Personal Finance

How long is the current interest rate sustainable?

  • Last Updated:
  • Oct 3rd, 2014 10:59 am
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Deal Fanatic
Mar 24, 2008
5614 posts
1713 upvotes
Toronto
guyver0 wrote:
Sep 16th, 2014 12:58 pm
My bad if I misinterpret your words. My stand is still that RE price will follow inflation, nothing more, over my lifetime. FYI I'm 100% in globally diversified equities, to put money where my mouth is.
I have a feeling that you are going to be correct about RE tracking inflation in the long run. Who really knows what's going to happen over the next 20 years? :)
Deal Addict
Sep 6, 2010
1686 posts
430 upvotes
Vancouver
guyver0 wrote:
Sep 16th, 2014 12:45 pm
You're correct, some exposure to RE would be ideal, but the keyword is "some". If you have all your money tied up, then it's no longer "some" but "all". You can get exposure to RE via REIT, or if your portfolio is in the 7 figures, than possibly a few rental units.

The ratio of 15 is a guideline for affordability between buying/renting a house. A 10 is for investment purposes, you'd want to recoup your investment sooner rather than later, and by using a lower ratio, it makes it less likely that your "decent" investment will turn into a "poor" investment, should you find yourself with a high turnover of tenants, or go with a long stretch of no tenants.

No one has the power of foresight, but it would be reckless to completely disregard Shiller's study, and say that it doesn't apply going forward. You can choose to ignore history at your own peril, and I can choose to follow history at my own peril, but like Mark Twain said, "History doesn't repeat itself, but it does rhyme." I have faith, albeit blind, that RE will still be barely treading above inflation in my lifetime. Back in the 1978/79, people think it was the death of equities, and that there is no point in owning stocks. S&P 500 was below 100, guess where it is now today?
This I have no contradictary opinion against.
Deal Fanatic
User avatar
Mar 12, 2005
8449 posts
1138 upvotes
Victoria
I skipped ahead to page four of this thread but the rates were supressed for so long and people borrow so much at them (not to mention all the debt governments racked up). I'm not entirely confident that they can be raised (significantly) without causing economic shocks.

Japan got stuck in non-existent interest rates for a long time.

My guess is we see a few small boosts (like 25 bps) over the next few years, but I doubt we'll see anything in percentages.
Deal Fanatic
Mar 24, 2008
5614 posts
1713 upvotes
Toronto
rodbarc wrote:
Sep 15th, 2014 7:29 pm
If the Fed keep the words “considerable time", the market will rally to new highs. But that's an unlikely scenario.

Most likely scenario is that those words will be removed and the Fed will add new language to soften the news. This scenario will lead to a selloff and the SPY will test MA(100).

...
News
The Federal Reserve reassured financial markets Wednesday that a key interest rate will stay near zero for "a considerable time" after its bond purchases end next month, deferring for now a clear signal on how it will begin to shift away from low-rate policies it's had in place since the 2008 financial crisis.
LMAO. When will people stop making market predictions?
Deal Fanatic
User avatar
Dec 14, 2010
5083 posts
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ksgill wrote:
Sep 17th, 2014 3:13 pm
News


LMAO. When will people stop making market predictions?
I never predicted it. I said I believed it was an unlikely scenario, not an impossible scenario. I also gave the option if they kept those words.

It's exactly for this reason that I don't trade or invest based on a direction that I might consider more likely - I still have my opinion on how I think things might go and would share here, but it's just my opinion. And if I was right today, it would be a simply coincidence, that a likely scenario happened.

Rod
Deal Fanatic
May 1, 2012
8218 posts
5500 upvotes
Markham
If I had listened to RFD advise on my financial needs, I would have had to declare bankruptcy... at least twice now.

Apparently every armchair warrior on RFD is terrible at "predicting" anything.
Newbie
Apr 19, 2009
3 posts
Calgary
What's the definition of considerable time?

They are still talking about raising them next year. Does that qualify as considerable time? Yellen is of course going to try and diffuse any fears to protect the markets as long as possible.

Fed policymakers' forecasts Wednesday show they expect the Fed's benchmark short-term rate to rise slightly more rapidly than they predicted in June. They expect the rate to be about 1.3% by the end of the year and about 2.8% at the end of 2016, according to their median forecasts, up from their previous projections of 1% and 2.5%.

Those estimates, however, continue to suggest the first rate hike is likely to occur in mid-2015.


Another good read....

http://business.financialpost.com/2014/ ... ederated=1
Member
Sep 18, 2012
344 posts
242 upvotes
BRAMPTON
Anikiri wrote:
Sep 17th, 2014 3:32 pm
If I had listened to RFD advise on my financial needs, I would have had to declare bankruptcy... at least twice now.

Apparently every armchair warrior on RFD is terrible at "predicting" anything.
Haha. Everything you read on the internet should be taken with a grain of salt....that even includes advice coming from market analysts who are paid to predict things.

That said, you should do your own due dilligence and buy RE, equities and bonds etc whenever you feel the fundamentals make sense. Both market timing and blind faith investing in any asset class is for fools.
Deal Addict
Dec 24, 2006
1047 posts
69 upvotes
If your getting financial advise from RFD.... Your doing it wrong.

Everything I see here I approach as a "interesting thought" and nothing more...

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