On the topic of buying my own place, it has always been my thought to wait until half way through next year to make a decision on buying. This MSN Money article, House prices expected to fall until 2009, reaffirms it for me.

“It’s going to be a long time before we see it bottom out and recover,” said David Lowman, chief executive of JPMorgan Chase’s Global Mortgage unit. “There’s too much inventory already in the marketplace.”

Lowman and the three other participants in a round-table session before most of the convention’s 4,000 participants differed slightly on the size of price declines still upcoming, but they agreed no price recovery is likely until at least 2009.

“I think this year we will see a 2% decline in national home prices, and we’re projecting about a 4% decline next year,” said Thomas Lund, an executive vice president at Fannie Mae.

Prices likely will flatten in 2009, Lund said, before gradually rising.

Lowman said it might be 2010 before the price decline ends.

This is not hard to imagine, because it is only since last year 2006 that the rate has begun to reset for many home buyers with ARM. Those ARMs are borrowed on a fixed rate for either 3-year or 5-year for many people spreaded over time. Hence, it is not difficult to imagine that as many more of those ARMs’ rates get reset in the coming years, there will be more defaults and foreclosures following. Together with an already over-supplied market, housing price is bound to drop further

So honestly speaking, who knows when the housing market is going to bottom out? Nonetheless, that is my vision and what I believe. That is the reason why I am waiting until next year to get a better perspective before making a decision to jump into home-ownership.

There is no hurry because while I wait,I will continue to put my money to work in some high-yield saving accounts and stocks/funds investment.

Follow up on Money Can Buy Happiness, I will talk about two reasons why it is useful to have capital or a good amount of money, business/investment/portfolio-wise. They are also the main reasons the rich can continue to get richer and stay rich, IMHO.

Capital Provides Bargaining Power

Having money gives you bargaining power in dealings. People who have more money usually have or obtain more advantages and benefits in business dealings. How?

Here is the first scenario. Let’s say you are moving a good distance away and have to sell your house. The difference between having the money to buy a new place flat out and not having the money, thus have to wait for the sale of your previous dwelling is huge. If you have the money already, you can buy the new place and wait for a buyer who offer the ideal price for the old house. Otherwise, you maybe forced to accept whatever kind of offer you can get within a short period of time. I know you maybe think, “Oh, I can rent…” but this is just an example. If you insist, then let’s say you have to sell an item. If you are short on cash, you maybe forced to accept a crappy, low-ball offer. Otherwise, you have all the time you have to wait for an ideal offer.

Another scenario is one where you are considering about taking a loan for, let’s say, a mansion, but you actually have A LOT of money and therefore you can pay for it in full with cash. The bank, better than not having your business completely, may tempt you with a loan that has very low interest rate, for which is a good idea to accept so you can put your cash to work elsewhere. Now if you don’t have the money, you must take a loan in order to make the purchase, so why would they need to give you a low interest to lure you to into the loan?

Capital Allows Diversification

Anyone who has done some study into investment would run across the idea of diversification. Briefly, the main concept is that you spread your money out into many areas, and by doing that, you run less of a chance of losing all your money by betting in one place. Meanwhile, you hope that more of the invested areas would do well to allow for profits.

A company with more capital is able to invest in more areas or projects than one with less, and so long as one of those projects becomes a hit, or most of them do well except a few, they’re all set. The same thing applies for individuals. An individual with more capital is able to spread their money into more stocks, funds, and markets, and as long as most investment do above averages, or if one becomes a hit, he’s all set.

Consequently, people with more money have more flexibility in choosing and allocating their investment portfolio. On top of this, there are investment products that are only available to people with certain amount of money.

Two quotes from Abraham Lincoln:

Allow the president to invade a neighboring nation, whenever he shall deem it necessary to repel an invasion, and you allow him to do so whenever he may choose to say he deems it necessary for such a purpose—and you allow him to make war at pleasure.
- Abraham Lincoln

I see in the near future a crisis approaching that unnerves me and cause me to tremble for safety of my country; corporations have been enthroned, an era of corruption in High Places will follow, and the Money Power of the country will endeavor to prolong its reign by working upon the prejudices of the People, until the wealth is aggregated in a few hands, and the Republic destroyed.
- Abraham Lincoln

I feel that Abraham is dead on with what he said (no pun intended), describing what is happening and what will happen, perhaps soon, in the American society.

What do you think?

J.D. from Get Rich Slowly wrote the post, What Developing Nations Can Teach Us About Personal Finance

Trent from The Simple Dollar wrote a related post, The Backlash Against Frugality about someone promoting frugality in an article and in return received some “flaming” comments, sadly. If only people are more opened and receptive to new ideas…

It’s hard to talk about personal finance without ever touching on the subject of frugality. I have talked about taking responsibility and making choices, and such are we do in personal finance, such are we do in frugality also. Let’s not forget about the “personal” part of this whole idea, so at the end of the day, it’s your own choice.

You don’t HAVE TO get rid of your TV, but you can CHOOSE TO.
You don’t HAVE TO wear all used clothes, but you can CHOOSE TO.
You don’t HAVE TO drive a crummy 2nd-hand car, but you can CHOOSE TO.
You don’t HAVE TO live without an iPhone, but you can CHOOSE TO.
So on and so forth.
You choose to live frugally.
You choose and find ways to be frugal based on your preferences.
Just like you choose your lifestyle.

Oh btw, I choose to not have an iPhone because I cannot guarantee myself I will never drop my cellphone (as I had too many times already), I prefer “pure” mp3 player of another brand with better sound quality, and I don’t think $400 + the monthly upkeep is worth it. Anyways…

Those articles are merely suggesting ways to be frugal, which serve to provide others to think about frugality. But alas, how many really use their brains and think these days.

With that, I leave you with the comment I left for J.D.:

Thanks, J.D., for the thoughtful post, and I am sorry to read all the comments from people who find it offensive.

I believe the article is meant to be a thought provoking piece that can get us to find ways to be more frugal ourselves and find ways to change our life to be better (happier), with “change to be better” echoing with my own values. And not with the intention to argue that Americans should be just like these 3rd world countries, which is the reasoning a majority of the people used in their comment to refute this post.

No, we shall not have to live in a 200sq ft apt, or some shed in the middle of no where, but neither shall a single person live in a 4000sq ft mansion.
No, we shall not have to eat crap food, but neither shall we spend $1000 eating out per month.
No, we shall not live like a miser so we can retire at 45, but neither shall we live as pure hedonists.

Anything taken to extremity is a bad thing. Find your own way to live simpler and happier, and not live a life that is bloated and driven by consumerism and capitalism.

MSNBC has this article: Pricey student loans sow seeds of trouble.

While scholarship, grant money and government-backed student loans — whose interest rates are capped — have taken up some of the slack, many families and individual students have turned to private loans, which carry fees and interest rates that are often variable and up to 20 percent.
…
Consumer prices on average rose less than 29 percent over the past 10 years while tuition, fees, and room and board at four-year public colleges and universities soared 79 percent to $12,796 a year and 65 percent to $30,367 a year at private institutions, according to the College Board.
…
Meanwhile, complaints about marketing of private loans — like ads promising to approve loans worth $50,000 in just minutes — are on the rise. The complaints have made their way to lawmakers, who see a need to regulate the highly profitable and diverse group of companies and the loans they make to college students.

In other words, available government loans is not able to keep up with the increase in student tuition in the past years, forcing students to turn to private loans that have some very hefty interest rates.

“College students, you need a large sum of money for school? And have little to no credit? No problem! We will still give you the loan. (But we will take back a lot more from you later, in the form of interests, yeah!!)”

Wait…have I heard this before? I think this sounds similar to what they did in the subprime mortgage sector. Not only will students carry a bigger amount of debt out of college, they will also carry those debt at a much higher interest rate. This will clearly bring their monthly loan payment to double, triple, quadruple… than what their previous generations had to pay. And since I doubt future salary can increase at such a joyous rate, this gives birth to the question on how the future generation can afford their loan payments graduating from college. If they cannot afford them, they are going to start to default… oh crap…

And wait…have I heard this before? I think this also sounds similar to what’s going on in the subprime mortgage.

Despite this being pure speculation that I draw and agree with such a comparison from the article, I really wonder what are these people thinking? Is making instant or quick money all they care about now?

In short-term definitely, they will reap some heavy profits with the high interest rate, and probably packaging these loans to sell as collaterals also.

Now in long-term, I don’t know if it looks so good anymore, and I would say worse than what may happen in the mortgage sector because the people they screw over this time will be the whole future generation. Not only will all the investment and hedge-funds base on these student loans crash. These are the people who will be future consumers, the entire or majority of the population, unlike the subprime population that makes up a much smaller percentage.

So what these private loan companies will end up doing is crippling the future population’s spending power with these loans and probably destorying a good portion’s credits. Without spending power and credits, they can’t buy houses, they can’t buy services, they can’t buy consumer goods… Let’s see such a economy will work out then.

Again this is pure speculation and albeit pessimistic, I can’t help but see the resembling occurrence between the student loans and subprime mortgage. It seems like these people are just moving sector to sector aiming only to make a quick buck and to get instant gratification with no caring about other people’s lives. Where is their sense of decency and compassion? I don’t see any. They are now targeting 17-20 years old with little life experience and will probably make their life experience a sad and painful one before they have a chance to start it. I would rather live poor than having to sell my children’s life away like that, but actually in my standard, I would consider myself living rich the way I choose to live.

I sure hope they are ready for such a future.