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U.S. Household Wealth Rises $1.7 Trillion To Another Record

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WEB Notes: I will buy the part about housing. The housing market is up which is great for home owners. Though on another level unless you sell your home, the increase in value is phantom money. Let us say your home value is $100,000 and due to the rising market is it now $200,000. Unless you sell the home, you have no gain. I know some folks are raising their hand, ‘but you can get a second!’ You sure can and you will also pay interest on it too. Why on earth would someone want to pay interest on the equity they have in their home? A home is not an ATM machine, a home is your dwelling…

So the only way to come out ahead is to sell and of course you are going to re-buy. If you re-buy in the same area there is still no effective gain. You need to buy in a cheaper market to come out on top or simply wait until the market moves downward. Something to think about.

Let’s talk about the strong job numbers…

Where are they? The 90-100 million working age Americans not in the labor force? That is a strong market? If they say so.

How about inflation? Here is a chart that shows the inflation numbers over the years.

Inflation at 2% is devastating. How on earth can you save money and expect to retire? You need to earn more than 2% interest just to break even. Now go back to that home loan and think about the interest you pay… Your home value needs to go up at least 2% each year again, just to break even due to the rising costs of everything else. We rarely think about these things.

Finally, I want to provide an example of inflation. True story.

I purchased an air compressor back in 2007-2008. For arguments sake, let us just say it was 10 years ago for round numbers. I paid $399 for that air compressor (I promise this is not an advertisement!). Now I just checked and they still sell that same air compressor, but the price is now $489. That is $90 dollars more than what I paid! Same air compressor, does the same thing. So what is the inflation numbers on that?

Roughly, 23% inflation over a ten year period which averages 2.3% inflation a year.

Look to get ahead in this world, you have to really think about this stuff. If you go with the flow and listen to most Americans you will be drowning in debt. You will be the subjects of articles like this…

U.S. household wealth increased in the second quarter to yet another record, driven by solid gains in financial assets and rising property values, figures from the Federal Reserve in Washington showed Thursday.

The increase in household wealth reflects steady growth in house prices, which were up 5.7 percent in June from a year ago, based on S&P CoreLogic Case-Shiller data, as well as a 2.6 percent rise last quarter in the S&P 500 Index, which is hovering near a record high.

A strong job market and low inflation also are allowing Americans to improve their purchasing power, helping to sustain household spending, the biggest part of the economy. The report also showed companies had almost $2.3 trillion in liquid assets, giving them the means to boost investment.

Source: U.S. Household Wealth Rises $1.7 Trillion to Another Record – Bloomberg



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2 Comments

  1. Wow! Fantastic discussion, Brandon. I couldn’t have said it better myself.
    I would also encourage your readers to not get confused by the “keep your mortgage to keep your tax deduction” myth. The math simply doesn’t support that idea. Pay it off early and enjoy your dwelling.

    • Good point eagle.

      It is these types of angles we rarely hear about. Instead we hear folks talking about re-financing for a house remodel or purchasing a new vehicle. That is just going further into debt, few people seem to understand that because socially, it is acceptable and never questioned.

      People should do what they feel led to do. But when you refi to remodel your home it is a big loser, the same for the vehicle. The vehicle instantly goes down in value while you pay interest.

      The home remodel?

      There are very few remodel options that will match your financial investment in perceived re-sale value.

      Dual pane windows are typically a good one on the positive side. But that nice tile floor you paid 10k for. It might be worth 3-5k in resale so you lost 5-7k right off the bat not to mention the interest you are paying on the loan you took out. When we think about it like this we can quickly see how these are bad investments and this also explains why as we linked in the article, so many are in debt.

      If you want to do these upgrades outstanding! Just save up the cash to do it.

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