[quote=flu][quote]
Yes, you’d be right to hold on to your real estate if CD rates are <1%, but what if rates were to skyrocket to 10%, or higher? How would you feel then? And what if housing prices were likely to decline at the same time that other investments were offering much higher returns (and the potential for much higher capital gains, too), particularly if rates rise significantly?[/quote]
I think you need to step back and not think in terms of "doom" and "gloom". I think the Fed has proven it likes to intervene. The "powers" won't "let" rates "skyrocket" to 10% really very quickly. Afterall, they are really good at "fixing" things. And if they did let that happen, it would end up wreaking havoc on the financial markets, on businesses,etc, and then the majority of Americans would have a much bigger problem at hand than thinking about buying real estate. Just ask the Russians.
Any sort of rate move would mostly be a slow and steady trickle up, so that it causes a little discomfort, but manageable and tolerable for most people. Just like the how rates on mortgages have already risen 1% since the bottom, slow and steady.
Has that 1% rise thus far caused a real estate meltdown?
Second, what happens with CD rates might be good for my own money (or maybe not), but it doesn't affect the money from fannie I borrowed for 30 years to finance the home purchases. What does matter is my tenant's ability to help me build equity and generate some cash flow. It's not like fannie would directly lend to me money to invest in dividend stocks or 10%CD. That's what I use my own money for.
Why would I want to sell my homes and "fire" borrowed money from Fannie that I currently "employ" to work generating income for me, when I wouldn't be able to "rehire" borrowed from Fannie (or any other source) to "work" in a 10% CD? (Not to mention, as part of "firing" Fannie money, I would also have to pay capital gains taxes, depreciation recapture,etc,etc)?[/quote]
Yes, the Fed can manipulate rates for a long, long time. But what if rates were to go up?
I’m also thinking in terms of speculators/investors who’ve paid cash, like so many have done over the past few years. You’re more of a “mom and pop” kind of guy who is probably looking for ways to produce cash flow in retirement. What about the investors who have no emotional or other ties to the homes or areas? I think they would dump quickly if they thought that housing prices were going to decline and other investments were paying much higher returns (plus more opportunities for cap gains).
