Thursday, July 2, 2020 / by Steven DiPeso
As we head into the traditionally boisterous, celebratory, care-free July 4th weekend we find ourselves in our own reality world of Keeping Up With the CDC. This Holiday Weekend, unlike so many past, we are not free to dine at our favorite vacation restaurants, crowd it in on our favorite amusement pier, or enjoy the spectacular fireworks show marking the official start of summer. And yet- despite all the restrictions, closures, unemployment, and Small business wage destruction; the NASDAQ, Gold, and Case-Shiller Home Price Index sit at all-time highs. Wall Street v. Main Street- also referred to as wealth creation by those on the former side. Indeed, what separates the two is simply & clearly the ownership of assets- more specifically the ownership of leveraged assets – the systematic risk. With risk comes reward, else why take on risk? What happens when tail end events arise able to implode the whole of levered assets? Well, the lender of last resort steps in to flood the fuel that levered assets need to stay afloat- liquidity- and generally too much of it. Better to safe than to be sorry, right? The effects are often the same, the system & economy are saved and the excess of that fuel does indeed add wealth to the risk holders. I’ll phrase it this way- the leverage of leverage creates wealth. Overly simplified however it maybe (declining GDP against increasing debt) the short term effects have consistently proven holding assets, and accumulating during crisis, is the only road to wealth. So how are home sales currently, at least in New Jersey? You probably guessed it already- booming. Not kidding- this June we broke our previous sales record. Need $100,000 for a down payment- borrow from your IRA (3 years to repay without tax or penalty). We advised a client needing to move from PA to NJ with PA not allowing home sales on this. Not paying in cash (honestly, why would you?) borrow at 3% conventional or 3.375 Jumbo, or a real rate of 1.63% and 2% respectively over the first 10 years (Treasury- TIPS). At an average annual appreciation rate of 2% on real property you can enjoy a negative cost to borrow on a conventional loan. If the finances of buying now still do not have you rushing for pre-approval consider what our clients are telling us more and more- should this event ever happen again we want a place to go. And who wouldn’t want that place to be a home on the Shore?!