Erin Arvedlund — yes, that Erin Arvedlund — has a pretty crazy column in the Philadelphia Inquirer, under the headline “Why buying gold may be better financially than buying a house”. It says pretty much what you’d expect: house prices are falling, gold prices are rising, and therefore before you go ahead and buy a house, you should probably consider whether you’d be better off buying gold instead.
Arvedlund talked to a bunch of people for this column, mostly rent-a-quote types like Barry Ritholtz and Peter Schiff, but the central conceit is all hers: none of the people she quotes is literally saying that people should make a speculative punt on gold rather than buy a home to live in. Indeed, Schiff comes out quite explicitly and says that homes are not an investment, they’re more of a consumption good. (He’s right.)
Arvedlund, here, has committed the journalistic equivalent of mixing toothpaste and orange juice. Either tastes fine on its own: it’s perfectly OK to pen a column pointing out that house prices might well continue to fall, or another one looking at gold as an investment and saying that it has a fair amount of possible upside. The really nasty taste comes when you combine the two.
To see just how crazy Arvedlund’s thesis is, look at how she presents it:
Maybe you’ve saved enough for a down payment. But should you bet your money on home prices, even with a tempting low-interest, fixed-rate mortgage? Or is it financially smarter to continue renting and invest the money in an asset that could appreciate for at least another few years?
By definition, money that has been painstakingly saved up for a down-payment on a house is not risk capital which can or should ever be applied to a highly speculative investment like gold. It might well be smart to continue to rent rather than buy a home. And indeed it might even be true that gold will rise in value over the next few years. But that doesn’t mean that anybody in their right mind should seriously consider taking their down-payment nest egg and investing it in gold.
Being “financially smart” is not the same as investing in whichever asset gives you the highest return over some given time horizon. If that were the case, then everybody should just go out and start selling lottery tickets without any downside protection. The fact is that nothing is a good or a bad investment in and of itself: you always have to look at it in the context of the specific risk profile of the investor in question. And if the investor is someone scraping together a down-payment on a house, then it’s trivially true that using some or all of the down-payment money to buy gold at $1,350 per ounce is downright bonkers.
Essentially, Arvedlund is proposing an exotic relative-value trade here: she’s saying that houses will underperform gold, or that the price of a house in gold is going to go down rather than up. Which brings us to this graph, which is the price of houses in gold:
Arvedlund’s trade has been a good one for a long time — pretty much since 2002. Over those nine years, whether house prices have been rising or falling, the price of a house in gold has gone down, and you would have been financially better off buying gold than taking that money and using it as a down-payment for a house. On the other hand, from 1980 to 2002, Arvedlund’s trade was an utterly atrocious one, which would probably have lost you money on both legs.
One look at this volatile time series tells you all you need to know about Arvedlund’s advice: it’s way too risky for her audience, and in fact, over the long term, it’s pretty likely that the price of a house in gold is going to revert to its long-term mean and go up rather than down.
Arvedlund is writing for the Philadelphia Inquirer here, not for Barron’s or for people with huge amounts of risk capital and disposable income. The last thing this audience needs is speculative advice about buying gold now and trying to time the market so that you sell it before the bubble bursts. But if I were a hedge fund manager, I would wonder whether this column marked some kind of a turning point. It’s entirely possible that Arvedlund has hit the very moment at which gold starts to underperform house prices. Which isn’t to say, of course, that either of them are going up.
Felix Salmon is a financial writer, editor, and podcaster. A former finance blogger for Reuters and Condé Nast Portfolio, his work can be found at publications including Slate and Wired, as well as his own Substack newsletter.