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Why Gold Outperforms Real Estate in a Crisis

By LINDON, Utah - September 7, 2018 No Comments

Precious metals and real estate are both real assets that investors can hold directly, but gold has a major advantage during a crisis. You can quickly and easily sell gold at the market price, while it may take months or even years to sell a house. That is liquidity, and it can make all the difference for your financial future.

Real estate seems like a solid investment, and it usually is when you buy it with your own money. A house that you live in continues to provide the same value to you no matter how much the politicians debase the currency. What is more, you can rent real estate to earn money honestly and avoid being taken in by scams or the latest investing fads promoted by Wall Street banks. Protection from inflation and fraud are also reasons for investing in precious metals, but the similarities end there.

The high price of real estate means that most homeowners must borrow money to finance their home purchases, and that means banks, bubbles, and bankruptcies. Mortgages are financial instruments, and they are subject to Federal Reserve controlled interest rates. The Fed cut interest rates to help Wall Street recover from the Dotcom Crash, and the median home price in America soared from under $180,000 in 2002 to over $260,000 in 2007. Some of the big banks started promoting flipping houses as an easy way to make money, a bubble formed, and millions of Americans who were just trying to buy a home ended up paying the price.

When the Housing Bubble collapsed in 2008, gold and real estate performed very differently. People who were unable to pay their mortgages were also unable to sell their houses because of the depressed market. The median home price fell below $210,000 in 2009, and many homeowners were left owing more on their mortgages than the market prices for their homes. Gold remained easy to buy and sell during the crisis, and the price of gold kept rising during that whole cycle. Gold went from under $300 an ounce in 2002 to over $800 in 2007, and then it rose to more than $1,000 in 2009. 

I certainly understand the desire to keep up with inflation, and real estate is one way to do that. The median home price hit a new record high of over $340,000 last year, so home prices have nearly doubled since 2002. However, gold prices more than quadrupled during that time. 

If you have to think about buying a house, then you should probably wait. When you buy gold instead, you'll own a real asset that can be sold whenever you need additional funds to deal with a crisis. You'll also stay out of debt. Whenever you are tempted to get a mortgage to buy a bigger house than you need, always remember that no one ever went broke buying gold.