Why is Wall Street so interested in the real estate market? They seem to have an opinion on every aspect, whether they understand it or not, letting nothing stand in their way. I hear interviewers talk about how real estate is falling off a cliff, the bubble is bursting, sales are down further than anticipated, inventory is up higher now than in years and many houses are vacant. These are just some of the comments that come out on a daily basis. I am neither interested in challenging these thoughts or concurring with them, because they are not integral to my thesis. But I bring them up to show the Wall Street bias to real estate. Apparently, real estate is perceived as serious competition to investment in the stock and bond markets.
I will mention that although the comments keep coming, real estate nationwide is still showing gains, not losses. Also, the biggest markets like San Diego, California are showing some downturns, but only around 1%. If value remains in a market where there is little demand and excessive supply, what is going to happen when demand returns?
I really wish to concentrate on interest only loans, which leads a list of little respected vehicles available to real estate owners. I wish to compare and contrast many aspects of the interest only loan to other phenomena we have in our society.
As an example, according to Wall Street, the interest only loan isn't smart or safe, but leasing a vehicle is fine.
When you realize you are only paying for the utility of the vehicle and not the vehicle itself, you have to wonder how this compares to the interest only loan. Vehicles predominately lose value, and houses generally gain value. Without getting into the nuances of the auto lease vs. interest only mortgage loans, I believe there is greater reward in interest only loans than there is in auto leasing, yet auto leasing is not on the "financially dangerous" list and interest only loans are.
The Wall Street crowd will sell you a "growth stock", one without a dividend, and tell you the reward is in the growth of the company and the increase in the share price as a result of the growth. Why isn't an interest only loan a "growth loan" with the payoff coming with the increase in value of the house and the low, tax-deductible expenditure on the loan? They fail to mention it!
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.