Just finished watching an insightful interview between Todd Sachs and Danielle DiMartino Booth via YouTube. Ms. DiMartino Booth is a renowned market analyst and commenter who brings an insider’s perspective to activity in the financial markets and the effectiveness of monetary policy.
Ms. DiMartino Booth expressed concern about how home purchases used to be about buying a place where the buyer would live out their lives in retirement. Those days according to Ms. DiMartino Booth are probably fading into the past as house buyers may be placing more emphasis on the speculative nature of house purchasing versus putting down family roots.
On one hand I can see her point. You buy a house in a community that hopefully provides an environment that is supportive of raising a family including the education of your children and providing sustainable income. As parents, we have those factors in mind when choosing places to reside.
On the other hand, we are a mobile society. Environments and expectations change. Yes, while some house buyers are betting on the equity in their houses increasing, change of environment and expectations also feed speculation versus the desire to plant roots.
If I were to view a home purchase in terms of a forward contract, I would probably place less emphasis on the esthetics of home ownership and more emphasis on estimating interest rates, house values, and my income potential over various periods of the mortgage agreement. This view evolved after owning two properties through two recessions and reflecting on what Americans are really buying when they enter the credit markets for the purpose of financing the purchase of a tangible item.
As buyers of money and tangible property, we are long the price of the property and the interest rate. Intuitively we know this, but quantitatively we don’t go beyond the numbers a mortgage broker or bank puts in front of us. It is difficult to get to the underbelly of these numbers because of the time it takes to come up with a better estimate.
But if your house purchase is speculative, how are your ascertaining the float in interest rates and house price between purchase and the last payment thirty years from now?
Alton Drew
19 October 2024
Disclaimer: This post is not offered as trading or legal advice. Consult a trade advisor and/or lawyer before any trade. If you are considering entering a forward exchange contract, feel free to reach out to me via email to set up an appointment.
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