Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: valueminded who wrote (51772)	5/26/2006 1:27:16 PM
From: benwood	Read Replies (1) \| Respond to of 116555

My savings account rate is 4.15% right now, and my mortgage is 4.50%. However, I get a small deduction on the mortgage. My marginal rate is 27% I believe, but because the standard deduction is fairly high for me, my effective deduction is closer to 10% of the mortgage interest. So my effective mortgage interest rate is actually about 4.5 * .90 = 4.05%. My savings is taxed at the marginal rate of 27% or so, so I'm actually only making 3.03% net on the savings. The savings break-even point for me (with just barely enough deductions to itemize) is about 4.05 * 1 / (1 - 0.27) or 5.55%. I still can't get that easily with risk free money. I can get that in certain lower risk dividend plays, however, but I am taking on some risk with that (and/or currency risk e.g. FAX, which can be a good thing).

To: valueminded who wrote (51772)	5/26/2006 3:37:28 PM
From: Earlie	Respond to of 116555

Value: Thanks for your reply. I have to disagree with you on a few points: - Housing inventories are rising fast. Homebuilders historically keep building well past the point where prudence would dictate a pulling in of horns. - I will bet against "unfinished houses leading to a drop in new supply". Keep in mind that the real estate market geared up to meet a massive rise in the number of buyers available. Now, that supply of buyers has been cratered. Even if builders cut back fast and hard today, the dramatic reduction in buyers is going to cause inventories to continue to rise. - Banks rarely do as you suggest. In fact, they hate periods when they are forced to take over homes and they really hate having homes on their books. They know that in this kind of environment, prices will likely continue to fall so they typically dump them quickly ("power of sale"), which of course usually exacerbates the situation. Puts on the homebuilders have been working well since early last fall. Interest-only loans are a wonderful deal so long as rates are low and so long as real estate prices are rising. They eat folks alive in the inverse condition, particularly where the goal was a "flip". Take a look at Florida where folks are currently walking away from large ($80,0000) down payments. When liquidity dried up, the pros took their lumps. Unfortunately, the amateurs entered denial. Now they are being forced to dump and their losses are mounting. Time will tell. Best, Earlie