This isn’t a stock question, because I know stocks wouldn’t be the best option for me, but I also know you guys are smart and can lead me in the right direction. I sold a home 2 years ago and have kept the profit of that money liquid in a high yield savings because the interest rate between the savings account and cd were the same. I had thought by now I would have used the money to purchase a new home, but with how high the rates have been and how expensive the homes are, I decided to hold off. My question now is what do you think I should do with the money? I want to buy a new home, but am waiting for the housing market to come back down and interest rates to lower. That could be a year or 5 years- nobody knows. In the meantime with the feds starting to cut interest rates the rates on cds and high yield saving accounts are also dropping. I’m not sure if I should split the money half into a cd and half into a high yield savings, or keep it all in a high yield savings or do something else. I don’t want to put all of it in a cd because I want to make sure I have money liquid if needed. I am currently earning 4% in my high yield savings. Any advice is greatly appreciated!
Buying debt isn’t a bad idea with interest rates expected to be cut several more times. But that doesn’t include the very short maturities - those rates will fall but the value of the debt won’t rise. Longer term to maturity will rise in value in the secondary market as interest rates fall.
As far as housing prices, all things being equal, when mortgage rates fall the home values will rise. Housing tends to get priced at what homeowners can afford per month. So if monthly payments fall due to interest rates falling, then the cost of the house will rise to find an equilibrium based on those monthly payments.
However, real estate is primarily dependent on the local market. If builders can’t keep up with the demand then prices will be up. If they overbuild the market then home prices should fall (or at least not go up).
One other thing to consider, as interest rates fall the supply of homes will increase. A lot of people are hanging on to their homes because they have very low interest rates on their mortgages and they don’t want to pay those loans off by selling.
Laddering CDs might be a good option. It’s safe and maintains liquidity to move quickly if the right home comes available. Split between 1 month, 3 month, 6 month, 9 month, 12 month, 18 month, 2 year, etc.
An ETF like BND might also work. Those shares ought to go up in value a bit as interest rates drop. It won’t soar in value, but also isn’t likely to take a huge dive either.
Treasury Direct is a good place to stash money at good interest rates. But there are annual limits.
