Christopher Schwarz

More Money, No Houses

I still get the most questions about what is going to happen to the residential real estate market. As I have stated since March, it’s going to be OK. Here’s another reason why: You can afford 12% More house today because of rates.

Here’s a graph of 30-year mortgage rates. I’ve then graphed how much of a house you could afford relative to a $500,000 house a year ago.

As you can see, instead of a $500,000 house, you could get a $565,000 house today.

You main problem? There is nothing to buy. Many markets have almost no inventory available.

Yes. The last recession housing prices crashed. This is not the last recession. Housing is going to be strong given low rates and no inventory.

By Christopher Schwarz, ago

Let’s Get Real about Gold

Gold has been on a tear! It’s now over $2000. Why? For the same reasons I explained in January: Would you rather make a 0% return or a -1% Return?

Currently, real returns – returns after adjusting for inflation – are -1% on U.S. Treasury bonds. Yes that’s right. If you buy a 10 Year Government bond you are locking in a -1% real return for the next 10 years.

Well, each year you don’t lose 1% of your Gold. Thus, people would prefer to own gold than to lose money to inflation. Here’s a chart of Gold prices and the yield on a 10 year TIP bond, which is the real rate of return you will earn.

The question is…. when do real rates start heading back up? Because once that happens, Gold’s glitter will be gone.

I think Gold has moved too much here and moved more into high dividend stocks. Dividends offer me a real return as well as price appreciate. Plus food companies have pricing power if we do get inflation.

By Christopher Schwarz, ago