Is residential and commercial real estate on the brink?


Precious metals markets continue to probe for support levels as the summer dollar sets in.

Gold futures tested the $1,900 level on Thursday before getting a bit of a bounce. As of this Friday recording, the monetary metal checks in at $1.928 per ounce, up slightly for the week.

Silver, henceforth, is outperforming. The white metal is up 2% this week to trade at $22.98 an ounce.

Turning to the platinum group metals, they have gotten clobbered in recent weeks. Platinum prices are heading for a 1% decline since last Friday’s close to trade at $920. And finally, palladium is posting a 2% weekly loss to come in at $1,278 per ounce.

Investors are bracing for the likelihood of still higher interest rates. The Federal Reserve appears poised to hike twice more at upcoming policy meetings.

The bond futures market suggests the Fed won’t be able to keep rates at elevated levels for long. It will likely reverse course and begin cutting as soon the economy turns down or Wall Street tanks.

But for now, interest rate sensitive assets are vulnerable to being marked down. Alarm bells are ringing in the housing sector in particular.

With national average mortgage rates heading above 7%, a housing affordability crisis threatens to weigh on prices. We’re currently seeing a massive decline in revenues for vacation rentals in formerly hot markets.

Following the pandemic lockdowns of 2020, large numbers of Americans began listing properties on short-term rental sites such as AirBNB. But that boom is now going bust. Leveraged vacation properties that now aren’t generating enough revenue to cover mortgage payments owners represent a potential wave of forced liquidation sales coming in the real estate market.

A home is a real asset that does offer some long-term inflation protection. But it is not tantamount to money in the bank.

Real estate investments carry liabilities and risks that hard money in the form of physical precious metals do not. Residential and commercial properties exact ongoing ownership costs including insurance, maintenance, repairs, HOA fees, property taxes, and typically mortgage interest as well.

An unleveraged position in gold and silver bullion carries no such costs. Those who opt to have their metals stored in a secure facility such as the Money Metals Depository will have to pay a small storage fee which includes insurance. But the costs of storing through the Money Metals Depository are less than the fees charged by a typical mutual fund.

Many Americans falsely believe that if they achieve the dream of owning their home free and clear, they will be set for the rest of their life through retirement. Unfortunately, some retirees who have no mortgage payments are finding that they can no longer afford to live in their own homes as inflation raises the costs of insurance and property taxes skyrocket.

Instead of being an asset, a home can become a liability – even in an up market for real estate values. And in a down market, illiquidity can make it difficult to sell a home.

By contrast, retail gold and silver products are highly liquid and can be unloaded almost instantly at prevailing market prices.

Of course, precious metals markets will have their ups and downs and are not without risk. But as part of a diversified portfolio of assets, gold and silver fulfill the unique role of hard money – a role that no other asset class, tangible or otherwise, can replicate.

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