Total New to Stock Market, Please help!!

[Rhett]

Intrest rates are increasing and have been increasing. If you buy a longterm bond right now at a 6% rate or whatever, when intrest rates go up, and someone can get 6% in thier bank account in the short term, your bond will lose a ton of value. You can actually lose a lot of money by putting it in bonds due to this.

Basically, fear of rising intrest rates has me keeping everything in ING direct and renting a home instead of buying. I also consolidated my student loans at 2.4% intrest (90-day T-bil rate +0.9% a few months ago) over 20 years. The smart time to invest your cash is after intrest rates are high, I think.

[notluck]

Swiftrhett, why wouldn't you buy a home? The interest rates are still relatively low; renting is not the way to go. Sure you pay taxes, condos fees, and variety of other unexpected expenses, but in the end you end up far better than if you would just rent. Maybe I am missing something but please explain your reasoning behind the renting.

-Al

[CaucasianAsian29]

Some much good information, thank you all for your replys!

[The Rev]

Where did you get this rate?

I also consolidated my student loans at 2.4% intrest (90-day T-bil rate +0.9% a few months ago) over 20 years.

[Rhett]

Notluck, it depends where you live. Keep in mind, real estate values are at a peak. A lot of the reason for high real estate values are low intrest rates. People don't care about the principal value of the home, they care how much they need to spend each month.

What are you going to do if you buy a $200k home that goes down $40k in value over a few years?

My rent is only $550 / month. Alternatively, I could buy a cheap $100k home. The property tax alone on a $100k home in my area is $3k / year. Then there is mortgage intrest, fees, lost intrest on equity, repairs, etc.

[notluck]

The fact that some areas of the country and their respective sub-markets are inflated is definitely true. Your statement regarding a home depreciating from 200k to 40k is unlikely, baring natural disaster; what would be a more likely example is a home decreasing in price from $1.5 million to $800k. There is inherent value in a residence, as shelter, and people will always need a place to live. At 40k, someone could rent that place for as little as $300 a month and come out way on top (FYI 40K, 30 year loan @ 7% is $240 a month). Even moderately dense populations have higher rents then that, excluding college towns for obvious reasons. With property ownership comes extra risks and at times unforeseeable expenses, but you get place that can appreciate, while with renting its truly gone. Home ownership allows you a type of freedom which also has value, plus interest is tax deductible.

[Rhett]

The Las Vegas area recently had a housing bubble burst. People bought $400k homes putting 5% down just to try to rent them out and flip them in a year. Unable to find renters, many people were forced to sell their $400k homes for $300k and go bankrupt.

Like I said, it depends where you live. I would not be surprised to see a 20% drop in value that lasts 5 years.

[notluck]

All I am saying is that for someone who is looking for a place to live and not necessarily an investment property to flip as quickly as possible, owning is in most cases superior. Plus I believe that devaluation of real estate is far more likely for homes/condos above 300k. So if you buy for 100k like you example originally noted you would be pretty safe. Or am I still missing something?

[Rhett]

I live in Austin, Tx, and the average home in the $100k range is down 10% in value since 2000. We are at the top of a real estate bubble nationwide on average right now, and I am staying away, as a general rule.

[notluck]

Well this was a nice discussion but I guess in the end you know your local market better than I. [img]/images/graemlins/smile.gif[/img]


-Al