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...or housing will drop as interest rates go up. And a non insignificant number of folks were over extended in leverage. I know too many folks who did 7/1 ARMs

...or housing will drop as interest rates go up. And a non insignificant number of folks were over extended in leverage. I know too many folks who did 7/1 ARMs cash out refi to purchase another home in a 7/1 ARM loan, banking not on cashflow but appreciation. I know of folks who bought homes using margin loans in their stock portfolio. If housing stagnates, there will be margin calls, leading to supply shock, and price declines. Especially now that mortgage interest rates have nearly doubled year to date.

simulate-me 4y ago
The price may also decline just because borrowing is more expensive. The difference between 2 and 6 percent interest is huge.
bombcar 4y ago
Margin loans for house purchases isn't as insane as it might sound - assuming your financials are there. Margin interest is deductible against investment gains, house interest may not be for many earners. But not refinancing afterwards into a low fixed rate may come back to bite them, and soon.
- lostmsu 4y ago
  Margin rates are also lower, and you don't have to pay the principal.
- georgeecollins 4y ago
  >> Margin loans for house purchases isn't as insane as it might sound I understand the tax logic you are speaking about, but I think tax benefits are sometimes oversold to convince people to buy things (like homes and investments). You aren't a corporation, your liability isn't limited. Trying to shave a bit off taxes may have less benefit to you than the peace of mind of not having to juggle debt. You seem like you understand that when you talk about refinancing asap, so I think you know what you are talking about as well.
  - throwaway0a5e 4y ago
    > I think tax benefits are sometimes oversold to convince people to buy things People will pay more for diamonds that are less likely to have human rights abuses in their supply chain. People will pay more for eggs if you don't keep the chickens in cages. People will pay more for money if the government gets a smaller cut.
  - kevstev 4y ago
    In the typical scenario, I could have sold my stocks and incurred a 20-39% tax on the gains. The other option was to instead take a margin loan out at a hair over 1% blended which is tax deductible and incur no tax bill. There was a bit of risk in this yes, but I came out way ahead despite there being a pretty sharp pullback right after I closed on my house. I wasn't leveraged to the hilt at all, I think I had a loan equivalent to about 25,maybe 30% of my portfolio when the market pulled back. If you have significant assets this is something you should be considering. This is imho one of those "rich guy" things that's available at a relatively low level of wealth, and the risk associated with it is well worth it in most cases.
mym1990 4y ago
Rising interest rates don't typically signify lower home prices because rising interest rates are usually a biproduct of a hot economy that needs to be tempered. With the exception of 2008, home prices have almost never gone down. Now, it may be different this time. There is tons of speculation now and you are starting to see some sectors show big cracks. There was also a massive re-allocation of capital during the pandemic as people moved from high COL places to more reasonable locations(due to remote work), in turn making those new location high COL places. My theory is that eventually the unemployment rate will start rising, and people who lose their jobs that just got a 600,000$ 2/1 will be in a pretty tight spot. It would lead to either cutting consumption in other parts of life, defaulting on the house, or selling for a loss. And so on and on...
JTbane 4y ago
>I know too many folks who did 7/1 ARMs cash out refi to purchase another home in a 7/1 ARM loan, banking not on cashflow but appreciation. I know of folks who bought homes using margin loans in their stock portfolio. If housing stagnates, there will be margin calls, leading to supply shock, and price declines. Especially now that mortgage interest rates have nearly doubled year to date. I can't be alone in wishing that would happen. Yes, people would lose a lot of money (potentially everything), but they played stupid games.
bogomipz 4y ago
>"I know too many folks who did 7/1 ARMs cash out refi to purchase another home in a 7/1 ARM loan, banking not on cashflow but appreciation." What's the strategy behind the "7/1 ARMs cash out refi" and the second homes? It's curious that would people do an ARM when interest rates were at historic lows no? Were these second home as in part vacation home, part AirBnBs lets?

simulate-me 4y ago

The price may also decline just because borrowing is more expensive. The difference between 2 and 6 percent interest is huge.

bombcar 4y ago

Margin loans for house purchases isn't as insane as it might sound - assuming your financials are there. Margin interest is deductible against investment gains, house interest may not be for many earners. But not refinancing afterwards into a low fixed rate may come back to bite them, and soon.

lostmsu 4y ago
Margin rates are also lower, and you don't have to pay the principal.
georgeecollins 4y ago
>> Margin loans for house purchases isn't as insane as it might sound I understand the tax logic you are speaking about, but I think tax benefits are sometimes oversold to convince people to buy things (like homes and investments). You aren't a corporation, your liability isn't limited. Trying to shave a bit off taxes may have less benefit to you than the peace of mind of not having to juggle debt. You seem like you understand that when you talk about refinancing asap, so I think you know what you are talking about as well.
- throwaway0a5e 4y ago
  > I think tax benefits are sometimes oversold to convince people to buy things People will pay more for diamonds that are less likely to have human rights abuses in their supply chain. People will pay more for eggs if you don't keep the chickens in cages. People will pay more for money if the government gets a smaller cut.
- kevstev 4y ago
  In the typical scenario, I could have sold my stocks and incurred a 20-39% tax on the gains. The other option was to instead take a margin loan out at a hair over 1% blended which is tax deductible and incur no tax bill. There was a bit of risk in this yes, but I came out way ahead despite there being a pretty sharp pullback right after I closed on my house. I wasn't leveraged to the hilt at all, I think I had a loan equivalent to about 25,maybe 30% of my portfolio when the market pulled back. If you have significant assets this is something you should be considering. This is imho one of those "rich guy" things that's available at a relatively low level of wealth, and the risk associated with it is well worth it in most cases.

mym1990 4y ago

Rising interest rates don't typically signify lower home prices because rising interest rates are usually a biproduct of a hot economy that needs to be tempered. With the exception of 2008, home prices have almost never gone down. Now, it may be different this time. There is tons of speculation now and you are starting to see some sectors show big cracks. There was also a massive re-allocation of capital during the pandemic as people moved from high COL places to more reasonable locations(due to remote work), in turn making those new location high COL places. My theory is that eventually the unemployment rate will start rising, and people who lose their jobs that just got a 600,000$ 2/1 will be in a pretty tight spot. It would lead to either cutting consumption in other parts of life, defaulting on the house, or selling for a loss. And so on and on...

JTbane 4y ago

>I know too many folks who did 7/1 ARMs cash out refi to purchase another home in a 7/1 ARM loan, banking not on cashflow but appreciation. I know of folks who bought homes using margin loans in their stock portfolio. If housing stagnates, there will be margin calls, leading to supply shock, and price declines. Especially now that mortgage interest rates have nearly doubled year to date. I can't be alone in wishing that would happen. Yes, people would lose a lot of money (potentially everything), but they played stupid games.

bogomipz 4y ago

>"I know too many folks who did 7/1 ARMs cash out refi to purchase another home in a 7/1 ARM loan, banking not on cashflow but appreciation." What's the strategy behind the "7/1 ARMs cash out refi" and the second homes? It's curious that would people do an ARM when interest rates were at historic lows no? Were these second home as in part vacation home, part AirBnBs lets?