjusted for inflation! On the other hand, while real estate also experienced a sharp price increase during the late 70’s and early 80’s it then remained stagnant for approximately a decade – barely keeping pace with inflation (but still managing to hang on). Those who held gold rather than real estate – lost.
Remember, those who don’t learn from history are doomed to repeat it. Learn the lesson from Weimar Germany, the United States in the late 70’s and early 80’s and even man himself…men steal gold but go to war for land.
More on Wednesday…
See you at the top!
Chris McLaughlin, J.D., M.B.A.
web: http://www.shortsalesriches.com/welcome.html
P.S.: Don’t miss the amazing webinar that we’re holding TONIGHT at 9 PM EST, 6 PM PST.
“Government Morons Just Made the Foreclosure Crisis Worse. How you can Profit from Their Stupidity.”
Sign up now (only 7 spots left):
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