“Why are you throwing away your money on rent?” we were often asked between 2004 and 2006. “You could be making a killing right now if you were buy a house.”
Long-suffering readers know that their Whiskey editor opted to stock up on silver instead of real estate in those critical years. It was clear to us that silver was ridiculously undervalued. We greedily bought up the shiny metal at bargain single-digit prices.
Meanwhile the whole housing thing seemed awfully frothy. Manic even. And we understood that some very non-free market forces were driving real estate higher and higher. We opted to sit it out. Especially when we realized that it was cheaper to rent a place than buy a comparable property. Combine that with the near-inevitability of a painful bust and we were only too happy to look like fools for sitting out and just renting our living space.
But now the tide has turned. The Fed-induced fever has run its course in the housing market. Prices have fallen drastically. Owning has become cheaper than renting again. Which is as it should be. A landlord should be able to rent out his property at a profit after all.
So if you (wisely) rented while the real estate bubble expanded and popped, now may be a very good time to stop renting and look into buying a home.
We recently rented in a “transitional” Minneapolis neighborhood at what we thought was a screaming bargain. We had it in mind buying would be a good move soon now that the real estate bubble has popped, but we wanted to test the area out first.
After deciding that the neighborhood was just fine — and a hidden bargain in the Twin Cities — we started monitoring prices. Lo and behold it turns out that we could buy a bigger, nicer house in the same neighborhood and our monthly payment would be almost half what we are paying for rent now!
How could this be? Well, we have to thank the Fed once again. They generated this latest boom-bust cycle which has shoved real estate prices so far down. Meanwhile, the Fed has also kept interest rates far below where the markets would have put them at this point in the game.
The real estate market itself is full of foreclosures and desperate sellers. We’ve been tracking the sales prices and yearly assessments of properties in a few cities across the land (including our own Minneapolis). 2011 seems to be the year when reality came knocking. That was the year the assessments dropped about 25% (often more) and owners started selling accepting as much as 50% less than they’d paid prior to 2006 around the height of the bubble.
The upshot is that anyone with halfway decent credit can now borrow over 90% of the cost of homes which are already going at firesale prices. Not only that, but you can borrow very cheaply.
This past Thursday, June 7, 2012 Bankrate.com reported:
“Mortgage rates dropped again, reaching record lows this week as the European debt crisis deepens.“The 30-year fixed-rate mortgage fell 2 basis points to 3.92 percent. A basis point is one-hundredth of 1 percentage point.“The 15-year fixed-rate mortgage rose 1 basis point to 3.16 percent. The average rate for 30-year jumbo mortgages, or generally for those of more than $417,000, fell 4 basis points to 4.46 percent.”Source
“Mortgage rates dropped again, reaching record lows this week as the European debt crisis deepens.
“The 30-year fixed-rate mortgage fell 2 basis points to 3.92 percent. A basis point is one-hundredth of 1 percentage point.
“The 15-year fixed-rate mortgage rose 1 basis point to 3.16 percent. The average rate for 30-year jumbo mortgages, or generally for those of more than $417,000, fell 4 basis points to 4.46 percent.”
We never thought we’d try to buy a house. After all, home ownership is largely an illusion (stop paying your tax-rent to the local government and quickly find out who really owns the property) whose financial appeal for the past century is largely a result of government interference.
But right now borrowing to buy a home is simply a smart financial move. These conditions are so unusual. The homes are cheap, yet so is the borrowing cost to get the money to buy the home! Even after adding in taxes, we would be paying less than ⅔ what rent costs us now.
Sure you have to come up with a down payment. But it can be as little as 5% of the total purchasing costs. (It could be as little as 3.5% if you can get a loan insured by the Federal Housing Administration. Or even 0% under certain first time homebuyer programs. But getting a hand from the federal agencies isn’t something we can really endorse at the Whiskey Bar…)
Furthermore, we can almost guarantee that the Federal Reserve will lower the already lightened, low cost burden of borrowing. By inflating the supply of the money, the Federal Reserve will make sure that the dollars you pay back to your lender are worth less than the ones your lender gave you in the first place.
So a taking out a mortgage doesn’t just lower your monthly housing costs below rent…It also acts as an inflation hedge!
And here may we suggest another inflation hedge to invest in with all that money you save…an inflation hedge that also works as the perfect deflation hedge…
We speak or course of the humble nickel. Nickels are a form of lawful currency and will buy more based on face value in the event that things get cheaper in dollar terms…
But nickels are also 75% copper and 25% nickel and their metal content is close to — and sometimes more than — face value. This isn’t of any use now, but in the event of a dollar collapse, nickels will trade at a much higher metal value on the bullion market…just like “junk” pre-1964 90% silver coins do today.
Buy a house, good patron, then fill your new basement with nickels.
That’s what we’re doing anyway. We’ve already been socking away boxes of nickels in the basement of the house we’ve been renting. After we mortgage a new (bigger, slightly nicer) home, we’ll have even more money with which to get more nickels!
Getting a mortgage will increase our living standard slightly (with a nicer home) while freeing up a lot of cash over renting. We can store that freed up cash in a form of money that could be used at face value to pay the mortgage down later on…
…Or which could be used to pay the mortgage off a lot faster based on the intrinsic metal value in the event that central bank action leads to a much weaker dollar…and a higher intrinsic value for the nickels based on their metal content.
Nickel-hoarding was already a “can’t lose” play. If you managed to “keep your powder dry” by staying on the sidelines during the housing bubble and bust, then now is a good time to jump in with both feet and scoop up a home at a bargain. Use the current low home prices and artificially low cost of borrowing to take even greater advantage of the nickel strategy. We certainly will.
Gary Gibson is the managing editor for Whiskey and Gunpowder. He joins the Whiskey staff as a long-time fan and reader of both Whiskey and Gunpowder and the Daily Reckoning. A graduate of Fordham University, Gary now spends his days reading about and writing on limited government, sound money, personal responsibility and resource investing.
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I just can’t see myself collecting nickels when I would rather use that money to collect silver.
Nickles will at least always be worth something. One thing about a home is it is a major cost to upkeep – both time and money in the form of mowing lawn, painting, electrical/plumbing/heating/cooling etc issues that will crop up from time to time. Also, not so easy to walk away from if need be due to change of job or disaster. A house is also an excellent target for government confiscation.
Or, you could done even better by buying raw land out in the country and putting an older mobile home on it like I did. This enabled me to much more rapidly build up my savings so that I can build my own low cost house next year because I’m neither paying rent nor mortgage. Granted, my method isn’t for everyone, I have handyman skills that most people lack, and I prefer living in a rural area to living in an urban area.
Another alternative method of rapidly building up your savings by avoiding rent and mortgage payments is to live in your vehicle for awhile. Then you can move to a high income state without paying the higher living costs that most locals pay. If this interests you, then search ‘ van living ‘, ‘ car living ‘, ‘ caretaker gazette ‘ , and so forth. There has actually been a book that was written about car-living. If you live in a van that looks like a delivery van, then you can park in many public places over night without attracting attention if you are careful.
Pingback: Buy A House and Put Nickels In It « Silver For The People – The Blog
Everyone’s in debt, and now the word on the street is to buy a home?
You need money to buy a house. Get a loan+interest? Go into more debt?
Pay Cash? Do you even have cash?! You can’t legally move more than 5,000 at a time, so how are you doing this?
This country has problems, and the problems come directly from government.
What kind of house do you expect to get? Can you fix fences, cement, carpentry, electrical, drywall, finishing, roofing, joist and sheeting, do you have your own tools? Maybe buy tools instead. Where is it located? Will your tools be there if you take a leak? If you replace the windows will they have bullet holes?
This stuff happened because the US Constitution has been flushed down the toilet.
We are out of money because of banksters, and their enablers
Others claim they are out of money but won’t audit their CAFR’s.
We don’t need this insanity, a lot of us are not able to have the skills to buy, fix or defend a home. It doesn’t mean you give up, but it also means don’t be stupid. I am talking to those who even have any money to do it.
The article doesn’t seem to mention risk.
People who don’t have money, only find the worst loans.
They take risk to the next level failure. Failure can ruin a life
You risk your life when one of these loans fail.
With everything being tied together electronically, it’s possibilities for exploit become even more powerful.
You can’t pay a loan back when your spiritual, home and work life are tied together and being exploited electronically. TV, Radio, electronic voting each exploit your decisions, mood, financial security, health. The people feeding on you have no such rules or barriers.
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