By: Bill Tatro
Having been besieged lately by brokers who say they have the investment (stock) of a lifetime, I find myself retreating from the onslaught. I somehow get the feeling that it is December 1999 or late 2007 and the next move could be a decisive one and bad for me.
However, since Wall Street says sitting on cash in my IRA (contrary to Mohamed El-Erian) is a bad thing I feel compelled to do something, anything.
Which led me to housing.
I continue to hear, whether it’s a local real estate broker on radio or the National Association of Realtors Chief Economist in press releases, that “pent up demand” is finally surfacing and that housing is where it’s at.
But here is my dilemma: Do I buy an existing home or a new home for my IRA investment? The most recent numbers on existing homes show a surge of 6.1%, the highest since September 2013. If this is a beginning of a trend maybe I should get on board. However, then I examined new home sales which dropped 11.1% month over month, which was the biggest since July 2013. 2013 was obviously a topsy turvy year in real estate.
My quandary, do I buy a house, not for income, but for growth, when the sales are falling which means a new house or do I buy a house when sales are rising which means an existing house?
If I put aside sales and just look at prices my decision making process could get even murkier. The median price of a new house has almost reached all time highs. For prices to continue escalating, jobs, the backbone of home ownership, have to continue growing. This means I have to continue to believe the numbers and employment data that is being spewed by the BLS. The tooth fairy is easier to believe.
I haven’t even started to factor in the impact of weather, snow, sleet, rain, heat, etc.
It all sounds good from my real estate agent, home builders or even investment advisors. But what if this time is like last time (contrary to those who say “This time it’s different”)? Maybe El-Erian is right and cash is the best place to be. At least I won’t have to worry about flash crashes or foreclosures.
I guess for now I’ll leave the stock and housing price chasing to others and suffer in my 100% liquidity of cash.