San Diego Housing Market News and Analysis

I was thinking the same thing! Buying a house doesn't seem like such a bad idea if your other choice is to watch your buying power dwindle thanks to inflation. Yet I feel home values still have a good drop coming...

I agree with you to the extent that some investors will have more faith in real estate because commodities are such a unique type of investment. I believe there is much more upside to silver and gold in the short term than buying real estate.

There are plenty of properties that are currently cash flowing with this huge real estate correction, which will give many investors a feeling of stability. I think real estate is great for the conservative long term investor, but if you are like me, I want to capitalize on the now and I truly believe that we are going to see a huge upside in commodities, especially silver!!!

Qwerty,
Are you referring to cash buyers or at least well heeled investors, or the average leveraged homeowner with insufficient assets to cover a note if they had to?

Rustico, I am principally referring cash investors.

It is interesting to keep in mind that gold cost around $500 to $600 an ounce to mine. So it's a place to start for valuation. A decent house is maybe $150 to $200/sq/ft plus the dirt, and cash is priced according to other currencies.
Right now it looks like most tangible assets are priced too high compared to what most people earn, from a historic perpective. If we do in fact experience inflationary pressure, it seems like tangible assets should rise compared to cash. But there are so many other factors. Houses are deflating right now. Gold is inflating and the US$ is rising a little. I'd bet on gold or the US$ for a while. Far more liquid than real estate and trending upward at this time.
Although our fed is doing it's best to fill the world with dollars, unemployment is rising, wages are not increasing and most assets are still correcting downward. This all makes your US$ buy more. It will be interesting to see if gold will test $1000 again.

Are you kidding? Gold is over $900 per ounce today!

Thanks Qwerty,
That is what I thought. I think your question is a good one. It seems to me that investors in that class could come to peace with a variety of options.

Gold seems to have all the characteristics of accelerating asset appreciation, or a bubble.

Suggest you read Rich's investment articles on the subject of gold. Rich is a very sharp guy about financial investing. I don't have a link for you, but I believe Rich has written about the question is there a bubble in gold.

Other experts, economists, financial analysts have also written on the topic of is gold in a bubble and arrived a similar opinion as Rich's. Brilliant people looking separately at the same data arrived a similar conclusions.

My concerns about gold are more along these lines:
1) The (relatively) recent arrival of the GoldTracks ETF "GLD" has apparently increased the volatility in gold spot prices. That ETF is now said to have more than 600 tonnes of gold, more gold than is found in all but a few countries gold reserves (separately, not combined). Case in point: the recent quick fall from about $1,000/ounce down to $750/ounce.
2) Many have written on the claim there is a secret consortium of countries whose foreign reserve officers act in concert (massive selling or buying) to keep the price of gold within a trading range they prefer. You can search on the net and read about it. However, one could argue that if such a secret consortium does exist, it sure didn't do a great job of preventing the recent price run-up to $1,000/ounce, did it?
3) I think the US stock markets hit a short-term bottom today (mid-day) and will now have a fool’s rally that will pull money out of gold, so gold could fall in the short term.

Having said all that, I'll finish by sharing the simple fact that I made twenty-five grand on gold in the last 48 hours. So, at least this week, you're going to have a hard time convincing me to hate gold!

Good bait, I will bite.

(hijack)

So it that a paper gain or booked profit ?
In either case what happens if it moves again, quickly and substantially, in the opposite direction ?

Just trying to get a feel when/whether to book profit/loss or let it run or wait/hope for recovery.

One of the basic trading dilemmas I am yet to resolve/understand.

(/hijack)

My post was more hypothetical, and pointing to security of assets rather than short term profits to be had from current gold speculation. I do know Rich and am aware of his views, and have myself been well invested in gold for some time. However, for those seeking a little more stability and security, bricks and mortar, even if still on a depreciating curve, has one fundamental benefit over everything else, you can live in it. I don't think the time has been reached yet for many of us, but is got pretty close to at least considering it over the last few days, driven less my prices and more by financial anarchy.

I read Rich's analysis as the why gold is not in a bubble. And I would agree based on fundemental analysis rather than chart analysis. If you looked at house price charts, they dont look too different from gold from 2001 to 2006.

From a fundemental aspect, it's difficult to value gold, but I think that the cost of extraction/production is a fair place to start. The break-even for gold is $500 to $600. So anything above this is a premium for what someone would consider it's future value or hedge against currency devaluation/weakness/instability.
So, by my way of thinking(suspect at best)if gold is selling for say $900/ounce, then there's a $300 premium for it. So you're kind of betting that the currency or US$ has got some devaluing to do in the future. Hopefully sooner than later.
One caveat about this analysis is that if energy prices decrease, the cost of gold extraction will decrease as well since extraction is energy intensive.
At any rate, the cost of production indicates to me that gold is not in a bubble. However, If oil prices continue to decrease and the US$ gains stregnth, the premium for gold should decrease as a result. But, how long can these two factors contunue?!

In this evironment, being liquid has a lot of appeal to me as opportunities are coming and houses are still decreasing in price. You can always rent. Why buy a house and hang-up your money in a devaluing, illiquid asset?

Today was a forced rally.

To me it just shows how many traders really expected this decline to continue.

So the shorts are covered, now what? These banks are suddenly profitable again?

Yeah right.

Fleckenstein (the mullet) ripped the shorting ban last night with a great line in response to the claim that shorting artificially drove prices down, and said that if the prices are artifically low, then where are the buyers?

Look at the stocks that aren't up today, and I think it's telling of what's really happening. This quasi-government induced rally is only designed to pad the holdings the Government just bought with more of our borrowed money.

It will end and stocks will plummet back to where they need to be.

So it that a paper gain or booked profit ?

I must admit, I was reporting increase in paper profit over a two-day period. Also, I didn't include the paper profit made on gold in my wife's portfolio; I increased her 401K by 20% in about ten days. She's thrilled.

I haven't sold and I'm still holding all my gold. I see gold was up today, charts showing NY spot price is at a 30-day high.

I don't have the answers on when to book profits on gold, but I'll share my GUESSES on the gold market.

I believe this week was one of the most significant inflection points for gold in many years. The collapse of the dollar will now accelerate as the world is losing confidence in America's ability to handle a national debt apparently expanding exponentially (Wars we cannot afford, Social Security underfunded, previously existing national debt, trade deficit, bailout of Fannie/Freddie, AND AIG, AND Bear Stearns, AND now the MASSIVE sector-wide bailout of the entire banking and mortgage system, buying up all their bad debt).

As the world now starts to flee the dollar, the Million Dollar Question is WHAT will they trade their millions of dollars into? EUROS? GOLD? RMB? Swiss Francs?

The markets answered this week: at least in part, as some are clearly trading into gold.

While some of that was simply driven by fear (seeking safe haven from market chaos), the last 24 hours were very revealing.

I think you would agree that with the announcement of the new wider bailout, at least there has been an increase in the perception of increased market stability. Then as expected the stock market rallied, but we would have expected to see the gold market turn south as money moved back from gold into stocks.

That didn't happen.

Instead, gold showed strength - because investors saw that the new bailout plan involves TRILLIONS more of debt load on the shoulders of the dollar, making it far more inevitable our government will eventually (or immediately) be forced to inflate its way out of this debt load, by devaluing the dollar.

So, I believe the dollar now renews its decline, and gold will soar through $1,000/ounce within months (or weeks) and then head towards $2,000/ounce.

I have been researching the housing bubble. Spike in gold and commodities is a distinct possibility.

wannabe

http://journeytocriticalmass.blogspot.com/

Some more confused ramblings.

When we say dollar will decline, are we saying that it is against just the 'real' stuff like gold/oil/houses, or also against other (fiat) currencies.

I understand it might be a mix of the two, but lets see how it might turn out, by taking extremes conditions of the two cases.

Lets consider the first scenerio:
If it is against just the stuff, and other currencies also decline (more or less same amount), it implies a world wide inflation.
Every body in the world just adds a zero to the price of everything.
Savers are loosers, the ones who took a loan (US gov on top of the list) win.
Things go back to the old way.
Only question : Does that require that US houses also inflate ? US Wages ?

What about the other scenerio:
If it the other way, only the dollar falls.
Rest (the real stuff and 'other' currencies) remain equally priced in terms of each other.
Is that a stable position ?

What happens then to other stuff?
Anything produced within US remains priced same in US$, anything external/global rises in $ terms.

Lets do a simple projection.
Dollar drops to its one-fourth 'value' in around two years.
Possible ? Lets say, yes.

Today:
Yen: 1 cent
Oil: 100 $ = 10K Y
Gold: 1000 $ = 100K Y
US House: 200K $ = 20M Y
US domestic company stock (Not sure an example): 10 $ = 1000 Y
US global company stock (Boeing): 50 $ = 5000 Y

After two years:
Yen: 4 cents
Oil: 400 $ = 10K Y
Gold: 4000 $ = 100K Y
US House: 200K $ = 5M Y
US domestic company stock : 10 $ 250 Y
US global company stock (Boeing): 200 $ = 5000 Y

How can this situation continue? You (americans) wont be able to afford gas.
US Imports will be unviable.

US exporters will be in a great position.
Foreign buyers will buy the US stocks and US houses (now much cheaper for them)
But they need to pay for them in dollars !!
So now they need to buy the dollars again.

I think this is not a stable situation.

The very fact that dollar falls and US stuff is cheaper for others, will encourage them to buy US produce and in turn prop up dollar again.

On the side note:

WHAT will they trade their millions of dollars into? EUROS? GOLD? RMB? Swiss Francs?

IF 'I' had lots and lots of dollars, I wont buy gold, Euro etc.
I will buy US houses. They are cheap compared to houses in my third world town, considering the quality of life, infrastructure etc.

Oh wait, I should rather wait for our own little real estate bubble to burst.

Despite what the govt tells us, we're in a recession that looks to be headed towards a depression. And this may be globally, not just domestic. Demand destruction can really destroy prices. Even with all the currencies sloshing around the planet looking for the next investment/bubble.
Based on the market violence in swings, I'd say this money is having a real problem finding a home it can stay in for a while.
October and November should be blood bath months in the markets as earnings should be exremely bad. And as the market finds out there really isnt a new bubble to get into, it's going to go to long term hold and safe haven. The Fundementals of most assets are still way outta whack. Prices need to adjust down to make investment sense. This will probably drive gold up in price since most countries will increase debt to save their markets. Like the US is doing now. and as we've learned in the RE market, at a certain level debt is a killer.

This is just a train of thought I''ve had latley as I am thinking more about increasing my gold holdings as all currencies look sketchy to me for the next few years.

When we say dollar will decline, are we saying that it is against just the 'real' stuff like gold/oil/houses, or also against other (fiat) currencies.

I'm not sure if your question is rhetorical? (If it isn't and you really do not have an understanding of the most basic concepts in economics, then suggest you take a community college course in introductory economics)

A decline in the dollar is another way of saying we'll have inflation. By definition, most things will cost more in nominal dollars. If your salary does NOT keep pace with that inflation (and it won't for most Americans) then your standard of living will be falling. However, I'm also implying I believe the dollar will fall dramatically in value relative to a basket of foreign currencies. If the dollar is worth less in Chinese RMB, then one would expect every item imported from China will cost more in dollars.

Money is subject to the laws of supply and demand, just like everything. This is why Zimbabwe has hyperinflation. Let's say that Zimbabwe had one trillion Zimbabwe "dollars" of their currency in circulation. The government leaders wanted to buy more things, pay salaries (and bribes) but obviously they didn't have any sufficient positive net monetary in-flows. So they literally just printed money, and used that. When they, for example, double the amount of Zimbabwe dollars in circulation from one trillion to two trillion, guess what happens to the prices of everything? Do the math.

We are kinda saying the same thing could happen with the dollar, with shocks from both sides: 1) our government has in fact started printing money now, adding billions into circulation. 2) The world is trading out of dollars, dumping dollars for other currencies. This effectively INCREASES the amount of dollars per capita for those still using dollars, and increases the available dollars in circulation because of a glut of dollars in circulation for fewer dollar transactions.

I hope we don't end up with Zimbabwe inflation. I understand dollar value to be measured against a basket of currencies, but the dollar isn't the only currency declining, and countries have been offloading their US dollar reserves for some time, and as far as I aware the printing presses have been whirring for some time, so nothing new there. The dollar may not remain the dominant currency, but much smaller currencies have survived economic turmoil. China is driven by an export market, and depends on US for imports, so I wouldn't think is going to bite the hand that feeds it, at least just yet. The danger is if countries with large US$ reserves, decide to dump the dollar for belligerent, or global political leverage.

`I'm not sure if your question is rhetorical? (If it isn't and you really do not have an understanding of the most basic concepts in economics, then suggest you take a community college course in introductory economics)

hehehe...
Dont mind me, I am just a rocket scientist by education, but doing coding/debugging to try to earn a living. Economics is a hobby (thanks to piggington).

Seriously, no, my question wasnt rhetorical, and (I think/hope) I do understand basic economics concepts.

My idea was to bring numbers (possibly hypothetical, but neverthless concrete/quantitative as opposed to vague/qualitative) into the discussion.
The discussions on inflations/deflation usually go along the lines of

It is inflation.
No, the prices are increasing.
No, the dollar supply is increasing. Real prices are same.
No, you dont understand, the credit has increased in last few years.
No, the available credit is actually shrinking.
So, then it is deflation.
Yes, but not all around, it is deflation in houses, inflation in oil and gold.
No, because the gold has fallen in terms of oil.
No, if you look at long term, it has actually increased.
No, oil was higher compared to gold a few months back.
Not really, that was a speculative bubble.
Well, gold is also in a bubble.
No, it is not.
So will the gold prices further then?
Yes, but in dollar terms.
So it is inflation.

And so it goes on and on, without much real understanding.

Throw in US house prices (Coast vs heart vs rustbelt variations), US stocks,
foreign currencies, China currency (fundamentally different from others, as its dollar peg is directly managed) etc in the discussion, and most people cant hold all that data to comprehend in totallity.

For example, look at Mish's blog in general, or this recent thread

http://piggington.com/peter_schiff_housi...
(BTW, I completely agree with FormerSanDiegan's clear thinking and reasoning there)

My point is this:
Dollar will gradually/continuously fall against real stuff.
It will fluctuate but will more or less stay on par with (other strong) currencies in general. That is, I dont expect US Dollar Index to fall to say 10 or 20 any time, ever. The other currencies will follow dollar downward to stay competetive.
I think this is what Fed and other central banks are doing right now, to get out of the current situation.
This implies world wide inflation, and the US houses and wages wont remain insulated for long, and they WILL rise.
I dont see a US-Only deflation or worldwide deflation as a possibility.

Coming to the thread topic, I see cash as the best short term bet, gold in medium term, real estate and stocks in long term.

In long term cash (no interest) will loose value, gold will hold it, and real-estate/stocks will increase.
Why ?
Gold is not productive.
Houses and stocks are productive (rent and dividends)

If you are completely in gold, what is the exit strategy ?

the current exit strategy is to wait for at leasta real all-time high adjusted for inflation ($2,000/ounce or so) and around that time, swap for a house.

Well if your in Canada or Asia ,

Homes seem to be a better investment these day's

Now I hear Canada is entering housing bubble territory

If I have to choose among the three options (Real estate, cash, gold), I will choose real estate.

1. Real estate: it is still over-valued, but not too much. If you need a place to live, buy one now by all means. If you plan to buy one for investment, it is not a bad idea.
2. Cash: It has been clear that, in an effort to fend off deflation, the government has been (and will continue to be) printing money like crazy. Hyper-inflation will be here shortly after the current deflation phase is over. Unless you are very good at timing, I would not hold cash.
3. Gold: gold is in a big bubble territory already, with hyperinflation taken into account already.

How about invest in foreign stock market?

how about gold? Nouriel Roubini was quoted a few months back saying gold COULD NOT break $1,200. Not sure what the context was. but he was pretty emphatic about it. Made me a little edgy.

no one knows anything.

I had recently read that a major MARKETWACTH columnist is the lead plaintiff in a class action against Madoff. Lost $3 million. That's the MSM. Why in heck would anyone read anything the guy had to say?

Never take direction from anyone. Listen. Think. DO what feels correct.