Posted on 08/25/2005 11:56:51 AM PDT by hubbubhubbub
You sound like you've never taken and passed an Economics course. Buying a house is not saving.
No, what he's saying is that our housing stock capital is provided by foreign lenders. Once they decide to put THEIR SAVINGS elsewhere our economy goes down the toilet.
You sound like you've never made a dollar. Spending money on investment to make money and then having cash deposited into saving reserves is saving.
You sound like you haven't earned your GED yet... how is grammar school?
you mean I can't live in the paid for double-wide ? or rent ?
nice try.....
That is a prediction. But absent the prediction being realized, the wealth is there. If housing is a poor investment, sell it and invest it in a money market fund, or T bills, all things being equal, which it rarely is. I don't like or appreciate inflamatory and imprecise writing. It does not elucidate or educate, and in this case, is not really supported by much that is substantive. Having said that, the real value of housing over time in certain markets is bound to erode, including where most of mine is located. I am well aware of that.
This is the wrong site to get good financial advice. In fact getting good financial advice is really quite difficult (other than reading some of my posts hehe). That is my best advice. Cheers.
Yeah. By selling it. Just like your house.
If you want to spend the value of your house you have to either sell it or borrow against it.
Ummm, what? If you want to spend the value of your stock, you have to either sell it or borrow against it, unless you're planning on persuading the girl at the McD's counter to wedge a few Worldcom certificates into the till in exchange for your Big Mac.
I agree. It is too bad because so many people around here know how to make money and there would be great discussions if not for the lunatics of the sour grape variety.
"If all the economist in the world were laid end to end they would never reach a conclusion."
"you mean I can't live in the paid for double-wide ? or rent ?
nice try....."
Yes you can, but the majority of people are not taking the increased value of their property, buying a cheaper property, and saving the rest of the money. Most people are taking equity out of their house and increasing thier lifestyle.
I have a friend that bought his house in the 1970's for $80,000. He's refinanced many times over the years and each time has pulled money out of the house. The house is now worth $600,000, however he owes $550,000 on it. His is no richer now than he was in the 1970's.
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Mr. Schiff is not exactly an uninterested party when it comes to investment and foreign markets. His contention that, "The main reason American homeowners can access their home equity is that foreign savers are willing to lend them the money. Once foreigners come to their senses, mortgage credit will evaporate, and home equity will vanish along with it." seems rather odd given the fact that he is in the business of having Americans invest (lend money) in foreign markets.
A home is an asset, which goes up and down in value, contingent upon market conditions. How is it that much different from any other capital asset?
Of course you can. You can refinance your mortgage to get equity out and invest that cash into another investment vehicle.
Wrong analogy. Generally, your car and snowmobile don't appreciate in value over the years. You can sell your home after two or three years and get up to a $500,000 ($250,000 if you are single) tax free gain from the profits realized from the sale. You can also have investment property, which upon sale, is taxed like any other capital asset. You can roll over the profits from the investment property into another property without incurring a tax on the sale.
THE property boom has made us all feel wealthy, but unfortunately it has lulled many of those nearing retirement into a false sense of security.
It is a sad reality that the average couple aged between 50 and 64 have financial assets of about $330,000 when the family home is excluded. As a rule of thumb, you need $100,000 of assets for each $8000 a year of retirement income required. Therefore a portfolio of $330,000 could be expected to generate about $26,400 a year, which is way below the amount needed for a comfortable retirement.
To make it worse, life expectancies are rising at an unprecedented rate. A male aged 50 now has a 52 per cent chance of living to at least 85, and a woman aged 50 has a 52 per cent chance of living to 90. This means you now have a better than even-money chance of living to a ripe old age, with all the expenses this can bring.
Whenever there is a need, the market will find a product to fill it, which is why reverse mortgages are rapidly becoming No.1 on the financial hit parade and being offered by a wide range of lenders including the Commonwealth Bank, St George Bank, Macquarie Bank and specialist providers such as Bluestone.
The difference between a conventional mortgage and a reverse mortgage is that the latter does not require the borrower to make any repayments of interest or principal. The interest is added to the principal, which means the debt will rise increasingly quickly as time passes. This time, compound interest is working against you, not for you.
The reverse mortgage lenders have tried to reduce the undesirable effects of an increasing debt by restricting eligibility to people of mature age, insisting on a low loan-to-valuation ratio and limiting the amount that can be borrowed.
For example, a lender may limit the amount that can be borrowed by a 65-year-old to 15 per cent of valuation; for a 70-year-old, to 20 per cent of valuation.
CASE STUDY
A couple aged 75 have a home valued at $500,000 but few other financial assets. Leaving money to their estate is not a priority as the children are doing well financially, but the couple would love to get their hands on $50,000 to renovate the house and go for a trip around the world.
A reverse mortgage may provide the perfect solution, because it could be reasonably expected they would be selling the home to move to a retirement village within eight years. Therefore, the prospect of the $50,000 loan doubling to $100,000 by the time they move is not a problem for them.
Expect to see reverse mortgages used more and more as the population ages but, like all financial instruments, there are important points to consider. The first is whether to take a fixed or a variable rate, because there are now lenders that offer both. Even though I believe there will be no substantial rate rises in the next 10 years, I still recommend a fixed rate to give certainty.
An elderly couple with a variable-rate reverse mortgage could find themselves in a serious position if interest rates went sky-high, causing house prices to plummet – highly unlikely, but it is possible.
Next, look for a loan that offers progressive drawdowns. This lets you have money available at short notice, but no interest would be charged to the account until you actually make a withdrawal. The slower you draw the loan down, the slower the debt will grow.
There is a school of thought that it is a wise strategy to take out a reverse mortgage while you still have some money left in your allocated pension fund. Proponents of this theory argue it lets you keep your assets diversified across residential property and shares, giving an additional buffer against a downturn in house prices.
The counter-argument is that your allocated pension fund would have to provide a capital-guaranteed return of at least 7.5 per cent, the interest rate being charged on the loan, to make the exercise worthwhile. It is an interesting point to discuss with your financial adviser. Expect more bells and whistles as the reverse-mortgage industry matures.
Meanwhile, spare a thought for all those grey nomads who are selling their homes to buy caravans. Unfortunately, no lender will advance money against a depreciating asset, especially one that is portable.
Noel Whittaker is joint managing director of Whittaker Macnaught Pty Ltd, Australian Financial Services licensee no. 246519.
sw
-PJ
What happens if the stock market crashes and the value of your investments falls below what you paid for them? What happens when you buy a car, which decreases in value the day you drive it out of the showroom?
If your mortgage is worth more than the current value of your house, you have to make a decision. Do I sell the house and take a loss or stay in it until the value goes up again? Or maybe you don't care about the market value, presuming you can afford the mortgage payments, since you are perfectly happy where you live.
"Of course you can. You can refinance your mortgage to get equity out and invest that cash into another investment vehicle."
No, because you have to pay your money back.
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