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, Random Roger (173 clicks)
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Bill Gross is being blamed for dropping an enormous boulder on the road to leading up to a 30% year for the U.S. stock market.

Apparently Mr. Gross envisions 6.5% on the ten-year coming sooner than most people would like. This potentially hurts stocks and slows the economy as, quite obviously, accessing capital becomes more expensive.

While this is true, I think it calls for a little perspective. A $300,000 mortgage at 6% for 30 years will have a monthly payment of $1798.65.

At 7.5% the payment goes up to $2097.64. For a couple, each making $3000-$4000 per month I am not sure this is a deathblow to the dream of owning a home. It probably is an inconvenience that squeezes out the marginal buyer, or more likely, forces the marginal buyer to find a house that is a little cheaper. Here the context is people buying a home to serve as a primary residence.

For real estate that is intended to be an investment, speculative or otherwise, might not prices coming down a little bit result in a balancing out, or at least a partial balancing out? It seems plausible in some markets.

Regarding the portion of this rally that is attributable to private equity, and whatever the expectation might be about the future contribution to any further lift, it would probably have to be repriced if rates do start moving up that much.

I think the real thing here and now is that the ten-year, and Bill Gross, created an excuse for a sell-off of some sort. The move last week has been very fast, and while the move may have kept going for another day or two, it is very unlikely that the market can maintain the type of velocity we saw last week.

If this is the tipping point of the financial apocalypse (intentional hyperbole), you will have plenty of time to get out without succumbing to emotion. This is why, in the past, I have preached about making a simple plan for yourself as to when you would take defensive action, and what that action would look like, long before you need to. This removes some of the emotion for folks who are prone to emotion.

Source: Why Last Week's Interest Rate Based Selloff Was Overblown