Good afternoon…
I apologize for the delay in getting this week’s email out. It was a nice long holiday weekend and
I apparently forgot it ended yesterday. I hope it was relaxing for you. Let’s get to it:
On today’s call: Markets, Housing, Should I Payoff My Loan? Interest Rates
- The markets started off the week poorly, with the Dow down over 100 points and the
NASDAQ falling over 1.5% today. Many investors are predicting that 3rd quarter earnings
results will be weak, overall, justifying fears that global growth is not increasing. And if
thatweren’t enough, the International Monetary Fund (IMF) cut its global growth forecast
for 2012 to its slowest since 2009. Considering the economic issues in the US, Europe, and
China continue to strain their respective countries, it’s painfully clear that real growth is still
out of reach. The big news to watch this week is Friday’s Consumer Sentiment index from
Reuter’s. I wouldn’t expect it to increase, would you?
- In housing, Fannie Mae released the results of its latest housing survey, indicating that
69% of the people would choose to buy a home over renting one, if they had to move
in the near future. The report also states that Fannie’s economists expect home prices
to edge up 1.5% on average over the next year. Most of the respondents agree that
the housing market is getting stronger, albeit slowly, however over half of them also
feel that the economy is going in the wrong direction. A strange juxtaposition, no?
Real estate trends are becoming more and more localized and the areas of the industry
we know thatshould stay static for the near future at least (interest rates, home affordability,
etc.), will help steer the buying trends. But what will drive them is “sentiment.” The
increasing faith in housing, coupled with the belief (and the right one) that home owner-
ship has never been more attractive, will influence more buyers as we move forward.
Interest rates are low for those who own a home or those who want to buy one. In
almost every rent vs own comparison I’ve done, it’s the owning that makes much more
sense.
- Paying off a mortgage loan used to be the norm. When mortgages started being offered,
it was considered financially unwise not to pay it off. So what’s changed? Well, for one,
most people don’t have the money to do so, nor do they even have the money to add
additional principal to the balance every month. Also, it’s been studied that the average
length of stay in a home is seven years now. And the average someone has their mortgage
loan is four years. And then there’s the mortgage interest, the only interest you can
write off on your tax returns. For many, this is an enormous tax benefit. I have clients in
their 50’s and 60’s who are taking out 30 year fixed mortgages. Why? Because they’ll use
this tax break to offset the penalties they’ll incur for withdrawing money from their
retirement plans. That’s just one example. And it’s a great tax strategy. If you plan on
being in your home for the (real) long-term, then paying off your loan might be good for
you. But if you aren’t, take the tax advantages as long as you can. There aren’t many others.
- Interest rates are looking fantastic. I’m hesitant to say, “they really can’t go lower,” because
honestly, they might. The difference in a .125% to .25% lower rate might not make a big
enough difference to justify the risk of them going up the same amount. The 30 year fixed
rate is approaching 3.25% with no points and no closing costs. I can’t believe I’m typing that.
This is just an example, but please pass on the word to your networks. I’d appreciate it.
Thank you very much for your support and have a great week…
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