The biggest failure in personal finance, in my opinion, is failing to offset personal finance with finance. At some point your personal finances and the world of finance have to meet. Where they intersect is opportunity, and whether or not you choose to play this opportunity is up to you.
This is one thing I don’t particularly enjoy about personal finance. Personal finance is all about avoiding risk by creating a symbiotic system where you can control and minimize as many possibilities for failure. Screw that! As far as I see it, you can go bankrupt a billion times, but you only need to get filthy rich once. I like that flexibility.
I don’t want to speculate on the future of the housing market, but I don’t think we’re going significantly lower. (See post on home price trends.) With that said, I don’t think home prices are going higher, either. However, there is something that I suspect will be going higher: interest rates.
The current interest rate environment is providing once in a lifetime opportunities. Never has the Fed targeted near-zero or zero percent rates (0-.25% overnight rate). Here’s a historical target rate chart for monetary policy:
Here’s a chart of 30-year mortgage rates over the past five years; you’re not getting in at the absolute bottom, but you’re getting in pretty flippin’ cheap:
The way I see it is that with each passing day you risk the possibility of missing out on the lowest rates in history. When you’re at the bottom, there’s no way to go but up, and there’s no such thing as refinancing to save money when rates are on the rise.
What’s the difference between a $100,000 loan at 4.9% and one at 6.0% over 30 years? Oh, just under $25,000, or one-fourth of the total loan amount. I could also mention that a lower rate is probably also a lower tax-adjusted rate. That’s a bit too abstract, and I don’t want to have to graph it, nor quantify it, nor sit here and create another example for it. But it’s a real cost that I’m just going to insert right…about…here.
Please, whatever you do, don’t let Dave Ramsey’s advice from periods of higher interest rates get in the way of making a rational, reasonable decision to lock in the lowest rates you’ll probably see in your lifetime. Instead, you should let some punk kid with a $10 domain name and half-assed blog design tell you how to orchestrate the largest purchase you’ll make in your life. That makes sense! 😛
Fed rates and homeownership were mentioned in another post of mine: why the Fed won’t raise rates until 2012. The Fed is underwriting the housing market, but only temporarily. You can play waiting games if you want, but I certainly wouldn’t.
P.S. I don’t know if Dave Ramsey advocates building an emergency fund before buying a home, but because it sounds like a bad idea I’m sure he does. I wonder if he’ll tackle emergency funds for businesses in his Entreleadership book.
Photo by: James.Thompson