As Christmas approaches, I can't help but feel a sense of loss in the magic of the holiday. With my three teenage boys growing up, their excitement for Christmas has diminished significantly. When I asked them what they wanted this year, their response was simply, "money."
The Pickleball Club has unfortunately gone bankrupt. It struggled due to poor management, as the owner was unwilling to accept suggestions or admit to mistakes, even at the cost of financial loss. This stubbornness ultimately led to its downfall.
I’m feeling a bit lost right now because I don’t have a place to play, and I really don’t know what to do about it. It’s hard to admit, but I’m starting to feel a sense of panic. If you play, you understand.
Senay's grandmother really spoiled her this Christmas by giving her a fancy camera. Since then, Senay has taken it to pickleball tournaments and practiced her photography skills on some of my orchids (example below).
Understanding how mortgage rates, CD rates, and the Federal Reserve work together is like piecing together a puzzle.
The Federal Reserve, or the Fed, sets the tone for interest rates by managing the federal funds rate. This is the rate banks charge each other to borrow money overnight. It might sound boring, but it’s crucial. This rate influences mortgage rates and CD rates.
The Fed’s main goal is to keep the economy balanced. If things slow down, they might lower rates to encourage borrowing and spending. If inflation spikes, they raise rates to cool things off, making borrowing and growth harder. Think of them as the economy’s thermostat.
The prime rate comes into play next. Banks use it as a baseline for lending to their best customers—typically businesses with excellent credit. The prime rate is usually about 3% higher than the Fed’s rate. So when the Fed makes a move, the prime rate usually follows, impacting personal loans, credit card interest, and home equity lines of credit.
Mortgage rates are critical when you're buying a house. They dictate your monthly payment. Recently, mortgage rates have soared, leading to what’s called the "lock-in" effect.
Imagine you bought your home a few years ago at a mortgage rate of 3%. Now, rates are at 7%. You probably aren’t eager to sell your house and lose your great rate for a more expensive loan. This lock-in effect results in fewer homes available for sale.
This may be the biggest problem facing our country. Housing is wildly expensive because no one wants to sell their house, and even if they do, the new home buyers have to pay high interest rates on their mortgage.
Let’s say a house in Sarasota cost $300,000 five years ago. Nowadays, it could be $500,000 or more. Plus, interest rates went from 3% to 7%. Let’s look at the difference in mortgage payments. Five years ago, the payment would have been around $1000. Today the same house is $2600 a month!
On the bright side, while rising rates can be a hassle for borrowers, they’re great for savers. CD rates have surged.
On December 18, 2024, the Fed recently announced a small rate cut of 0.25%. This slight shift suggests they’re being careful even with inflation still looming. It affects all kinds of loans and savings rates. The Fed is trying to strike a balance—cool inflation but keep the economy alive.
So what does this mean for you? If you’re locked into a low mortgage rate, enjoy it. If you’re saving, shop around for those high-yield CDs. And if you’re borrowing, be ready for higher costs until rates drop again.
If you're a first-time homebuyer, you're facing some tough timing.
High interest rates mean that if you have a significant credit card balance, you'll pay even more interest.
Purchasing a car, especially a used one, could also bring unexpected costs.
If you're considering student loans, the news isn't great either.
Additionally, if you need to tap into your home's equity, be prepared for high rates on home equity lines of credit.
Other than that, Merry Christmas!
Be Blessed,
Dave