Buying with monopoly money

[sdrealtor]

[quote=MountainBound]Piggs, I have been a loyal reader for 3 years. Sold my house that I bought in 1998 at the peak in 2006. Rented it back from ther “inverstor” that I sold it to. Three years later, he lost it in foreclosure and I bought it back at the Trustee Sale for less than I paid in 1998.

So here’s my question, since I now own the house free and clear, should I take out a mortgage at todays low rates and invest the proceeds? If inflation appears wouldn’t I be better off?[/quote]

You are my new hero!

[sdrealtor]

[quote=deadzone][quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.[/quote]

The problem with even pratical applications is that it is still the same old ceteris paribus nonsense. Nothing happens in isolation so even what seems to be so simple to you isnt ever in reality. So even though you can logically and rationally state rising interest rates would kill the housing market it just hasnt happened that way in the pas and that is an obvious fact not your opinion of what is so simple. It would not necessarily happen that way in the future either as rising interest rates would come with a whole set of other circumstances. Life doesnt happen in a vacuum.

[sdrealtor]

[quote=deadzone][quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.[/quote]

The problem with even pratical applications is that it is still the same old ceteris paribus nonsense. Nothing happens in isolation so even what seems to be so simple to you isnt ever in reality. So even though you can logically and rationally state rising interest rates would kill the housing market it just hasnt happened that way in the pas and that is an obvious fact not your opinion of what is so simple. It would not necessarily happen that way in the future either as rising interest rates would come with a whole set of other circumstances. Life doesnt happen in a vacuum.

[sdrealtor]

[quote=deadzone][quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.[/quote]

The problem with even pratical applications is that it is still the same old ceteris paribus nonsense. Nothing happens in isolation so even what seems to be so simple to you isnt ever in reality. So even though you can logically and rationally state rising interest rates would kill the housing market it just hasnt happened that way in the pas and that is an obvious fact not your opinion of what is so simple. It would not necessarily happen that way in the future either as rising interest rates would come with a whole set of other circumstances. Life doesnt happen in a vacuum.

[sdrealtor]

[quote=deadzone][quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.[/quote]

The problem with even pratical applications is that it is still the same old ceteris paribus nonsense. Nothing happens in isolation so even what seems to be so simple to you isnt ever in reality. So even though you can logically and rationally state rising interest rates would kill the housing market it just hasnt happened that way in the pas and that is an obvious fact not your opinion of what is so simple. It would not necessarily happen that way in the future either as rising interest rates would come with a whole set of other circumstances. Life doesnt happen in a vacuum.

[sdrealtor]

[quote=deadzone][quote=sdrealtor]Deadzone
I could talk economics all day (degrees in econ and accounting from Milton Friedman’s alma mater as well as MS in finance) but choose not to as I dont subscribe to ivory tower thinking. I live with my feet firmly on the ground and have learned from experience that economists are rarely even close to being accurate in their analysis or forecasts. Carry on adults.[/quote]

I agree with you on that one. When I refer to talking economics I’m speaking of the practical application as we debate here, not the bullcrap spewed in academia.

That said, the fact that higher interest rates would kill the housing market shouldn’t be controversial, it is not a bull vs. bear dabate, just an obvious fact.[/quote]

The problem with even pratical applications is that it is still the same old ceteris paribus nonsense. Nothing happens in isolation so even what seems to be so simple to you isnt ever in reality. So even though you can logically and rationally state rising interest rates would kill the housing market it just hasnt happened that way in the pas and that is an obvious fact not your opinion of what is so simple. It would not necessarily happen that way in the future either as rising interest rates would come with a whole set of other circumstances. Life doesnt happen in a vacuum.

[EconProf]

The question of whether interest rates and housing prices are inversely related is an old one. Common sense and economic theory would suggest the connection is real. But Rich T. has pointed out the empirical evidence supporting that conclusion is weak or nonexistent.
We all know a variety of factors influence housing price trends. I suggest that periods of rapidly rising interest rates are also periods of rising inflationary expectations. So house prices then are both pushed down by rising interest rates and pushed up by buyers hoping to capitalize on rising inflation. The years around 1980, when inflation hit 13.5% and interest rates mid-teens are the best example of this.

[EconProf]

The question of whether interest rates and housing prices are inversely related is an old one. Common sense and economic theory would suggest the connection is real. But Rich T. has pointed out the empirical evidence supporting that conclusion is weak or nonexistent.
We all know a variety of factors influence housing price trends. I suggest that periods of rapidly rising interest rates are also periods of rising inflationary expectations. So house prices then are both pushed down by rising interest rates and pushed up by buyers hoping to capitalize on rising inflation. The years around 1980, when inflation hit 13.5% and interest rates mid-teens are the best example of this.

[EconProf]

The question of whether interest rates and housing prices are inversely related is an old one. Common sense and economic theory would suggest the connection is real. But Rich T. has pointed out the empirical evidence supporting that conclusion is weak or nonexistent.
We all know a variety of factors influence housing price trends. I suggest that periods of rapidly rising interest rates are also periods of rising inflationary expectations. So house prices then are both pushed down by rising interest rates and pushed up by buyers hoping to capitalize on rising inflation. The years around 1980, when inflation hit 13.5% and interest rates mid-teens are the best example of this.

[EconProf]

The question of whether interest rates and housing prices are inversely related is an old one. Common sense and economic theory would suggest the connection is real. But Rich T. has pointed out the empirical evidence supporting that conclusion is weak or nonexistent.
We all know a variety of factors influence housing price trends. I suggest that periods of rapidly rising interest rates are also periods of rising inflationary expectations. So house prices then are both pushed down by rising interest rates and pushed up by buyers hoping to capitalize on rising inflation. The years around 1980, when inflation hit 13.5% and interest rates mid-teens are the best example of this.

[EconProf]

The question of whether interest rates and housing prices are inversely related is an old one. Common sense and economic theory would suggest the connection is real. But Rich T. has pointed out the empirical evidence supporting that conclusion is weak or nonexistent.
We all know a variety of factors influence housing price trends. I suggest that periods of rapidly rising interest rates are also periods of rising inflationary expectations. So house prices then are both pushed down by rising interest rates and pushed up by buyers hoping to capitalize on rising inflation. The years around 1980, when inflation hit 13.5% and interest rates mid-teens are the best example of this.

[Anonymous]

[quote=jpinpb][quote=deadzone]
I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.[/quote]

deadzone – lately I’ve been sharing your sentiments and applauded your posts.

On this, though, been thinking about it and financing @ about 4.5% today is probably a pretty good idea. My reason for thinking this is that when (not if, but when) rates go up, that money, even just sitting in a bank, could be earning quite a bit. I think most of us believe that rates will go up, just how long before they do and how high. But until that time, having the cash won’t be gaining much. So in that respect, I agree.[/quote]

jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.

I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.

Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).

So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.

[Anonymous]

[quote=jpinpb][quote=deadzone]
I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.[/quote]

deadzone – lately I’ve been sharing your sentiments and applauded your posts.

On this, though, been thinking about it and financing @ about 4.5% today is probably a pretty good idea. My reason for thinking this is that when (not if, but when) rates go up, that money, even just sitting in a bank, could be earning quite a bit. I think most of us believe that rates will go up, just how long before they do and how high. But until that time, having the cash won’t be gaining much. So in that respect, I agree.[/quote]

jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.

I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.

Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).

So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.

[Anonymous]

[quote=jpinpb][quote=deadzone]
I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.[/quote]

deadzone – lately I’ve been sharing your sentiments and applauded your posts.

On this, though, been thinking about it and financing @ about 4.5% today is probably a pretty good idea. My reason for thinking this is that when (not if, but when) rates go up, that money, even just sitting in a bank, could be earning quite a bit. I think most of us believe that rates will go up, just how long before they do and how high. But until that time, having the cash won’t be gaining much. So in that respect, I agree.[/quote]

jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.

I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.

Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).

So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.

[Anonymous]

[quote=jpinpb][quote=deadzone]
I like your line of thinking and great job. But the problem is, what can you invest in today that will guarantee better than the 4.5% interest rate you would pay for the mortgage? There are some relatively higher yield corpoarate bonds but there is always higher risk associated with higher yield. Stock market is even riskier. Especially now with prices reaching 2-year highs you’d be nuts to put big money in there. Gold is also near its all time high so not the best entry point.

So I would say given the limited investment options out there is no point.[/quote]

deadzone – lately I’ve been sharing your sentiments and applauded your posts.

On this, though, been thinking about it and financing @ about 4.5% today is probably a pretty good idea. My reason for thinking this is that when (not if, but when) rates go up, that money, even just sitting in a bank, could be earning quite a bit. I think most of us believe that rates will go up, just how long before they do and how high. But until that time, having the cash won’t be gaining much. So in that respect, I agree.[/quote]

jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.

I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.

Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).

So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.

[Author]

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