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Sunday, April 11, 2010

Changes Coming

SEARCH BLOG: ECONOMY

After four years, we decided to try selling our house again. Based on sales of similar homes [which have been few], the value of our home has dropped by one-third in four years. So, why sell?

  • First, this is Michigan. Michigan led the nation into recession and it will trail the nation out of this economic morass. [image source]
  • Second, a 33% decline requires a 50% increase to get to break-even. The time frame we are talking about is probably a decade or more. Paying property taxes alone would wipe out any benefit from the recovered home value since I have a second property which does not qualify for a homestead exemption... and the property taxes on the lake property are equal to our primary home's.
  • Third, our children moved out years ago and two now live in a different part of the area... near our other property.
  • Fourth, our other property includes a small cottage that is quite old and in need of extensive renovation.
Taking all that into consideration, we have decided to price our home competitively [even though not very satisfyingly], tear down the old lake cottage and build a new home [to very energy-efficient specifications] and reduce our carbon/economic footprint by being close to the rest of our family living in this area.

This means some major changes for us. Obvious, a year of distraction.

The first part, selling the present home, may be accomplished much more quickly than we anticipated. We have two offers in two weeks and it looks like we may be closing within a month. The buyer is getting a great bargain and we are getting rid of the economic burden of two homes.

Then the summer and fall will be consumed with the building process. We chose a builder recommended by Glenn Haege. They may be a little more expensive than some, but we found from the very beginning that their vision of the rebuild was almost perfectly aligned with ours... and they offered their ideas first.

This means that we will be giving up some things. I've already let my golf league know that I won't be participating anymore. My wife will be giving up her participation in the local community chorus. The summer at the lake will be pretty much shot this year.

It also means taking on moving twice: the first move out of our home into an apartment during the building period and the second move from the apartment to our new home... a considerable nuisance, but unavoidable.

It also means somewhat erratic posting to my blogs... not sure if that is bad or good. But it should also provide some interesting pieces for posting.

Still, the long-term benefits outweigh the short-term drawbacks. We'll eliminate several thousand miles of annual driving back and forth between the two places. One of our grandsons will be right across the lake. Other relatives live in that immediate area... and, yes, that is a positive.

Of course, like anything else in life, it's not over until the money changes hands.
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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates

FEDERAL RESERVE & HOUSING

SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006 Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
November 28, 2007 FED VICE CHAIRMAN DONALD KOHN
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."
http://www.reuters.com/

December 11, 2007 Somehow the Fed misses the obvious.
fed_rate_moves_425_small.gif
[Image from: CNNMoney.com]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's Economy.com. "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.”
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)