Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Class Warfare in the U.S. House Price Gold Ratio

Commodities / Gold and Silver 2010 Mar 26, 2010 - 06:57 PM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleUpdating the big-picture charts of US housing priced in gold ounces...

HARD TO SAY what all the tax-payer cash thrown at US housing will do to home prices. Because at first glance, the $14 billion of aid (aka meddling) apportioned on Friday seems set to both inflate and depress prices.


Subsidizing over-priced contracts stops the market from clearing, and people whose homes are worth less than their mortgage can now seek government-backed loans to cover the difference. But that's only thanks to lenders writing down what they're owed – or rather, what the securitized bonds holding their debtors' mortgages are due at maturity – thus resetting the existing loan's value closer to current reality.

How close to reality, however, is another question.

One mortgage-bond investor, speaking to The Economist magazine, calls it "class warfare". Forced by the White House to forgive debtors a chunk of their debts, you can see the bondholder's point.

Still, at least the loans were priced only in Dollars. Valued in gold, today's loan modification or delinquency – let alone default – would be even harder to bear, as the chart of all US house prices above shows.

Twice peaking at pretty much 500 ounces of gold on the Case-Shiller data twice in the last forty years, the chart measures the average US home price, divided by the annual average ounce price of gold. Whether or not the low of 100 ounces gets hit again remains to be seen. But the steep plunge has flattened for now – and the way mortgage modification is running, the bottom in house prices could take a while to reach yet.

New units, for which BullionVault can crunch monthly data courtesy of the Census Bureau, certainly don't seem to have hit their gold price floor just yet.

Delaying the happy day of market-clearing prices still further is the second part of this week's new Obama housing rescue injection.

Bank of America jumped early on Wednesday, rather than waiting to be pushed by the White House. It voluntarily laid out a plan for debt jubilees worth up to 30% of initial loans. Which would kind of accept the 30% drop in national prices since 2006.

But trouble is, BoA wants to spread that write-down – taking loan values to current levels, remember, and only in a tiny handful of cases no doubt – across the next five years.

The bubble remains punctured, in short, and this sticking plaster can only slowed the rate of deflation. Sixty months is a long time for mortgage modification to catch up with today's prices. Not that it could ever work anyway – if "work" means stop the destruction of value, rather than letting the market fall as it wants to.

"It's pointless to rewrite these loans because they're underwater," said one economist, Sam Khater at First American CoreLogic in Virginia, to Bloomberg on Thursday.

"[Modifications] clearly aren't working...It's not a surprise."

New data from the Office of the Comptroller of the Currency says that over 57% of once-delinquent loans modified before end-2008 were delinquent again by end-2009. Overall in the US mortgage market, some 14% of home loans are a month or more behind with their payments. Some 1-in-4 loans are worth more than the home they're held against, too.

Deflation rolls on. Throwing money at it only destroys more money again.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules