NASD: People Putting Home Equity, IRAs in Stock Speculation
REAL ESTATE STORIES
By CBS MarketWatch
Last Update: 5:28 PM ET Dec 10, 2004
The National Association of Securities Dealers this week spotted what could be an alarming trend in the use of home-equity funds. It said a lot more homeowners were being enticed to cash out some of their gains and ply the money back into financial investments, investments which, by the way, would just happen to enrich the enticers.
The NASD cited a recent Federal Reserve study that showed 11 percent of the total dollars cashed out in mortgage refinancings were used for stock or financial investments in 2001 through the first half of 2002. That was up from just 2 percent two years earlier -- in the height of the stock-market frenzy.
Why homeowners would have suddenly gotten the urge to pump money into the market after it had for all intents and purposes crashed isn't addressed by the data. And there is no more recent indication that the trend has continued. The observation is also curious given the anecdotal evidence from surveys and other data that since the Sept. 11, 2001 terrorist attacks Americans have become more focused on their houses, willing to allocate more of their investment dollars to real estate, not fewer.
Perhaps some of that money was finding its way into retirement-income products such as annuities. But the message the NASD seemed to be pushing out there was that brokers were cajoling homeowners into taking out new mortgages so they could bet on riskier deals. The NASD warned brokers to halt any such sales practices. Most people still act sensibly with their home-equity dollars. One-third of that money is pumped right back into the houses of the people refinancing and nearly 30 percent is used to pay off other debt. Ten percent is used for real estate or business investment.
If you're a savvy investor, borrowing money on a mortgage at something close to 3.5 percent in after-tax cost can be a wise strategy indeed. Plenty of investments will beat that return. The problem, of course, is that far too many investors aren't that savvy. And when they bet too much of the house dollars on an investment that fails, it could lose them not only their retirement nest egg but their home as well.
Steve Kerch, real estate editor
Succeeding as a landlord takes diligence, patience
Real estate looks awfully tempting as an investment these days. And that is prompting more Americans to consider joining the ranks of landlords. See Weekend Investor.
Putting your IRA into the property perspective
Tired of putting your IRA money into the same old investments -- stocks, bonds and mutual funds? Want to invest in something entirely different such as real estate, an asset class perceived to be a top performer and risk reducer, at least over the last decade or so? Well, truth be told, you can invest your IRA money in just about anything you want to provided you can find a custodian willing to handle the asset and provided you can follow some fairly complex tax laws. See Robert Powell.
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