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Peter P
2007 Feb 5, 3:50pm
The question should be: are we missing the opportunity of a lifetime.
Isn't that more interesting? ;)
The only opportunity of the lifetime was to sell the house for ridiculously high tax free profit in 2004, 2005, and 2006. That's not gonna happen any time soon. Those guys who refinanced to lower their mortgate payment or cashed out the equity and invested took the small perks but still, they completely missed the opportunity to take a lot of money and run.
The only opportunity of the lifetime was to sell the house for ridiculously high tax free profit in 2004, 2005, and 2006.
Amen to that.
Whoever sold this one really made the right decision:
http://www.burbed.com/2006/11/20/1mil-for-a-bad-acid-trip-in-cupertino/
antibiotics are maybe $15 here :(
there's a chance for arbitrage -- if you're prepared to try to export tons of grey market taxpayer-subsidised drugs from Oz to US in suitcases...
Joe Gargery,
That about sums it up. Look at all the elderly that would normally have been in mmkts or CD's forced into MBS (or ABS) effectively driving down yields even further, ensuring cheaper money for the HB to feed off of?
The seductively low rates have made us wealthier yet more in debt than ever before. I suppose I could beat myself up for not having hung in there longer and sold in '05 but you just had to get the sense that the few extra dollars couldn't possibly be worth the consequences of missing your window. Well said Joe.
Paul,
Spot on about Nuveen, sorry. (I was in a post Super Bowl funk and desperately needing a companion on my mantle for the '05 Sox!) It's just that my P.O box and e-mail are well stuffed each and every day w/new ETF offers. I didn't know Bruce Bond personally but PowerShares had a really nice concept w/the "enhanced indexes" and even nicer staff. I was sorry to hear they'd been bought out by AIM.
newsfreak,
Oh I know it for a fact! I know myself well enough to see I didn't have the stomach to sit there and watch what should have been a very respectable profit wither and die on the vine! (Most of us don't)
Admittedly off subject, but our chatting in this manner is something from the last decade for 'murica to be proud of.
Person,
Good questions. Most of those on "fixed income" can't wait 6 months or a year for their income. So they tend to "ladder" their holdings to get a monthly installment. Since we also attempt to diversify their maturity dates it seemed like every time these poor guys turned around a bond matured (or was re-fi'd at a new lower rate) and now they have to re-invest at lower rates of return. Call protections expire and hey, gov't agencies wanted to cash in on the cheap money "re-fi" too!
Since the critical mass to live off a 3% return is pretty huge many seniors had to abandon muni's/CD's for the higher rates the "agencies" (Fannie/Freddie) etc. were offering. The dollar flow was HUGE! As liquidity (and liquidity is a coward) made their exodus from the stock market (March 2000 to March 2003) much of it found it's way into MBS driving up price and reducing yields. This in effect kept mortgage rates at near 40 year lows.
I had "heard" there were some folks w/excellent fico's and solid equity positions in their homes paying as little as 4 1/4% on a 30 yr. FRM. In the spirit of StuckintheBA's thread I'm not ready to call that an urban myth just yet. I'm sure there were a select group that played this exactly right (and boy did I hear about it). My guess is that great rate was trampled when lure of tax free MEW became too great and they bought a second home or "elective surgery"?
ocrenter,
Hysterical stuff! Please do keep us informed on "The Family" will you?
Well I am hoping my wife and I did not miss the "opportunity". We purchased a 1040 sqft SFH in 2002 for $224,000. At the time I thought we might be in a bubble and could lose some money down the road. Wow was I wrong!
We started looking at bigger houses in the summer of 2005 and around that time I discovered many housing blogs. Needless to say we did not buy a home that summer. This winter we sold our small house and rented a larger one. We sold at $460,000 and are now renting a 1400 sqft home in a nicer city for $2300 a month.
I will admit it has been tough not to lock in a fixed low interest rate for 30 years. Somehow it just doesn't feel right. Everything I have read indicates it is better to pay less for the asset with a higher rate. So we are hoping that is what happens.
With everyone harping on and on about how great an investment real estate is it is tough to hold off. We could afford the payments on a bigger home since we are making between $200k and $300k per year. It just seems crazy to pay these inflated prices! So in order to save ourselves we have locked in a one year lease and have agreed to re-examine things next year or in 2009.
**Lets go Socal Real Estate crash**
Thanks for the great comments and the blog!
Ugh...for seniors, how about being prepared to living 20-50% below one's income. That's also a pretty good rule for life.
Stretch002,
Nicely done. Before we all start getting tempted by the still LOW LOW rates let's all try to remember that it's only a 5 1/4% loan IF we hold it for the FULL 360 payments! Since virtually all mortgages are "front loaded" with int. and we seem to move at least every 7 years we're not getting the bargain we're leading ourselves to believe.
Person,
That's been the general idea but I try to keep in mind that these were seniors we are talking about here. Imagine talking to "mom" about dumping many long held stocks (at considerable cap gains) then moving her into TIPS (what are TIPS again son?) and BACK into the S+P 500 after the dot.com implosion and accounting fraud?
Wait a minute! Didn't you "just" tell me to SELL all/most of my stocks? (When dealing with older folks, yes, 2 years IS like yesterday!) Many don't take to "constant" change that readily. In addition to taxes even at discounted rates there will have been some transaction expenses. Besides, they're OLD people! They just wanted to be left alone and draw a reasonable return after a lifetime of "saving".
Many just couldn't take it. Some "annuity sales guy" got a hold of Mrs. Schitzengrueber at the bank and got a TEN PERCENT comm. for selling her something with a FOUR PERCENT "guaranteed return". Seniors like the "G" word. What happened can only be described as criminal.
Comments 1 - 14 of 178 Next » Last » Search these comments
For years the interest rates have been super low. Many argue that we really didn't need them to be so for so long. But that's what they were. Effectively, the cost of money was super low. That sounds like a good thing. At least it should have been a good thing in my naive viewpoint.
But what do we have to show for this ? We as American society, what is that we have done over last few years that we can look back and be proud about. There is little disagreement about how we blew it on a political and fiscal level. But from a non-government angle, just as a capitalistic society, how do we fare ?
As individuals, we seemed to have completely botched the golden chance given to us. Many homeowners could have refinanced their debt to a super low fixed rate for next 30 years, reduced their monthly cash out flow and increased their equity - all in one shot. But rather they chose to gamble with even lower payments to risk higher payments just a few years down the road. They took cash out of their equity - not to invest or start a productive business - but to consume and now don't have much to show for it.
But what did the businesses do ? Did they use this opportunity wisely ? Have they invested the money that might bear fruits down the road. Some of the reports indicate that many companies in the SP500 index have much stronger balance sheets than what they had a few years ago. What role in it was played by cheap money ? Or was it more due to outsourcing and simply a general recovery after a recession 5-6 years ago ?
Or was this even an opportunity ? I think it was. But then do we have anything to show for it ? There has to be something good that came out of this. Or we collectively just simply blew it all away ? On all fronts ?
StuckInBA