| Paying cash for new home vs. mortgage ? |
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eaf
Contributing Member
Cash: $ 5.00
Posts: 25
Joined: 24 Aug 2007
Location: Alaska
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Oldguy,
Yeah, it is a nice drive up the highway in the summer, though it takes a long time. Alaska's a great place! Glad you were able to visit, and that you liked it. Hope the tourist traps didn't gouge you too much.
Unfortunately, I can't access your S&P 500 data, since our server blocks "blogspot" locations for some reason. I would like to check it out. Would you be able to email the data to me? I will PM you.
I am still a nervous nellie about the market. Here's an interesting article from the Hussman fund guy that explains some of his concerns about changes in long-term stock valuations that have occurred in the last 15 years or so. Basically his position is that valuation should be based on future dividends, and that growth should have been at the 10% level when taking into account the historical earnings increases of 6%. He attributes the increases in stock prices to the decrease in dividend yield that's happened in the last 10 years or so.
http://www.hussmanfunds.com/html/longterm.htm
Anyway, I can't say that I agree with him 100%, but the current level of the stock market has a lot to do with speculation as opposed to an actual basis in return on investment. It's very possible that the market could crater big time if folks return to valuations based on ROI and earnings growth instead of speculation.
On the second point, my parents bought right before the market tanked. They had no equity to refinance, and were screwed. I still agree with you that putting your money in the market is a better investment, but your home loan is a guaranteed return (5% or 10% or whatever the loan rate after taxes) as opposed to the market. I think it's important to be cognizant of market risks, even though they might seem small. The only truly risk-free market investment would be securities backed by the full faith and credit of the U.S. government (gov bonds). The others tend to be suspect.
I also think that the housing market and the stock market are significantly more intertwined than any previous period in history. Just my opinion. There is a lot of housing debt (good and bad) out there that has been repackaged and sold on secondary markets.
So...in summary: I agree with what you're saying, though there are caveats. Sorry to blab on so long, but I think this stuff is really interesting.
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Fri Aug 31, 2007 9:40 am |
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