Ups and Down - Interest rates, Stock markets et al.
It is always interesting to me to see how people react to changes in the market or interest rates.
I have read way too many stories in the last year about adjustable interest rate mortgages (ARM) and how they have caused foreclosures, destroyed lives, etc. I certainly do not mean to belittle the people that have had dramatic lifestyle changes and the changes in their ARM mortgage put them over the edge. That certainly happens. At the same time I am curious if those legit lifestyle changes, loss of job, death and other things would be any different if the parties had a fixed mortgage rate.
Two things to consider. Use a reputable lender. Use a reputable realtor (although this is not so much your realtors job, but most should know enough), and pick up a handy dictionary.
Fixed = Doesnt change
Adjustable = DOES change
It is that simple! Now, the ARM had a lot more ins and outs which make it more complicating and having a mortgage broker explain them well (and they understand it too) should satisfy that problem.
Adjustable rate mortgages are a tool for a shorter term savings. It is higher risk, no question. PERIOD.
Now with the recent stock market dropping my immediate reaction is BUY, not sell. Much like the real estate market in the Twin Cities, prices are down. When prices are down its a good time to buy. So, today I am putting money into each of our kids 529 plan.  Is there a guarantee that the values will go up, NO. Does history show that it should go up, YES. It is an investment after all, there are risks. I should add, we have roughly 12 years to tap into that college savings plan, so even if it takes 2 years to bounce back, I caught the market nearer the bottom of a swing, and not the top, we hope.
The bottom line, I am paying less for those mutual funds today, then I would have a week ago!
This very same principle applies to real estate. While we may not be at the bottom of the market, we arent at the top. With the STILL low interest rates, high amount of inventory (lots of properties on the market), and ability to negotiate prices (most of the time), you can get a much better value on real estate today, then a year ago.
The lesson for the day:
You cannot catch the swings on the top and bottom of the market. Buy when it is near the bottom, Sell when it is near the top. The trick is getting near each mark.
Right now we are at the bottom of a value swing. BUY!
I wanted to add that I am not betting my life savings either.
JKF often quoted: “When written in Chinese the word crisis is composed of two characters.
One represents danger, and the other represents opportunity”. Let me translate what that means “where danger lies, opportunity rise”. We are heading into “bear market” territory. Some markets also already priced recession in at this level. So what should you do?
The bottomline is you can never call the bottom. Like Derrik mention, if you’re buying at the near bottom with a long term horizon, you’ll be sweetly rewarded in the future. Looking at the market trend for the past 80 years, it’s looks very much like a staircase — up but not a straight line. The best thing to do is dollar-cost average. That means to keep a discipline buy-in periodically so you would accumulate shares at various prices which at the end will average the cost lower. Consistent 401k contribution is a perfect example of dollar-cost average.
Property is always the best investment option over the long run stocks are pretty volatile.