How 'bout those bond yields?
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What's up with the market in the grayton beach area
- Thread starter billyjoe
- Start date
How 'bout those bond yields?
cd's are paying 5.3% with 100% preservation of principle ... I've certainly done better than 5.3% in both real estate and the stock market, but in the current precarious economic environment, it's that 100% preservation of principle that has me plowing money into cash (be it cds, swiss francs, or gold coins)
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OK OK Cash is king. It's great. I never knew anybody who went broke with cash in the bank. I sleep well at night because of cash and liquidity in these uncertain times. You guys/girls slapped me good and I needed it.
If we take away my last stupid sentence, do you agree or not with the main point? That is, if one has a three plus year time frame, the SoWal real estate market will show a better return than cash?
We may be receiving 5% on short-term cash, but isn't inflation over 3%? After taxes, we're not far from even. Of course, I do acknowledge ( and sleep well because of) the no-downside aspect of these accounts.
Real estate has traditionally been for patient investors. Our frenzied market defied all logic for a while, as we all know. But I predict that long-range investors will do well if purchasing today.
Maybe it all boils down to risk tolerance.
Lively discussion encouraged.
If we take away my last stupid sentence, do you agree or not with the main point? That is, if one has a three plus year time frame, the SoWal real estate market will show a better return than cash?
We may be receiving 5% on short-term cash, but isn't inflation over 3%? After taxes, we're not far from even. Of course, I do acknowledge ( and sleep well because of) the no-downside aspect of these accounts.
Real estate has traditionally been for patient investors. Our frenzied market defied all logic for a while, as we all know. But I predict that long-range investors will do well if purchasing today.
Maybe it all boils down to risk tolerance.
Lively discussion encouraged.
Bobby J
Beach Fanatic
I think some areas will be a great investment and others will be not so good. I was showing property today and looked at several homes that were great buys. Fixed up they could even be flipped for a profit. Yes, even in this market... Billyjoe, find an agent with good local history and track record that you can trust. You will be fine in the right area. Prices have leveled off in certain areas and still too high in others. Just do your homework with your agent. Too pretty around here and too much state land for it to completely dump.
Sandcastle
Beach Fanatic
This is just my $.02 worth. It?s a boring evening in Tallahassee.
CDs paying 5.3% are fine, but they do lock you in. If you buy a 5-year CD you?ll probably wind up paying a penalty equivalent to 9 month?s interest if you withdraw the cash early. If you buy a shorter term CD, you could take a significant income hit if the Fed reduces rates and you?re left reinvesting at 3.5%, etc.
Bonds are just as ?bad.? What maturities do you buy? If rates increase, the value of your bonds will fall. Of course, you?ll always get the par value of the bond at maturity (you hope). Maybe you?ll buy long-term bonds and rates will fall ? then you?ll be looking good until rates increase again.
Money market rates change constantly, so you can?t count on them to significantly increase your wealth over time.
Stocks might not be a bad choice, but can believe the financial statements of the companies you?re buying?
I believe that the supply/demand imbalance in the real estate market will correct itself and the market will return to ?normal.? However, I see two major risk factors that will have to be addressed before that happens. One is the propensity of local governments to spend enormous amounts of the taxpayer?s money. The other is the extreme uncertainty over the cost and availability of insurance. I wonder how many mortgages will be in default if wind insurance premiums increase to 10%/year of the value insured ? this could happen in Florida. That would create a downward spiral that would cause lenders across the country to collapse.
I guess I?m a proponent of a diversified portfolio. If you don?t own real estate, buy some. If you don?t own bonds, buy some. Etc.,etc. Just don?t put all of your eggs I one basket and DON?T FINANCE the basket.
CDs paying 5.3% are fine, but they do lock you in. If you buy a 5-year CD you?ll probably wind up paying a penalty equivalent to 9 month?s interest if you withdraw the cash early. If you buy a shorter term CD, you could take a significant income hit if the Fed reduces rates and you?re left reinvesting at 3.5%, etc.
Bonds are just as ?bad.? What maturities do you buy? If rates increase, the value of your bonds will fall. Of course, you?ll always get the par value of the bond at maturity (you hope). Maybe you?ll buy long-term bonds and rates will fall ? then you?ll be looking good until rates increase again.
Money market rates change constantly, so you can?t count on them to significantly increase your wealth over time.
Stocks might not be a bad choice, but can believe the financial statements of the companies you?re buying?
I believe that the supply/demand imbalance in the real estate market will correct itself and the market will return to ?normal.? However, I see two major risk factors that will have to be addressed before that happens. One is the propensity of local governments to spend enormous amounts of the taxpayer?s money. The other is the extreme uncertainty over the cost and availability of insurance. I wonder how many mortgages will be in default if wind insurance premiums increase to 10%/year of the value insured ? this could happen in Florida. That would create a downward spiral that would cause lenders across the country to collapse.
I guess I?m a proponent of a diversified portfolio. If you don?t own real estate, buy some. If you don?t own bonds, buy some. Etc.,etc. Just don?t put all of your eggs I one basket and DON?T FINANCE the basket.
One way of deciding what housing prices might do in the future is to look at history. And what we find is that since the late 1960's, median home prices have been on a very consistent tend line with a consistent slope ... until of course 2002/03. So if you believe (as I do) that there has been no "game changer" event that would permanently move median home pricing off of its trend line, then you could conclude that prices would drop back down to the line ... and this would give you the "should" cost of the median home.
When I do it, I get a 20% price drop in the median US home price -- I don't think that it is terribly unreasonable to extrapolate this across the rest of the market since median home prices rose at similiar rates to the rest of the market during the boom period (could be less in under-heated markets, and more in overheated markets).
And, to determine how long it will take to get back to the peak market pricing of last year, draw the two lines out (diagonal slope line and horizontal line from peak) and see where they meet ... looks like about 2014 to me.
Of course if you throw in a souring economy, bad loan and debt situations, and deteriorating consumer confidence, pricing could drop below the tend line for awhile.
So, to answer the question posed, I do indeed believe that cash is a better investment than real estate for the next 3 year period. Having said that though, when I see the market conditions that I am looking for that indicate a bottom, I will DEFINATELY be a buyer (with the cash that I have that's earning 5.3%;-)).
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I would.
SHELLY
SoWal Insider
I would recommend you rent as well...especially if you're going to be here during the Fall and Winter months, you'll be able to get a REALLY good rental deal on a house or condo--the pick of the litter! Take your time, look around, burn up the Realtors' gas, crunch the numbers (insurance & taxes). If you've got a pre-approved mortgage in your hip pocket and some cash to put down, you're going to be treated like a Rock Star.
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