Investing 102

[GregWeld]

I'd posted about "HEADS UP!!" earlier......


Make no mistake -- Interest rates are extremely important to SALES.... Sales of ALL KINDS - not just houses -- but houses and cars lead the way.

The other night - I attended a party which was mostly all "the trades" - I was sitting with 3 excavator company owners all discussing their business (it's a very small valley where I live - they're all friends). #1 was about how busy they were last year and how busy this year seems to be starting out ---- and #2 ---- they all wanted to buy new equipment and hire more people.... PEOPLE to hire "don't exist"....and they're upset about interest rate change........ They've been buying with ZERO down and ZERO interest - and they've been finding out - those deals are going away.... Their unanimous response - they won't buy then! These machines are $80 and 100 and 250 grand!

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New home sales down 7.8% in January
22 Hours Ago | 01:40




Sales of newly built homes are falling, and the culprit is clear. Homebuyers increasingly can't afford what they want. Higher mortgage rates, combined with the loss of homeowner tax breaks in some of the nation's most expensive markets, are taking away buying power.

Sales fell in December, when the new tax law was signed, and then again in January, when mortgage rates moved higher. Sales are now at their lowest level since August of last year.

The government's measure of new home sales is based on signed contracts during the month, reflecting the people who are out shopping and signing deals with builders. It is therefore a strong read on current reactions to home affordability. Mortgage rates moved a full quarter of a percentage point higher during January, from below 4 percent to about 4.25 percent. It then took off further from there.

"It seems that the jump in mortgage rates in January had an immediate impact on contract signings," wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group. "You can't get more interest rate sensitive when it comes to homes and cars with the associated cost to finance."

[rustomatic]

Just because I'm bored and partly because I was lucky enough to get a good place at the right time, I check the real estate market around me once in a while. It's still ridiculous. A quarter of a percent increase in mortgage rates deters no one.

Overpriced dumps in Sacramento (CA) sell in a maximum of six days, with multiple offers on the table frequently pushing values up as much as ten percent--this is like bidding war on sub-$300k stuff. We're talking 800-1200 foot places; in areas that didn't used to be so great, but are considered swell and quaint now, $500k will get you an old piece of junk (new paint + carpet with 50 year old windows no better than cellophane) with maybe 1500 feet of "living" space. The (local) job market (pay) does not remotely coordinate with what this stuff costs.

New places ("single family homes") starting at $500-600k down the street from me have been selling with literally no inventory, i.e., faster than they can be built (in December!). There is a waiting list for stuff that does not exist on the tiniest of lots. This looks just like 12 years ago, but some of the prices will undoubtedly hold better than others. Some will not . . .

Let's not even talk about the Bay Area (San Mateo?), where a small, yet newish 2-bedroom condo will ask at 900k, or you can pay $3000.00/mo for a crappy 2-bedroom apartment (Mountain View?). Someone mentioned San Francisco, which really isn't even mentionable anymore, since it was determined that you need to make at least two million a year to buy anything fixed on dirt in the city/county.

It's tough all over, but some have had good timing. For some places, though, it's like waiting until Beverly Hills becomes affordable. Just head east, really, really far.

[GregWeld]

I got a good laugh from an article this morning --- the point was -- "the next time someone tries to scare you with their prediction.... look at this chart".

This is so true it's hysterical.... the "sky is falling" - "the world is flat"....




https://lateral-g.net/forums/attachme...1&d=1519826414

[GregWeld]

Originally Posted by rustomatic

A quarter of a percent increase in mortgage rates deters no one.

Not to argue with you.... but you don't apparently understand the correlation of FED rates and the subsequent market rates that it affects.

A "quarter point" rise won't affect home sales could possibly be correct - except that real actual mortgage rates will go up MORE than that... and since the FED is talking about possibly raising rate FOUR TIMES this year - that would be ONE full point this year alone....

The FED FUNDS rate affects every single thing you do.... food prices - cost of doing business - cost of borrowing - credit card rates. What happens - eventually - your car payment goes up - your insurance costs go up - your food prices rise - and your mortgage payment rises. That creates INFLATION - which then causes businesses to have to increase their prices to cover the rising costs of everything they do... Rates are incredibly important.

[Vegas69]

It seems when things have been going well for quite some time I see these mindsets:

"I need to get in before it's too late."

"I need to get in because everybody else is doing it."

This can go against values and long term financial sense.

The more calculated will base decisions of facts and comfort levels. Rising rates may not deter the former in the short term, but it certainly could deter the latter.

[rustomatic]

Greg, the great research authority that is CNBC is definitely doing a good job of trying to show how things are looking a lot like 2006. The house I bought in 2006 (in Arkansas, not CA) came with a 6% interest rate. It wasn't a bad deal, even though the one I have now is at 4%. As the mortgage bubble burst, rates went up, along with gas prices and everything else; Priuses were being bought above market, and dealers in the Midwest were literally giving away Dodges and Chryslers (if you bought one). Everything's a pattern that can be found in the past (as your experience has undoubtedly demonstrated), short of trying to track Goldman Sachs' trading algorithms . . .

It would be interesting to see the world with the crazy interest rates from the late 1970s/early '80s. The thing about that would be a completely different economy . . .

Originally Posted by GregWeld

Not to argue with you.... but you don't apparently understand the correlation of FED rates and the subsequent market rates that it affects.

A "quarter point" rise won't affect home sales could possibly be correct - except that real actual mortgage rates will go up MORE than that... and since the FED is talking about possibly raising rate FOUR TIMES this year - that would be ONE full point this year alone....

The FED FUNDS rate affects every single thing you do.... food prices - cost of doing business - cost of borrowing - credit card rates. What happens - eventually - your car payment goes up - your insurance costs go up - your food prices rise - and your mortgage payment rises. That creates INFLATION - which then causes businesses to have to increase their prices to cover the rising costs of everything they do... Rates are incredibly important.

[GregWeld]

Originally Posted by rustomatic

Greg, the great research authority that is CNBC is definitely doing a good job of trying to show how things are looking a lot like 2006. The house I bought in 2006 (in Arkansas, not CA) came with a 6% interest rate. It wasn't a bad deal, even though the one I have now is at 4%. As the mortgage bubble burst, rates went up, along with gas prices and everything else; Priuses were being bought above market, and dealers in the Midwest were literally giving away Dodges and Chryslers (if you bought one). Everything's a pattern that can be found in the past (as your experience has undoubtedly demonstrated), short of trying to track Goldman Sachs' trading algorithms . . .

It would be interesting to see the world with the crazy interest rates from the late 1970s/early '80s. The thing about that would be a completely different economy . . .

I couldn't disagree more --- what they --- and including my personal team of bankers and hedge fund managers are saying ---- is to "keep a heads up". We are speaking in this particular forum thread about INVESTING 102.... which is information relating to being relatively new at investing - the relationships - the things that can cause ups and downs. It's not an advanced econ class.... that would be a different thread.

[GregWeld]

This is not a pitch to buy or sell or do anything --- it's just an investing 102 "thought"....


I've owned Altria (MO) for a very long time.... the reason I own it is not for the "current" dividend (in other words - if you bought it today). I own it for the CONSTANT dividend increases this particular stock produces. A couple days ago - they announced an increase to .70 per quarter. Doesn't seem like much does it? A lousy .04 per quarter.... BUT --- big Butt --- that's a 6% increase! So if inflation is running 3% - you just doubled that amount.

Now -- if you calculate YOUR dividend - at the price YOU paid.... this begins to be a serious cash cow. It takes TIME to have a relatively low paying (<5% currently) dividend stock become a cash cow - and not all companies increase their dividend payout annually -- but god bless MO -- they just keep pumping out the cash. If you're young - and this is in your IRA/401 - and that dividend is plowed back in to buying more shares (DRIP) -- when you get ready to retire in 20 years.... yeah - that's a nice holding.

[toy71camaro]

Had MO since I started in this thread several years ago. To elaborate more on your comment, I've seen the following yearly increases to the dividend:
2012: 7.32%
2013: 9.09%
2014: 8.33%
2015: 9.62%
2016: 7.02%
2017: 8.2%
2018: 6.06%

My current yield based on what I paid (and my drips): 6.96% Which translates from me getting 0.41 a share in 2012 to 0.70 now (well, soon). Nearly doubled!

I have a pretty nifty spreadsheet that tracks all this for my "investing 102" holdings thanks to all you guys.

[im4u2nvss]

Originally Posted by rustomatic

This looks just like 12 years ago

This is exactly how my area feels.