- This topic has 120 replies, 21 voices, and was last updated 17 years, 6 months ago by
Alex_angel.
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June 12, 2007 at 1:27 PM #58743June 12, 2007 at 1:27 PM #58772
drunkle
Participantok, i see how prices change as yields change. but why would you sell at all when yield is increasing? are you not taking a loss? you already have a guaranteed fixed income from it…
June 12, 2007 at 1:29 PM #58741PerryChase
ParticipantLet’s make it clear. Higher rate is bad for housing as an industry. But not for us Piggingtons who have the ability to buy.
We are now a credit based society and housing is tied to monthly payments. Higher interest rates result in lower housing price to achieve the same monthly payments that people can “afford.”
If you’re a long term buyer, you want ultra high rates + ultra low prices. Buy that cheap house at very high rates. Hold it until the next cycle then refinance into low rates. You win because you end up with property that’s almost paid for with a low principal balance.
Seller should worry at higher rates, but Piggingtons should celebrate.
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The free market causes yields to go higher or lower. If you perceive higher risks, you want a higher yield.
For example if the Japanese and Chinese are lending us money, and they are worried about foreclosures, they’ll ask for higher yields to price-in those non-payers. Kinda like a store charging more to make up for the losses due to shoplifters.
June 12, 2007 at 1:29 PM #58770ParticipantLet’s make it clear. Higher rate is bad for housing as an industry. But not for us Piggingtons who have the ability to buy.
We are now a credit based society and housing is tied to monthly payments. Higher interest rates result in lower housing price to achieve the same monthly payments that people can “afford.”
If you’re a long term buyer, you want ultra high rates + ultra low prices. Buy that cheap house at very high rates. Hold it until the next cycle then refinance into low rates. You win because you end up with property that’s almost paid for with a low principal balance.
Seller should worry at higher rates, but Piggingtons should celebrate.
———-
The free market causes yields to go higher or lower. If you perceive higher risks, you want a higher yield.
For example if the Japanese and Chinese are lending us money, and they are worried about foreclosures, they’ll ask for higher yields to price-in those non-payers. Kinda like a store charging more to make up for the losses due to shoplifters.
June 12, 2007 at 1:33 PM #58745an
ParticipantPerryChase, I completely agree with you. I long for the day of ultra high rates + ultra low prices again. Anyone who plan to actually live in their houses and make it a long term home should long for it as well.
June 12, 2007 at 1:33 PM #58774ParticipantPerryChase, I completely agree with you. I long for the day of ultra high rates + ultra low prices again. Anyone who plan to actually live in their houses and make it a long term home should long for it as well.
June 12, 2007 at 1:37 PM #58750jeeman
Participant“ok, i see how prices change as yields change. but why would you sell at all when yield is increasing? are you not taking a loss? you already have a guaranteed fixed income from it…”
Same reason why you would sell a stock that has dropped a bit and seems undervalued. Look at GE….sales and earnings have gone up and the stock has essentially flat lined. You could have made better money somewhere else for the past 5 years.
Why settle for the 2% bond that you bought in 2003 that continues to drop in value? Now, it’s 5.25%, but you might sell if you think it will hit 7. Cash out, wait for yields to hit 7%, and buy back in.
Jeeman
June 12, 2007 at 1:37 PM #58778Participant“ok, i see how prices change as yields change. but why would you sell at all when yield is increasing? are you not taking a loss? you already have a guaranteed fixed income from it…”
Same reason why you would sell a stock that has dropped a bit and seems undervalued. Look at GE….sales and earnings have gone up and the stock has essentially flat lined. You could have made better money somewhere else for the past 5 years.
Why settle for the 2% bond that you bought in 2003 that continues to drop in value? Now, it’s 5.25%, but you might sell if you think it will hit 7. Cash out, wait for yields to hit 7%, and buy back in.
Jeeman
June 12, 2007 at 1:39 PM #58751donaldduckmoore
ParticipantPC, it also depends on how high the interest rate can go. If it goes to the level when Ronald Reagan was the president, ie 14% or something, house buyers with downpayment and excellent credits cannot afford the payment also. You don’t want things to go to the extreme.
June 12, 2007 at 1:39 PM #58780ParticipantPC, it also depends on how high the interest rate can go. If it goes to the level when Ronald Reagan was the president, ie 14% or something, house buyers with downpayment and excellent credits cannot afford the payment also. You don’t want things to go to the extreme.
June 12, 2007 at 2:29 PM #58764Participant“Same reason why you would sell a stock that has dropped a bit and seems undervalued. Look at GE….sales and earnings have gone up and the stock has essentially flat lined. You could have made better money somewhere else for the past 5 years.
Why settle for the 2% bond that you bought in 2003 that continues to drop in value? Now, it’s 5.25%, but you might sell if you think it will hit 7. Cash out, wait for yields to hit 7%, and buy back in.”
i think at this point, it would be useful to see a graph of some sort charting the value of your existing bond vs change in yield. maybe if showed some inflection point at which your loss in value will be made up with higher yield…
without that it just seems like a shell game, taking money out of one pocket to fill the other.
maybe i just dont understand asset trading in general…
June 12, 2007 at 2:29 PM #58792Participant“Same reason why you would sell a stock that has dropped a bit and seems undervalued. Look at GE….sales and earnings have gone up and the stock has essentially flat lined. You could have made better money somewhere else for the past 5 years.
Why settle for the 2% bond that you bought in 2003 that continues to drop in value? Now, it’s 5.25%, but you might sell if you think it will hit 7. Cash out, wait for yields to hit 7%, and buy back in.”
i think at this point, it would be useful to see a graph of some sort charting the value of your existing bond vs change in yield. maybe if showed some inflection point at which your loss in value will be made up with higher yield…
without that it just seems like a shell game, taking money out of one pocket to fill the other.
maybe i just dont understand asset trading in general…
June 12, 2007 at 2:33 PM #58765ParticipantBy the way, how does a bond rate or yield increase affect savings rate?
June 12, 2007 at 2:33 PM #58794ParticipantBy the way, how does a bond rate or yield increase affect savings rate?
June 12, 2007 at 2:43 PM #58769ParticipantStill, Greenspan said the reason such a withdrawal was unlikely was that China would not have anyone to sell the securities to, hardly the sort of comfort jittery bond investors were seeking.
here’s an interesting point: if no one is buying, why are rates going up anyway? that is, if you were trying to sell, no one was buying, you offer a higher yield (by discounting appropriately), would that also drive up the current yield?
who sets the yield, anyway? it had to start from somewhere… and do “they” still have influence? the fed, in particular…
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