Posts Tagged ‘finance’

The Cost of Moving in a Down Market

Wednesday, March 19th, 2008

Mortgage rates are still near historic lows and with the housing market still slumped it seems like a great time to move up to a bigger house.  That leaves people moving up (including me) with their old house still to sell - no small challenge in a down market.  The people who are really suffering, though, are the people moving down. 

 For example, Bobby B. Yuppy (me) sells his condo at a loss (or minimal gain) from 2005 value, but gets a steal on the house he’s upgrading to.  If he takes a 10% loss (from 2005 numbers) on the condo but gets a 10% gain (again, based on 2005 appraisal) from the new property it’s a net win because the new property is significantly bigger, better, and more expensive.  Johnny A. Baby-Boomer (he and his wife combined last names on marriage - those crazy 60s feminists) is looking to move down from the big house where they raised their kids and into a smaller retirement nest.  He’s also happy about unlocking some of that big equity in his house to help out their retirement.  If he gets the same 10% gain on the purchase of his new retirement bungalo and a 10% loss on the sale of his big empty nest (the one with all the kids’ empty bedrooms) he’s taking a net loss.  As an added bonus, he’ll also be really surprised about the loss of his expected retirement monies he thought he could count on in his equity.  Sorry, Johnny, you don’t get to buy that boat or RV after all; you’ll have to settle for an off brand motorcycle.

 Food for thought.  No matter what the market’s doing, someone is always winning and someone is always losing.  Always try to consider what you can do to put yourself in column A.

Fed Rate Cut

Tuesday, March 18th, 2008

The Federal Reserve has announced a rate cut of 75 basis points today, or 3/4 of a percent.  That’s an historic cut, but still below the 100 basis points many were predicting yesterday.  For consumers this might not mean a lot.  Mortgage rates are expected to stay comfortably in the 6% range for the next few months regardless of fed rates.  What this does mean is banks may do a little curling out of the fetal position and start to loosen their purse strings.  As usual, the rate cut will influence consumers indirectly rather than directly.  The real question is how the banks will respond. 

 Right now lenders are more than a little gunshy, and for good reason.  It’s difficult to argue that they haven’t brought their present woes upon themselves, much like the sub-prime borrowers who are in the same boat.  No one can tell when we’ll return to a more rational sense of lending, but it’s certain we’ll be struggling with the echoes of the sub-prime debacle for months, if not years, to come.