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Is it dumb to sell stock now to buy a house?

Minoosh

Penultimate Amazing
Joined
Jul 15, 2011
Messages
12,594
The stock market is down, the housing market is on fire and I need a place to live. I can rent month-to-month, but for the first time in my life having a paid-for home is really sounding like something I want. Housing prices probably aren't going to go down in my market (desert Southwest).

I know the answer depends on several factors, but what would you do in this situation? I'm hoping to pay cash and that means pulling money out of investments. Of course if the stock market *really* tanks maybe I'll be congratulating myself on my wisdom, but I'm thinking it probably won't. I can't imagine housing prices going up much because I don't understand how people are affording the prices sellers are already getting for just about anything with four walls and a roof.
 
I can't offer good advice because there isn't any. Housing prices depend on where you live. Where I am rent and housing prices are still climbing.

You never know when the stock market is done bottoming out. It's a gamble even for people who think they know what will happen.

Have you thought about consulting a financial advisor?
 
They'll keep making stocks. They ain't making more land. Get yours while you can.

That said, the most prudent long term investments remain to be Ramen noodles, ammunition, and sex slaves.
 
Speaking of long term, both houses and stocks are always a good investment if you plan to hold them for 5 or more years. Even the 1929 stock market recovered a few years after the crash.

And if you are in the right town, houses are a fantastic growth investment. Trouble is you can't sell and buy anything else in the same area because it will cost as much. But people do it if they have growing incomes by taking on more debt. IOW you sell at a million dollars profit and use that money as a big down payment on an even bigger house.

In my case, if I did want to cash out and rent, rent would eat up the profits in no time. And you have no control of a landlord raising the rent.
 
Anyone whose answer truly could be trusted would be very wealthy, because knowing what direction prices are going is almost impossible, but if you can do it reliably, you can make money hand over fist. In things like real estate and stocks, or even things like Bitcoin, the current market price is the consensus value of all traders on what that thing is worth. Any time you buy or sell based on what you expect the market to do, you are saying, "I am smarter than the average trader. They think the current price is a good price, but I know that it is undervalued, and will rise. Or maybe I know it's overvalued, and will fall." Either way, if you can actually be very, very confident that you know market direction, you can make a lot of money very fast.

That being said....


If you own a house, you own a house. It's a good thing to own a house.

If you own stocks, their value depends on that company continuing to do well in the future. For a house, the market value might go down, but no matter what happens, you can live in it. I stumbled on some money (inheritance) last year, and decided to pay off a mortgage. i.e. I could have invested it in stocks, but I decided to invest in my home, specifically by getting rid of a monthly payment, forever. I don't know if it will be the best way to maximize future bank balances, but I know that I don't have to pay anyone for the privilege of living in my house, so it seems like a good thing to me.
 
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We just bought a house for practical reasons. We paid cash because it seemed a safer place for our money than the market. We didn’t have to sell stocks, but I chose real estate over buying more stock.

I tend to make bad decisions when it comes to timing the market and just stick with them until they look good.
 
Have you thought about consulting a financial advisor?
I need to do this, but ...

If you own a house, you own a house. It's a good thing to own a house.

Investment advice is one thing, but there is this somewhat intangible benefit in having a secure place to live. Money can always buy me a place to rent but people tell me that having a paid-for home does something for your peace of mind.

Of course there's always taxes, insurance and HOA fees! But I do plan to continue working. I'm near retirement age but work does wonders for my mental health. Yesterday I participated in a water balloon flight and today a petting zoo visited the school!
 
The stock market is down, the housing market is on fire and I need a place to live. I can rent month-to-month, but for the first time in my life having a paid-for home is really sounding like something I want. Housing prices probably aren't going to go down in my market (desert Southwest).

I know the answer depends on several factors, but what would you do in this situation? I'm hoping to pay cash and that means pulling money out of investments. Of course if the stock market *really* tanks maybe I'll be congratulating myself on my wisdom, but I'm thinking it probably won't. I can't imagine housing prices going up much because I don't understand how people are affording the prices sellers are already getting for just about anything with four walls and a roof.

Couple of points to consider:

1. You say housing prices probably aren't going to go down in your market. I also live in the desert Southwest (Phoenix) and from 2007-2010 housing prices declined by over 50%, so it can happen in the short-term even in markets where the long-term fundamentals are solid. They recovered eventually but those who bought in 2010 were much better off than those who bought in 2007.

2. The stock market will only really tank in a situation (recession) where housing will also have problems. However the risk of that happening in the next few quarters has certainly increased, so I would be nervous about any types of asset values. Might be a good time to go for short-term investments; rates are going to increase on those.
 
I wouldn't dare to give any opinion regarding the relative price movements of stocks vs housing prices.

But I can say one thing: if you own a house free and clear then you pay no rent. Even if the value falls, you still pay no rent. I have calculated this benefit in my case as equivalent to a tax free return of at least 5%. If your circumstances get reduced for any reason, you will be grateful that you don't have a landlord hitting you for money every month.
 
I wouldn't dare to give any opinion regarding the relative price movements of stocks vs housing prices.

But I can say one thing: if you own a house free and clear then you pay no rent. Even if the value falls, you still pay no rent. I have calculated this benefit in my case as equivalent to a tax free return of at least 5%. If your circumstances get reduced for any reason, you will be grateful that you don't have a landlord hitting you for money every month.

Well...sort of. If you own free and clear, you basically prepaid your rent for many years. Plus you still have taxes, insurance, maintenance, repairs and improvements and other upkeep and carry costs, so it's not like you are free of monthly "rent". All in, you are likely paying less to own, and of course have a real net asset when the dust settles instead of nothing.
 
I wouldn't dare to give any opinion regarding the relative price movements of stocks vs housing prices.

But I can say one thing: if you own a house free and clear then you pay no rent. Even if the value falls, you still pay no rent. I have calculated this benefit in my case as equivalent to a tax free return of at least 5%. If your circumstances get reduced for any reason, you will be grateful that you don't have a landlord hitting you for money every month.
I tend to agree on that. It depends on what you need and want, I think, as well as what you can afford, but unlike other investments, a house is also a thing, for which the term "investment" might not be as apt as "purchase."
 
Well...sort of. If you own free and clear, you basically prepaid your rent for many years. Plus you still have taxes, insurance, maintenance, repairs and improvements and other upkeep and carry costs, so it's not like you are free of monthly "rent". All in, you are likely paying less to own, and of course have a real net asset when the dust settles instead of nothing.
Yes you have costs that you wouldn't have as a tenant but they are generally much less than rent and the net saving still represents a better return on your investment than you would normally get from stocks.

The peace of mind you get from not having to pay rent is invaluable however.
 
Speaking of long term, both houses and stocks are always a good investment if you plan to hold them for 5 or more years. Even the 1929 stock market recovered a few years after the crash.

Much as I agree with Skeptic Ginger's main point, let me point out that the Dow-Jones hit 362 in September 1929 and didn't pass that level again until 1954. Of course, that was the Great Depression. The DJIA recovered after the Great Recession in about four years.
 
Pretty much the definition of "sell low, buy high". But it all depends on your circumstances.
Interest rates are at historic lows. Can you get a mortgage? Might be better than selling a lot of stock at a low point.
When we had our house built in 2018 we had sufficient assets to pay for it outright, using the proceeds from our old one and another windfall. But we got a mortgage anyway, because the mortgage interest is deductible and the market was doing better than the interest cost. In the long run, the latter will still be true.
 
Much as I agree with Skeptic Ginger's main point, let me point out that the Dow-Jones hit 362 in September 1929 and didn't pass that level again until 1954. Of course, that was the Great Depression. The DJIA recovered after the Great Recession in about four years.

I'll go with 7 but not 25. The Dow did not include all stocks in the market.

Myth: It Took 25 Years to Recover From 1929 Stock Market Crash
You may have heard that it took 25 years for the stock market to recover during the Great Depression. I’ve heard it and simply accepted it as truth, until today. It’s true that the Dow Jones Industrial Average (DJIA or just “Dow”) peaked at 381.17 on September 3rd, 1929. It is also true that the DJIA did not reach that level of 381.17 again until November 23rd, 1954. That is a span of over 25 years.

However, as this 2009 NY Times article by Mark Hulbert explains, that’s not the whole story when you dig a little deeper.

[…] a careful analysis of the record shows that the picture is more complex and, ultimately, far less daunting: An investor who invested a lump sum in the average stock at the market’s 1929 high would have been back to a break-even by late 1936 – less than four and a half years after the mid-1932 market low.

The truth is that it took about 7 years for an investor to recover (1929-1936), even if they invested all their money at the very peak. This came 4.5 years after the Dow hit its period low of 41.22 in the middle of 1932. Why?

1929 Stock Market Recovery
Changes in Dow
The Dow Jones industrial average in 1929 did not maintain static membership. Some stocks were taken out of the average, and others were added. When the Dow reached its old peak 25 years later, it did so with different stocks than were in it during the crash. This means a comparison of Dow levels in 1929 and 25 years later is an apples-to-oranges comparison.

Bottom line, this too shall pass.

With the purchase of a house it used to be a general rule it took about 5 years before one's equity exceeded closing costs. That's probably different now too with competition by realtors meaning they are competing by lowering their commissions.

My house is a bit expensive to maintain (built in 1954 plus a big addition in 1986). But between all the expenses it's still less than the going rate for rent in this area.

If you can invest in a house, it is generally considered better than throwing money away in rent payments.

If you have to sell stocks when the prices are at the bottom, from my experience you just have to suck it up and sell. We had to cash in a Vanguard Fund for my son's college expenses. Stocks were crashing at the time. We lost about $10K from the earlier peak. But we didn't lose if you compared it to the average invested over the 18 years we put money into the fund.
 
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Oh...and I didn't think about it, but you are talking about selling stocks.

Don't forget capital gains taxes. They will happen at some point no matter what, but you might not have as much money as you think you have, and the existence of those taxes might make some moves smarter or not quite as smart.
 
The stock market is down, the housing market is on fire and I need a place to live. I can rent month-to-month, but for the first time in my life having a paid-for home is really sounding like something I want. Housing prices probably aren't going to go down in my market (desert Southwest).

I know the answer depends on several factors, but what would you do in this situation? I'm hoping to pay cash and that means pulling money out of investments. Of course if the stock market *really* tanks maybe I'll be congratulating myself on my wisdom, but I'm thinking it probably won't. I can't imagine housing prices going up much because I don't understand how people are affording the prices sellers are already getting for just about anything with four walls and a roof.

Not sure why the 'paid-for' part is essential. If owning is 'something you want' then it's the no-brainer choice, but if you can hold on to at least some of the investments it would be nice to have the best of both worlds. I inherited a portfolio around the same time (5 years ago) i sold my old house and bought a new one. The house supposedly has increased 100% while the stocks went up about 60% and now have tanked in the last 6 months. And unfortunately I didn't factor in capital gains and Im self-employed so I gt slammed with a huge tax bill this year thanks to last year's market run. So as others have mentioned--lots of factors! Which is why you should go with what you want and not worry too much about the ways it could play out.
 
And it's not like home ownership means you don't have to spend money on housing ever again. Just wait until you need a new roof, or sewer maintenance, or whatever.


But....all things considered....I really like owning a home compared to renting.

And I would never buy anyplace where there was a homeowner's association, especially that had mandatory fees. Yechh. If I'm not breaking any laws, I'll put up whatever danged curtains I want.
 
As for market timing and real estate, i.e. will homes be cheaper or more expensive next year, I said that if you actually knew the answer with high confidence, you could become very wealthy. However, there are times when the answer really is obvious. If people in the "starter home" market cannot afford the cost of a starter home, then you're in a real estate bubble. They will fall.

I moved to Los Angeles in 1987, and with my high salary, as I thought of it at the time, and it did put me in about the 75th percentile of nationwide family incomes, I could not afford the mortgage payment for a small house in Hawthorne, where I was renting at the time. Hawthorne wasn't exactly a great neighborhood. It wasn't Compton, but it was where you lived if you couldn't afford to get anything better. When someone in the 75th percentile of family income can't afford 1000 square feet in a run down neighborhood, there's a housing bubble, and there was.

And there was in 2002. And 2008. And today? Varies by location.

In general, if people are talking about how much house they can afford, and ending the sentence with, "but it's a good investment"....something is wrong, and it probably isn't a good investment.
 
I don't know anything about real estate, except that they're not making any more of it, and that you get a lot of value out of your primary residence by living in it. It's not like a rental property, where you have to work to make it pay off.

I also don't know anything about the stock market. For this reason, my policy has always been to sell stock (which I mostly receive as a perk from my employer, either as bonuses or as a discounted purchase from my paycheck) the moment it hits my brokerage account. By selling immediately, I realize the profits immediately, and don't have to worry about riding the ups and downs and fighting for the best possible "buy low/sell high" trading moment. I'm not a day trader. Better to extract the money right away, and put it into some other account or instrument or vehicle with more stable long-term returns. Life insurance, or debt retirement.
 
Pretty much the definition of "sell low, buy high". But it all depends on your circumstances.
Interest rates are at historic lows. Can you get a mortgage? Might be better than selling a lot of stock at a low point.
When we had our house built in 2018 we had sufficient assets to pay for it outright, using the proceeds from our old one and another windfall. But we got a mortgage anyway, because the mortgage interest is deductible and the market was doing better than the interest cost. In the long run, the latter will still be true.
While that's likely truer than it used to be, the structure of a mortgage loan is still not always very favorable. Unless the assets you sell to buy a house are providing you with income (i.e. dividend paying stocks), if your income allows you to pay a loan, it also allows you to pay the same amount back to yourself.

I think this is a common error in many people's argument in favor of loans for cars and the like as well. It's presumed that if you spend the capital instead of borrowing it, it's gone forever, because you will lack the discipline to make the payments to yourself. If you do, you'll always get your money back faster, because every penny you pay back will be principal, and can begin earning interest again as soon as it appears.

This argument is less relevant in a time of very low interest and especially if you have older investments with locked-in interest or dividends that cannot be reproduced, but it's still worth looking at, because it's surprising how easily a long term loan can double the cost of what you're buying.
 
I think you have to separate the two issues:

1. As things stand right now, can you afford to own a house; as in: pay insurance, maintenance, repairs, taxes, etc?

2. As things stand right now, can you afford to take money out of your savings; as in: will you have enough to retire on, can you cover the capital gains tax, etc.

If the answer to either question is no, then stop here. Don’t buy a house.

If the answer to both questions is yes, then I don’t see anything wrong with buying a house. Nobody can predict the future and as long as you plan to live in the home long-term, a home is as good a place to park some money as anywhere else.

And maybe don’t buy it 100% cash. Maybe pay a big enough down payment so that your mortgage payment + escrow is equal to what you would pay in rent. Then, you get to save a bit on income tax while not paying any more than you did before AND getting to retain some of your savings.
 
Pretty much the definition of "sell low, buy high". But it all depends on your circumstances.
Interest rates are at historic lows. Can you get a mortgage? Might be better than selling a lot of stock at a low point.

If you're near retirement age, and get a mortgage it might not be cheaper than rent.

If you sell stocks, the market is low, but I think it's going lower, so selling
"Low" is relative.

You could get a partial mortgage and sell some stocks for a deposit.

Not that I'm a financial adviser. I'd try and talk to a real one. There are free services out there if you don't want to pay thousands for advice.
 
Pretty much the definition of "sell low, buy high". But it all depends on your circumstances.
Interest rates are at historic lows. Can you get a mortgage? Might be better than selling a lot of stock at a low point.
When we had our house built in 2018 we had sufficient assets to pay for it outright, using the proceeds from our old one and another windfall. But we got a mortgage anyway, because the mortgage interest is deductible and the market was doing better than the interest cost. In the long run, the latter will still be true.
Yes, an alternative to exchanging all of your stock holdings for a house is to buy a house with a mortgage then use the earnings from your stocks to pay down the mortgage. If your stocks don't earn enough then you can sell a little at a time each time you need to make a mortgage payment. This is sort of a cost averaging technique in reverse.

Which option is better depends on whether you expect the value of your stocks to rise or fall over the next few decades.
 
Speaking of long term, both houses and stocks are always a good investment if you plan to hold them for 5 or more years. Even the 1929 stock market recovered a few years after the crash.
"A few" is stretching it to say the least, but you're right that if this is a long-term thing, go for it. That said, housing prices are at an insane high...whether the bubble is due to burst or it makes sense to get in now as it will only go higher, nobody knows. What is certain is the tax break you get as a home owner, as well as the equity you build up.
 
"A few" is stretching it to say the least, but you're right that if this is a long-term thing, go for it. That said, housing prices are at an insane high...whether the bubble is due to burst or it makes sense to get in now as it will only go higher, nobody knows. What is certain is the tax break you get as a home owner, as well as the equity you build up.

Did you see my links? They do a thorough job of sorting it out.

The interest tax deduction used to be great but now I don't earn enough to itemize.
 
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Pretty much the definition of "sell low, buy high". But it all depends on your circumstances.
Interest rates are at historic lows. Can you get a mortgage? Might be better than selling a lot of stock at a low point.
When we had our house built in 2018 we had sufficient assets to pay for it outright, using the proceeds from our old one and another windfall. But we got a mortgage anyway, because the mortgage interest is deductible and the market was doing better than the interest cost. In the long run, the latter will still be true.
I don't know if I could get a mortgage. My income is pretty low right now but it might go up in a couple of months. Really I think I'm falling for the partially intangible appeal of a paid-for home.

But still - say that I can buy a house for the cost of 20 years' worth of rent. The difference being that if I buy a house, at the end of 20 years I'll have a house. If I use that money to pay rent, I won't.
 
I don't know if I could get a mortgage. My income is pretty low right now but it might go up in a couple of months. Really I think I'm falling for the partially intangible appeal of a paid-for home.

But still - say that I can buy a house for the cost of 20 years' worth of rent. The difference being that if I buy a house, at the end of 20 years I'll have a house. If I use that money to pay rent, I won't.
:)

Looks like you are moving in the buy the house direction. :thumbsup:
 
But still - say that I can buy a house for the cost of 20 years' worth of rent. The difference being that if I buy a house, at the end of 20 years I'll have a house. If I use that money to pay rent, I won't.

This is true, but you will also have had lots of expenses that you wouldn't have had as a renter. So you might buy the house for the cost of 20 years' worth of rent, but the amount you spend on the house might be 25 or 30 years' worth of rent. It's worth bearing this in mind.
 
I don't know if I could get a mortgage. My income is pretty low right now but it might go up in a couple of months.
If the value of your investments exceeds the price of the house then you might be able to use them as collateral for a mortgage if you don't want to shed your investments.
 
If the value of your investments exceeds the price of the house then you might be able to use them as collateral for a mortgage if you don't want to shed your investments.

This also is a good point, especially if you depend on any income from the investments. A collateral loan binds the capital, but you continue to get dividends and other benefits, and thus it may even be able to contribute to its own payoff. It's also usually less of a problem to pay it off early.
 
This also is a good point, especially if you depend on any income from the investments. A collateral loan binds the capital, but you continue to get dividends and other benefits, and thus it may even be able to contribute to its own payoff. It's also usually less of a problem to pay it off early.

If you are going to pay more interest on the loan than what the stocks earn, it is not a wise choice.

As for the income, it doesn't matter how much collateral you have or what you put down, since the 2008 crash here in the US to get any kind of conventional loan you have to have an adequate income.
I have a million dollars in equity in my home, literally, and I cannot refinance even for a fraction of that because my income during the last 2 years hasn't been enough.


And yes, there are expenses owning a home. But there is no way I would have earned $1 million by paying rent and owning stocks over the same amount of time unless I was lucky enough to have bought Amazon or Microsoft stock when they were fledgling companies. IOW stocks are more of a gamble than owning a home.

People did find themselves underwater in their mortgages in 2008, but that was because they were encouraged to leverage more than they should have. That's why the real estate crash happened.
 
If you are going to pay more interest on the loan than what the stocks earn, it is not a wise choice.
Not necessarily. There is still the rent (less ownership expenses) that you are saving. If it comes to a choice between selling existing stocks or using them as collateral then there is also a capital gains tax issue as well. (This is how the wealthy avoid capital gains taxes).

I get that your banker may not be willing to give you a collateralized loan or charge a punitive rate of interest for doing so. That's part of the homework you need to do.
 
I don't know if I could get a mortgage. My income is pretty low right now but it might go up in a couple of months. Really I think I'm falling for the partially intangible appeal of a paid-for home.

But still - say that I can buy a house for the cost of 20 years' worth of rent. The difference being that if I buy a house, at the end of 20 years I'll have a house. If I use that money to pay rent, I won't.

If you can pay rent, you can pay on a mortgage. That is, calculate how much of a house loan would result in a mortgage payment similar to what you currently pay in rent.

Convert enough stock make the down payment that leaves you with a loan that has a mortgage payment close to your current rent. Better to pay on a mortgage and build your equity than to pay rent and build the landlord's equity.

Then again, the news today is that the Fed is going to raise interest rates pretty sharply as a means to combat inflation. If the Fed's rate hike starts to trickle over to impact home loans, you might find yourself with a very expensive mortgage. Which might in turn dissuade new home buyers, causing housing prices to drop. That would be worth doing a bit of research on.

If you are going to live in a home for any length of time, it is usually a good investment so long as you don't splurge and buy a McMansion*. Your mortgage has interest but is not susceptible to inflation, but housing prices are subject to inflation, even if that inflation doesn't always match overall consumer inflation rates. Houses purchased at the height the mid-2000's housing bubble are now mostly worth more than they were then, despite the subsequent crash in market value - they made it back up via regular boring old inflation. If your income keeps up with inflation, then your mortgage payment usually drops relative to that.

*ETA: I mean compared to renting. The house value may not increase as well as stocks, but your mortgage payments feed back into your own financial worth, not the landlord's. I suppose another option is to sell enough stock to buy a whole house (no mortgage) but then set up an investment strategy using the money you were using to pay rent, to gradually build back at least some of the investment in stock value.
 
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Full stop. Do not make a huge purchase if your income is low right now. Use sense, not feeling.
I don't think you are reading what Minoosh is saying. She wants to buy a house without a mortgage.

So it really depends on if her income is enough to afford the expenses (after all she is paying rent). You still might not be making enough to meet the standards of the conventional loan people. Again, she's talking about buying a house outright, no mortgage.

So that means look to see if your income is enough to pay taxes, insurance, utilities and maintenance.

With interest rates going up and housing prices going down, it is shifting to a buyer's market. Find the right person who needs to sell and you might be able to offer less than they are asking.

I got a deal on my house 30 years ago because the people selling had a job in another state and really needed to sell the house.
 
I don't think you are reading what Minoosh is saying. She wants to buy a house

while having income that is "pretty low right now". Yes, I did read it. And my advice remains the same: do not make a huge purchase when you have a low income. Unless, of course, you happen to have vast wealth already accumulated. A few dozen times the purchase price of the house in question. If that is the case, if Minoosh is a multi-millionaire, then income doesn't matter and I withdraw my advice. If that is the case then Minoosh probably wouldn't be asking for any advice in the first place, as even a house would be a trivial purchase to someone possessing the kind of wealth to make income a nonconsideration.

I realize homeowners are frequently desperate to reassure themselves their gamble was a wise investment powered by their sheer financial genius but that doesn't mean they should encourage others to plunge into tremendously precarious financial positions like buying a house when they have a pretty low income.
 
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