Are we in the midst of a housing market meltdown? Can the sub-prime mortgage market’s problems seep into the mainstream economy and affect the availability of credit to everyone looking for a loan - good credit or bad? Well, a meltdown in prices is dependent on when you purchased your home - if you purchased in the last two to three years, you may be seeing a 20-30% reduction in value of you home. That is - if you plan on selling it. Generally, buying a house is a long-term investment - the transaction costs makes it a prohibitive short-term speculation vehicle for most average home buyers. So, depending on when and where you bought your house - your perspective may be that there is a deflating of the housing “bubble”. The average price of a home sold in the United States is DOWN 4.2% from the average price last year; however, the average price is UP 69.5% from five years ago. Ten years ago? Up 121.5%.

Now, for those that have had their house for longer than three to five years - they have a healthy margin of error built into any selling price by virtue of the increase in equity over the years. This aspect of the economic equation seems to be lost on many people predicting the impact of sub-prime mortgages on the overall US economy. Will it have any effect? Well, certainly any concentrated failure in an area of the economy will have some impact - it most likely just slow economic growth - not push the economy into recession. For those who are taking score - the Federal Reserve has been raising interest rates to fight an imaginary inflation demon (in my opinion) by slowing economic activity (higher interest rates generally slow the economy).

If there is a concern about a credit crunch, then the Federal Reserve will most likely cut interest rates - helping to improve liquidity and give more people access to credit. I just heard a prediction by Mort Zuckerman - editor of US News and World Report and a billionaire - that the Fed will cut interest rates 2 times in the next four months. That could mean mortgages will be half a point lower than they are today. If you have an adjustable rate mortgage that is about to move you into a higher rate, now might be a good time to run some calculations on loan calculators and look for a viable alternative to your present loan before the end of the year. If you are one of the lucky people that has extra equity in your home, run your numbers on a mortgage loan calculator - now might be the time to use that asset to cover expenses with a lower interest home equity loan.

Credit crunch in Fall 2007? No. In fact, it is generally to problems that we don’t anticipate that cause the greatest grief and cause the economy to contract. Everyone is aware of the sub-prime problem, but we may have a bubble in negative anticipation of its impact on the economy.