patrick.net

If my math is right if gold prices hold at current level this means house prices will need to triple to get bck to the historic ratio.

toothfairy says

this means house prices will need to triple to get bck to the historic ratio.

Hahahaha. I haven't laughed that hard in a while.

Dont worry, last time prices were this low it took 10 years to get back to the average so youve still got time.

I would be curious to see this chart for the Bay Area. I'll bet, we are nowhere near the trough in housing, here. Also, as far as how much money has been printed by the FED, we are are living in unprecedented times, so gold has a lot more to go on the up-side, while housing has a lot more to fall.

Also, S&P is still about 5-6 times overpriced relative to gold, and BA housing will not see any real price discovery until this ratio is below 1:

I think the trick is to buy a gold house! Right in the middle of Cupertino next to a great school. You can't lose then! Genius

bubblesitter says

toothfairy says

this means house prices will need to triple to get bck to the historic ratio.

Hahahaha. I haven't laughed that hard in a while.

I know it sounds kind of funny right now but that's a fact not an opinion.

Now I see why Warren Buffet likes housing. If I were a betting man I'd probably go out and buy the biggest most expensive house I could find. Finance with a 4% 30 yr mortgage with as little down as possible and just live there for 10 years.

Put something like 100k down on a million dollar house in Palo Alto.
900k mortgage would only be around 4k per month.

Man this is actually kind of temping.

toothfairy says

Put something like 100k down on a million dollar house in Palo Alto.
900k mortgage would only be around 4k per month.

Man this is actually kind of temping.

Don't forget the extra $1,000 for property tax each month. And maintenance costs. And insurance. And PMI. And the $60,000 the realtor cartel will take if you want to sell.

And the potential $100,000 to $200,000 loss from depreciation in the next few years.

Maybe not so tempting.

Don't forget the extra $1,000 for property tax each month.

But as a primary residence the deduction from the interest should just about wipe out the tax and insurance cost.

http://patrick.net/housing/calculator.php?uaddr=%2C+&rent=4%2C000&price=100%2C0000

toothfairy says

But as a primary residence the deduction from the interest should just about wipe out the tax and insurance cost.

But you are assuming that prices will increase in that time frame - very bad idea. Even if it remains flat you are forgetting to consider lost opportunity to invest the principle part of mortgage payment. Remember - the principal is your money,that the banks keep for free - until you sell your house - if there is no appreciation,then when you sell it bank gives that principal back to you - as is - without a penny over the principal you paid. You would have to assume big price appreciation by the time to sell it,just to cover the costs that Patrick mentioned.I know,I know, this math is really fuzzy.

toothfairy says

But as a primary residence the deduction from the interest should just about wipe out the tax and insurance cost.

You clearly haven't met up with AMT wiping out most of your deductions.

You would have to be in AMT territory to even begin to think about paying the mortgage and carrying costs of a million dollar home.

toothfairy says

Put something like 100k down on a million dollar house in Palo Alto.

There are basically no homes that are practical (not shoeboxes) in Palo Alto under 1.5 million.

bubblesitter says

But you are assuming that prices will increase in that time frame - very bad idea.

I'm basing the whole idea on the assumptions that prices will go up as demonstrated by the OP.

Mick Russom says

You clearly haven't met up with AMT wiping out most of your deductions.

Actually last time I came close to getting hit with AMT my mortgage interest deduction knocked me under the threshold.

http://patrick.net/housing/calculator.php?uaddr=%2C+&rent=4%2C000&price=100%2C0000

What are the 70k in maintenance costs? Are you replacing the foundation?

Mick Russom says

There are basically no homes that are practical (not shoeboxes) in Palo Alto

Mick, Americans are so spoiled. Your shoebox is the size of a palace to most people in the world. And many of those who're bidding up the prices of homes in The Fortress are from other parts of the world. It is different here, and it is different this time.

http://patrick.net/housing/calculator.php?uaddr=%2C+&rent=4%2C000&price=100%2C0000

More realistic assumptions with appreciation at 0%. I even left in the 70k maintenance cost.

whoops just noticed the link doesn't update preferences.

anway with 3% appreciation and my realistic assumptions is says the house is worth $1.5 million.

toothfairy says

Now I see why Warren Buffet likes housing.

Couldn't at all be that he has 5 billion riding on Bank of America. The biggest pansy bank in this whole mess. Remember Countrywide? Well, that pig is still around and as much as Bank of America is trying to dress it up, the smell is still getting worse every day. Buffett is not God. He makes mistakes and he has already admitted that he was wrong on housing last year. "I was dead wrong" was his quote. He would be the first to say that housing has its risk right now.

toothfairy says

anway with 3% appreciation

Get off the drugs. 3% is a pipe dream at this point.

B.A.C.A.H. says

Mick, Americans are so spoiled. Your shoebox is the size of a palace to most people in the world. And many of those who're bidding up the prices of homes in The Fortress are from other parts of the world. It is different here, and it is different this time.

You must have not been traveling to too many places around the world. Those pseudo-palaces in cupertino and palo alto and other so-called "elite" places throughout the bay area (which don't even have a proper down-town), are nothing but stinking chicken coops, to most citizens throughout the civilized world. Yes, if you are from New Guinea, yourself, please accept my sympathy, but most people, who call themselves wealthy, anywhere, else in the world, do not live in such pithy conditions.

Here is an example of some houses from Russia:

http://www.home-designing.com/2011/06/rublevka-where-russias-super-elite-live

toothfairy says

I'm basing the whole idea on the assumptions that prices will go up as demonstrated by the OP.

Hell, I'll by any property in USA,right now if it is guaranteed to increase 3 times in what 10 years? Only problem? your assumption is just hilarious. :)

dunross,

If they qualify to buy a sh**box in The Fortress, either with cash or qualify to borrow, then whether or not they call themselves wealthy or whether or not you consider them wealthy, it doesn't matter: by any reasonable comparison to most of the residents of the USA, California, and even the Bay Area, they are wealthy.

And yes, the apartments they lived in at places like Hong Kong, Shanghai, Mumbai, Bangalore, Taipei etc. besides being in multi-unit housing, are quite small. Your SFD sh**box in The Fortress is a palace by comparison.

Why do the prices of housing and gold have to be in some sort of ratio lockstep? There are things that will affect the prices of each that have nothing to do with each other. Am I missing something here? This chart is just pointing out arbitrary numbers in time, who cares?

This is simply because gold is in a bubble. Please realize that gold prices can and someday will plummet, and don't bet your life savings on gold forever going up. I'm waiting for David Lereah's new book:

B.A.C.A.H. says

If they qualify to buy a sh**box in The Fortress, either with cash or qualify to borrow, then whether or not they call themselves wealthy or whether or not you consider them wealthy, it doesn't matter: by any reasonable comparison to most of the residents of the USA, California, and even the Bay Area, they are wealthy.

And yes, the apartments they lived in at places like Hong Kong, Shanghai, Mumbai, Bangalore, Taipei etc. besides being in multi-unit housing, are quite small. Your SFD sh**box in The Fortress is a palace by comparison.

The whole point is, these people, are not really, wealthy, because, if they were truly wealthy, they wouldn't be living in sh*t-boxes, no matter how good the schools are. All those places where all those people which you mentioned come from, come from cities, not culture-less waste zones without public transportation, like the so-called cities in the bay area are, so, your comparison doesn't really apply. If you want to compare prices between Los Altos and China for example, you shouldn't pick Shanghai or Bejing which are both cities of 20 million people. Instead, you should pick a place like Quamdo China, where prices are much cheaper than Los Altos.