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10 reasons debunked #3

By SFace following x   2014 Aug 4, 8:19am 3,398 views   6 comments   watch   nsfw   quote     share    


"3.Because it's a terrible time to buy when interest rates are low, like now. House prices rose as interest rates fell, and house prices will fall if interest rates rise without a strong increase in jobs, because a fixed monthly payment covers a smaller mortgage at a higher interest rate. Since interest rates have nowhere to go but up, prices have nowhere to go but down. When housing falls, you lose your equity, but not your debt. "

Another item that sounds great in theory, but please suggest when rates will go up. rates can go down or up, if it was that easy, we can just put our life savings in Bonds and become investment god.

Unless you tell me we'll wait for rates to go back to 8% which may be never, not pracitical. Notwitshanding all the associated factors that have transformative change beside interest rate flux.

At the minimum low interest rate means low permanent cost of ownership, which has a real impact to cash flow. It is very easy to maintain an asset that have low fixed permanent cost. A lack of property for sale is a function and result of low interest rates.

#housing

1   Strategist   ignore (2)   2014 Aug 4, 9:11am   ↑ like (0)   ↓ dislike (0)   quote   flag        

SFace says

Unless you tell me we'll wait for rates to go back to 8% which may be never, not pracitical. Notwitshanding all the associated factors that have transformative change beside interest rate flux.

They could one day easily surpass 6%.

2   Heraclitusstudent   ignore (2)   2014 Aug 4, 9:26am   ↑ like (0)   ↓ dislike (0)   quote   flag        

SFace says

At the minimum low interest rate means low permanent cost of ownership

You clearly misunderstood the point. Low rates don't mean low cost of ownership: The cost of ownership doesn't change. It's the balance interest vs principal that changes.

The cost of ownership will be much less if interest rates are higher later and you have cash to buy.

SFace says

please suggest when rates will go up

That's the $1m question, is it not?

Rates are almost guarantied to go higher over the next 20yrs.
Reasons for that:
- Demographic: boomers retirement, meaning less retirement money invested, worldwide.
- Huge increase of the money base will slowly flow into the economy.
- todays rates are low compared to historical averages.
- Inflation in developing countries

But when are they going to move? No one knows. Maybe slowly over 20yrs. Maybe in one big crisis.

3   tatupu70   ignore (0)   2014 Aug 4, 9:33am   ↑ like (1)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says

The cost of ownership will be much less if interest rates are higher later and you have cash to buy.

You're making a false assumption there that housing prices will go down if rates go up. Historically, that has not been the case.

Heraclitusstudent says

Rates are almost guarantied to go higher over the next 20yrs.

Reasons for that:

- Demographic: boomers retirement, meaning less retirement money invested, worldwide.

- Huge increase of the money base will slowly flow into the economy.

- todays rates are low compared to historical averages.

- Inflation in developing countries

If rates go up because of inflationary pressures, housing will almost certainly rise as well.

4   SFace   ignore (0)   2014 Aug 4, 9:44am   ↑ like (1)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says

SFace says

At the minimum low interest rate means low permanent cost of ownership

You clearly misunderstood the point. Low rates don't mean low cost of ownership: The cost of ownership doesn't change. It's the balance interest vs principal that changes.

The cost of ownership will be much less if interest rates are higher later and you have cash to buy.

Future interest rate is another input bias. What you pay to the bank is a fact. The lower the interest rate the less cash out for a permanent cost. Speculating on the future is unproductive. If the permanent cost are low and it is rent generating (either from yourself as a guaranteed tenant or someone else), it is an asset and will never be distressed.

Heraclitusstudent says

Rates are almost guarantied to go higher over the next 20yrs.

Reasons for that:

We all know nothing is guaranteed. and besides, if interest rates rise, it is likely in response to inflation, in which case, you want inflation proof asset like housing.

5   E-man   ignore (0)   2014 Aug 4, 9:48am   ↑ like (0)   ↓ dislike (0)   quote   flag        

"We all know nothing is guaranteed."

Wrong. Death and taxes are guaranteed. :0))

6   SFace   ignore (0)   2015 Jun 22, 11:30am   ↑ like (0)   ↓ dislike (0)   quote   flag        

worth reminding based on Jason's situation


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