Why Gold Might Be Your Safest Bet (Uncut) 03-06-2025

Real Estate Crisis Looming…Why Gold Might Be Your Safest Bet – Alan Hibbard

Hello, GoldSilver family, Alan Hibbert here with another video, and today I want to go through the real estate bubble. And yes, it is a bubble, and I think you’re going to be convinced of that with some of the data and charts that I’m going to present in this video. So without further ado, let’s dive in.

I want to start today with this tweet and chart that I saw not too long ago. It comes from Nick Gurley. This is the income needed to buy a house in the last 125 years.

And as you can see, it is taking off like a rocket. So if you want to buy a house, it used to be affordable, and it has become increasingly unaffordable in recent years. I mean, this is so dramatic.

This is more than doubling in the last decade. It’s kind of incredible. And if you do want to check out his calculations, you can look up this tweet and he does explain it in the thread.

So this is very impressive, and it did inspire me to do my own analysis, which I’m going to share later in the video. But first, I want to share with you some three quick facts about real estate finishing up the 2024 year. And the data here come from Apollo, and it’s presented in a thread from the Kobayashi letter.

Number one, U.S. homes are getting smaller. The size of new homes being built has declined by 12% since 2016. You can see that here dropping off a cliff.

The median new home is now about 2,100 square feet, and it used to be as high as 2,500 square feet back in 2016. After years of elevated inflation, people can’t afford bigger homes anymore. So very interesting trend.

Homes are getting smaller. Number two, the median age of all homebuyers is now 49 years old, up from 31 in 1981. So you can see a very steady increase over the last four decades.

Buying a home is now considered a luxury for most millennials. And as a millennial who still rents a home, I can attest to this. Millions of young Americans can now only barely afford to rent a home.

Rent prices broke above a record $2,000 per month in 2024. Wow. Number three, 40% of U.S. homes don’t have a mortgage.

Okay, that sounds good. In 2010, just 33% of U.S. homes did not have a mortgage. At first, less mortgage debt seems good.

This was my thought at first. However, the reality is that most new homebuyers cannot afford to take on a mortgage. This is why existing home sales are down.

And I agree, thinking to my own experience, as I expect to buy a home in the future, I’m planning on paying cash. So I realize I fit into this group as well of an individual who doesn’t want a mortgage. So when the time comes, I don’t plan on having one.

We’ll see. So those are three trends that we’re seeing. I do want to zoom in now and see what’s been going on the last few months, because something kind of weird is happening in the housing market.

So mortgage rates are creeping back up towards 7%. They’re increasing at a time when the Fed funds rate is decreasing. So the Fed cut interest rates, cut, okay? And 30 year fixed mortgage rates flew back up to 7% in an instant.

That’s weird. They normally move the same direction. Since the Fed started lowering rates in September, about four months ago, 30 year rates have flown from 6.1% to 6.7%. And that may not seem like a lot, but that’s like a 10% increase in the interest rate.

So it’s likely only going to get worse. And here’s why. Inflation.

Rate expectations have risen because even though we got close to the Fed’s 2% target, which by the way is the bottom of this chart here, 2%, we got close. The pace of price increases has recently stalled out above that level and even inched up to 3%. So 3% is here, and you can see that inflation came down, approaching 2%, didn’t really get close, stayed above 2.5, and is heading back up towards 3%.

And by the way, let’s not forget, this is official government inflation, right? And I think that every single one of us, in our experience, we would believe that the real inflation rate is higher than the official rate. So even the official rate didn’t get down towards 2%, and of course 2% is high anyways. So inflation is much, much higher.

And that of course affects the housing market. From bad to worse. The Fed on Wednesday, and this by the way is Wednesday back in December, so well over a month ago, a month and a half, the Fed on Wednesday forecasted higher inflation over the next couple of years.

There was also a jump in the number of officials who said that the risks to inflation are weighted to the upside. So when the Fed admits that we’re probably going to get more inflation in the future, that’s something to pay attention to, because a lot of times they’re sort of in denial or they like to steer us the benign way. But in this case, they’re sort of admitting that there could be problems on the horizon.

If we look at the latest Fed projections of the dot plot from the Fed officials, they’re thinking that the Fed funds rate is going to be down about half a percent lower than it is today. However, if you look at the Fed funds futures market, okay, traders who are putting money on this, they’re thinking that rates are not going to be that low. And if you keep an eye on it over time, you notice that the Fed funds market, those traders are actually expecting rates to go up and up and up over time.

So basically a more hawkish view. I would bet that by the end of 2025, the Fed funds rate is higher than it is today, not lower. So just my opinion, we’ll have to see.

And let’s not forget about home buyers. Mortgage applications are incredibly low because of such high borrowing costs. So this here is the Mortgage Purchase Applications Index, and you can see that we are at a very low level.

This is really the lowest sort of era that we’ve had throughout this chart, throughout the time the data is available here. So remember, if you borrow $200,000 with a 30-year fixed mortgage at 3%, your monthly payment excluding taxes and insurance is around $843. If that rate, if the mortgage rate jumps to 5%, the payment jumps to over $1,000.

We are close to 7% and trending higher. So I definitely agree with the principle behind this. However, I found these numbers to be not totally realistic.

I don’t know how many people are borrowing only $200,000. The people I know are borrowing $300,000, $400,000, $500,000. And I do believe that the median home price is over $400,000.

So that means half of borrowers are buying houses that cost at least that much. So what I decided to do was recreate these numbers with realistic numbers. So what I did is I went to the Federal Reserve website and I dug up the median sales price of houses sold in the United States.

And yes, we are over $400,000 most recently, Q3 of 2024. And I also found the 30-year fixed rate mortgage average in the United States. And it looks like this.

And I put them together in Excel and I figured out the monthly payment that you would make every month, actually every week, because we do have weekly data here. So I figured out what your monthly payment would be for every week throughout the last 50 years or so. And I want to share that with you right now.

It looks like this, this scary red line. By the way, the purple line is the median sales price just straight from the Federal Reserve website. That’s what I just showed a moment ago, this purple line.

That’s the median sales price, we’re over $400,000 now. But this red line, this monthly payment line is what I calculated using that data. And I assumed a 20% down payment.

And then you finance the other 80%. And I ignored taxes and insurance. And a very interesting trend emerges.

Throughout the 1970s, your expected monthly payment went up a lot. And then for the next 40 years, it didn’t really go up that much. It went from like $800 or $900 to $1,000 or $1,100.

Not that much over 40 years. And then all of a sudden, it took off like a rocket again. So this is sort of insane, right? And this is absolutely the sign of a bubble.

And you can see back in the 2008 global financial crisis, the real estate bubble that led to it is a fairly small increase in price for the homes compared to what we’ve seen the last few years. There’s a much bigger price increase. So that’s kind of insane.

And then you look at the increase in monthly payments, the red line. This is relatively small, right? The red line relatively small compared to what we’ve seen lately. So if we were in a crisis back then, what are we in now? A double crisis? A triple crisis? I mean, it’s certainly much, much bigger.

It’s not going to end well. It’s not going to end well. And so if you’re wondering, like, how did things get like this? Well, let’s take a look at that exact same data, the monthly payment, but line it up with the Fed funds rate.

So the story of the 1970s was massive inflation and the Fed hiking rates in these three cycles that followed the three cycles of inflation, trying to get ahead of inflation. But of course, a rising Fed funds rate means an increasing mortgage rate. So then for the next 40 years or so, we had declining interest rates, declining Fed funds rate, declining mortgage rate, and that sort of softened the burden of home ownership.

But now we’re in a rising interest rate environment. And if you remember, back in 2022, the Fed started raising rates at the fastest rate in history. So this steep increase here is the fastest rate hike in history.

And that is why the red line is going up so much. That is why the monthly payment to be a homeowner doubled in the span of two years. Doubled.

I mean, that’s absolutely insane and it’s not sustainable. But there is a solution to avoiding this pain. Any guesses what it is? If you’re a longtime viewer of this channel, you probably know how you can circumvent this horrible red line, and that’s with the gold line.

So I took the exact same data, this red line, and just divided it by the price of gold. And really that asks the question, instead of paying my mortgage in dollars, like if I held dollars and then paid dollars, what if I held gold and then just converted it to dollars and paid? Well, your monthly payment measured in ounces of gold is this gold line. And it’s not rising, it’s falling.

So in other words, if you’re a gold holder, houses get cheaper for you. Amazing. Who would have thought? Me.

Me. So anyways, if you want to avoid the massive pain of this, hold real money. Hold real money.

It will help you solve your problems with any financial crisis. I don’t know how many times I need to say it, but I hope you enjoyed this analysis. I hope you guys are taking care of yourselves and your family.

Thank you so much for watching. I’ll see you in the next video.