Found this pretty cool article on some ways to take advantage of housing in today's environment.

 

http://www.maksfs.com/articles/FederatedHousing.pdf

I wish I shared her optimism.

I wish I shared her optimism.

 

On? Explain.

I don't quite get why they think it would be better for someone to have a 30 year mortgage if you can afford to make the monthly payments on a 15 year.

I don't quite get why they think it would be better for someone to have a 30 year mortgage if you can afford to make the monthly payments on a 15 year.

 

With the cost of credit.

 

Credit is a fantastic tool if used properly. Rates are not always going to be this low. They are as low as they have ever been. As soon as we have some sort of a rebound, and rates rebound, you can make better use of money.

 

government securities were paying a higher interest than the current rates on mortgages. Just 2 years ago, we had 6% CD's readily avail.

 

Unfortunately, you cant trust more people with credit. =)

With the cost of credit.

 

Credit is a fantastic tool if used properly. Rates are not always going to be this low. They are as low as they have ever been. As soon as we have some sort of a rebound, and rates rebound, you can make better use of money.

 

government securities were paying a higher interest than the current rates on mortgages. Just 2 years ago, we had 6% CD's readily avail.

 

Unfortunately, you cant trust more people with credit. =)

But if you end up pay $50k or $100k more over the duration of the loan, is that better? I would rather not guarantee I'll pay more money on a chance that investments might (no guarantee) pay out at a higher rate than what you're borrowing at. And when your done paying off the mortgage you'll have your monthly payment money from your budget to invest at that time, should you want to.

On? Explain.

 

"the U.S. government is buying time to get its fiscal house in order."

 

Really? There is no reasonable explanation as to how this will be achieved...that I know of anyway.

 

"U.S. household debt service burdens have fallen to 15-year lows, and at five times income, household net worth is back to its long-term average. This is good. This is healthy. But this also means that we’re at a place where it has historically been manageable to take on more debt."

 

So, we are finally pulling ourselves out of a hole, lets jump right back in.

 

Also, I don't recall reading anything about unemployment. Why would I risk purchasing a house if my job status is questionable? At his point, I don't know if anyone has a rock solid job.

 

Of course, I don't know Jack-All about finances and could just be completely off base. But, I sleep better at night knowing I have zero debt except what's left of my mortgage. I know I'll never get rich, and wealth building is slow without taking some risks, but until I see some real positive changes in this country I'll trudge along slowly :-)

But if you end up pay $50k or $100k more over the duration of the loan, is that better? I would rather not guarantee I'll pay more money on a chance that investments might (no guarantee) pay out at a higher rate than what you're borrowing at. And when your done paying off the mortgage you'll have your monthly payment money from your budget to invest at that time, should you want to.

 

What happens if you pay bi-weeks payments adding up to what your normal monthly payments are on your 30yr mortgage, I don't think there are any issues with most mortgages in NJ and paying them off early??

 

That and you still have the fall back position of lower payments if something were to happen and you weren't able to pay the monthly amount of a 15yr loan.

 

Given, I don't know much about mortgages so I may be a little off on this.

 

Harry

What happens if you pay bi-weeks payments adding up to what your normal monthly payments are on your 30yr mortgage, I don't think there are any issues with most mortgages in NJ and paying them off early??

 

That and you still have the fall back position of lower payments if something were to happen and you weren't able to pay the monthly amount of a 15yr loan.

 

Given, I don't know much about mortgages so I may be a little off on this.

 

Harry

If that's your strategy, that's fine, and I understand why you would want to take that position. But, my experience has been over the last few years that as rates came down, we could refi from a 30 year to a 15 year and pay about $100 or so more a month, so in that case, why not? If your going to have to pay $500 more a month, and your worried about your job, stick with the 30 year for your own peace of mind.

"the U.S. government is buying time to get its fiscal house in order."

 

Really? There is no reasonable explanation as to how this will be achieved...that I know of anyway.

 

"U.S. household debt service burdens have fallen to 15-year lows, and at five times income, household net worth is back to its long-term average. This is good. This is healthy. But this also means that we’re at a place where it has historically been manageable to take on more debt."

 

So, we are finally pulling ourselves out of a hole, lets jump right back in.

 

Also, I don't recall reading anything about unemployment. Why would I risk purchasing a house if my job status is questionable? At his point, I don't know if anyone has a rock solid job.

 

Of course, I don't know Jack-All about finances and could just be completely off base. But, I sleep better at night knowing I have zero debt except what's left of my mortgage. I know I'll never get rich, and wealth building is slow without taking some risks, but until I see some real positive changes in this country I'll trudge along slowly :-)

 

 

I think the disconnect is that the linked pdf is examining the state of the realestate market from an investment perspective and maximizing your asset value in the long term in exchange for a degree of risk. You on the other hand are looking at it from the perspective of paying as little as possible for a commodity and giving the minimum amount of your income to a bank as interest. From her perspective, with regard to a leveraged asset, there is cheap money and expensive money and the longest, cheapest lever has value. From your perspective, you want the shortest, cheapest lever you can get. Your plan is least risky, but her plan is the most flexible.

 

You call it jumping back in the hole, but as long as you are sticking with a fractional reserve banking model to help grow the money supply, at some point you have to get back to lending. The author is, I believe , suggesting that looking at the metrics, you can expect lending patterns to get back to at least pre-bubble levels. Which in their opinion is a positive indicator that the market is at or near its bottom as historically those levels permitted slow steady growth.

 

As far as unemployment, nobody EVER really has a rock solid job, at some point you have to bite the bullet and take risks. I suspect that most of this was written up before the most recent unemployment numbers. What had been the trend was a degree of stability interspersed with minor improvement. Combine the two, and you have what points to a stabilizing market that you can start making predictions about growth, and at least be looking at an asset that you can get your money back out of. Additionally, she does take it into account in a sideways sort of way. Basically in terms of employment, you aren't likely to see wages rising quickly, or people able to effectively increase their income by significant amounts quickly by job hopping. Those people are budgeting more conservatively. This is leading to a boom in the rental market and rapidly increasing rents. So unless those people opt for homelessness, they will either pay higher rents deciding that is the most affordable, or the market will toggle back to seeing the more fixed cost of a mortgage that also gains you an asset as being more sensible. The former scernario makes buying homes for renting out more attractive and likely to increase, the latter makes owner occupied sales increase.

 

Another point she is making is that we've been focusing on the market as a national whole, and for the last good while, the markets WERE trending together and simply varying the rate at which they slid or built up surpluses. Now, you have some pretty severe differences in market in terms of growth, surplusses, prices trending up or down, etc. Some markets are much more ripe for long term gains than others.

 

The federal government, like she says, HAS bought themselves time to figure out how to fix things. They also seem intent on pissing away that time doing nothing useful. From her perspective, all she thinks thhey need ot do is hold the line, which is a possibility.

 

But do I agree with her?

 

No, and I suspect lots of people who are interested in making money agree with me.

 

I think the only place she has a legit point is that we may be getting real close to that sweet spot where you can earn the most money over the life of your investment with regards to rental properties. Outside of that, I think two key factors that she doesn't cover are the market effects that the last of the silent generation and the boomers are going to bring about, and the fact that gen Y are kind of screwed in terms of lifetime earning potential. The silent generation and the boomers are headed to the grave. They make up a large population, and heralded in smaller family sizes. They also still own a buttload of realestate. When they die, they are going to be putting that realestate on the market one way or the other and will contribute to inventory surplusses for probably the next 10-15 years. Those same boomers have been sitting on choice jobs for decades. Some will go away, and the rest have had gen Xers lined up waiting for their turn for a while, and that line stretches back to near entry level jobs. Those jobs will have massive pressure from even younger generations as they wait their turn, which likely isn't coming. Gen Y is going to be composed of marginal earners without something major changing. From my perspective that means it will be a LONG time before you see general bidding wars over properties, and unless you have a 3rd party footing the bill (renters), at best your property will keep up with inflation in terms of value. Even at current low rates, that makes it not an investment IMO.

 

If I could, there are definitely places I would consider getting into the landlord business.

Great post sir. I would likely take the investment property plunge myself as I agree that it is a good time if you're not concerned about liquidity. Values in the states she mentioned are numerous, but my turn off there is that I don't want to be an absentee landlord. Yes, I know you can hire property mgrs but that cuts into profits as well. Your take on the generational impacts is eye opening. I've got two young kids and I am already worried for them.

Keeping money in the bank is safely loosing money over time. Bank accounts will never out weight inflation.

 

Really good points here, and why I gave the caveat of "for most people".

 

Most people dont trust themselves and view credit as a bad thing. Businesses view credit as a tool. If you can borrow money at 4% and make 5% on it, why not? All depends on your risk tolerance.

 

A very popular thing to do a few years ago was to borrow money from credit cards offering 0% or something low for a year or two. Then put that money into a CD paying 5% or 6%. End of the year, roll it over, or pay off CD, pocket 5%.

 

A few of my hedge fund buddies are doing a new "arbitrage" type deal. Buy oil at these prices, put it on a tanker, sell the oil some time into the future at a higher price. Buy insurance on the tanker. Fill it up, park it, and voila. Done deal.

 

The other aspect of it. Who actually stays in their home for 15 or 30 years? The vast majority will move in 7 years.

Keeping money in the bank is safely loosing money over time. Bank accounts will never out weight inflation.

 

Agreed. I follow the advice of(I'm guessing here)most financial planners: diverse portfolio that changes as your goals change.

 

Most people dont trust themselves and view credit as a bad thing.

 

That may be the case now, but I don't think that was the case 3 or 4 years ago. The whole nation seemed to be over extended. That is why the banks have reeled in the risks and are playing very close to the vest with personal and small business loans(for now).

 

A few of my hedge fund buddies are doing a new "arbitrage" type deal. Buy oil at these prices, put it on a tanker, sell the oil some time into the future at a higher price. Buy insurance on the tanker. Fill it up, park it, and voila. Done deal.

 

That sounds pretty slick(no pun intended)! My luck would be that they find out the Flux Capacitor actually works and there is no need for oil

 

The other aspect of it. Who actually stays in their home for 15 or 30 years? The vast majority will move in 7 years.

 

Not us North Jersey Italian types my friend. When we find a stoop we like...we're here for life

 

That sounds pretty slick(no pun intended)! My luck would be that they find out the Flux Capacitor actually works and there is no need for oil

 

 

 

What you didn't know???

 

Flux Capacitor

 

Harry