1

We have planned to buy a house but with such high rates that did not happen. We would have to wait until rates are lower. I planned to use the down payment money to invest in Ig 3-5y corporate bonds or etf on such bonds. That way when rates go down, this is the time when I need money to buy a house and I will sell my bonds with price appreciation. Is there a possible problem with this strategy? It seems like the timing of rates going lower will work in favor for my investments. I assume either bonds themselves or etf on them should give me premium payoff.

4
  • 1
    Who said rates are going down? For now the expectation is for them to continue going up. They're nowhere near the highest rates have ever been, or even the average.
    – littleadv
    Commented Jul 24, 2023 at 21:26
  • Well then I will be sitting on my bonds as with such high rates I can't afford a house. So basically I wait until they went down enough for me to afford it and then I sell them!
    – Medan
    Commented Jul 24, 2023 at 21:51
  • 3
    It's a strategy, and it's valid. I'm voting to close this as off topic since you're basically soliciting opinions and judgement, not really asking anything. This is not a discussion forum.
    – littleadv
    Commented Jul 24, 2023 at 21:56
  • Don't forget about credit spreads...
    – 0xFEE1DEAD
    Commented Jul 25, 2023 at 0:21

1 Answer 1

1

Yes there is a possible problem. If the price of real estate increases faster than the interest rate of your bonds (or other investment vehicle) over the time range until interest rates go down to an acceptable level for you, then your down payment will no longer be enough to buy a comparable house.

Relying on this money to keep up with the housing market risks keeping you priced out forever. A better way to view things is that you can no longer afford a house. You're back at saving for one. Set a time horizon and use appropriate investments (which might or might not include bonds) for that.

4
  • 1
    The last point is important. Bonds are rather safe investment vehicles that have a lower return, which is OK for money that you plan to use soon like an upcoming house down payment. But now the OP is in a situation with no concrete time horizon to use the down payment money, and doesn't have enough to do anything with anyway - it may be time for a higher-yield, higher-risk investment. Commented Jul 25, 2023 at 13:47
  • But higher risk investment has no time frame. So if in a few months or years rates are down my risky investments might be down too and then I can't access the money unless sell at a loss. Bonds provide save environment that generates some return.
    – Medan
    Commented Jul 25, 2023 at 14:02
  • 1
    @Medan Every investment has a time frame; its your "horizon", when you plan on needing the money. Your comment illustrates the issue of your question: you have no idea when interest rates will come "back down". They might never get back to 2020-2021 levels. It might be in 20-30 years. In both cases, you'd likely be better off in stocks/ETFs for at least part of the time. That's why you shouldn't "wait for interest rates to come down". You should make a best estimate on when you can buy (regardless of rates) and save for that with appropriate instruments.
    – Grooke
    Commented Jul 25, 2023 at 14:51
  • @Medan worth remembering that when interests go down - housing prices go up much faster, so in essence what you can afford now will be what you could afford had interest been lower - since the price would be higher.
    – littleadv
    Commented Jul 25, 2023 at 17:37

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .