When does this market end and what does it mean for me?
I’m not seeing an end to this market for a long time. Yes I know there’s concerns lingering in the economy. But unless there’s catastrophic level economic collapse greater than the 2008 recession, we’re not going to see this market stop. Even when this market does end, there is not one industry expert predicting any type of collapse or drop in values on the horizon. The market may level off some in the future, but that’s probably a few years out. We’re dealing with about a dozen different factors that are driving home values today and none of those seem to be cooling off anytime soon.
We have drastically underbuilt new homes for the past decade+.
People are staying in their homes about 5 years longer on average than they were prior to the 2009 recession.
An entire demographic of homebuyers (Millenials and now Gen Z) are now the largest home buying population in the US and they’re finally ready to jump into homeownership.
Interest rates are still historically low even in the face of the rising Fed Rate.
Thousands of people moving into metro-areas and out of certain states that haven’t been as economically friendly.
The supply chain is a disaster and is driving material costs for new construction homes through the roof.
Two years of federal government stimulus checks have put more people into a home buying position than ever before.
Rising property values have caused rent rates to increase faster than the rate of monthly mortgage payments pushing renters into the real estate market.
The refinance boom of 2020 and subsequent increase in interest rates have frozen the supply chain of home inventory due to cost of replacement.
The cost of home replacement is limiting for potential home sellers so they just don’t move.
Those are just a few of the market factors driving home values higher. Until a few of those puzzle pieces are solved, catch up, or change in the opposite direction, we’re going to continue to see a strong sellers market and limited homebuying inventory.
What does that mean for you?
If you are not living in the home that meets the lifestyle you want to live for the next 5+ years, then you should probably consider making a move today. You’ll benefit greatly from the sale of your home. That equity can be used for an assortment of financial benefits to you and put you in the position you need to make a move to a home that better meets the needs of your family into the future. Waiting means a move in the future becomes even more expensive.
Your first step is to meet with a real estate expert in your market. To navigate this market you need someone that can look at all of the information, the type of home you want to purchase, and develop a strategy to make that move happen. They’ll provide you with a Comparative Market Analysis for your home and answer your questions so you can make the best decision. Our team would love to work with you! Schedule an appointment with us here.
It’s unlikely you live under a rock, so you probably know that we’re in a hot real estate market. Well, maybe because of the real estate market and current home prices you are actually living under a rock! Home values increased around 17% in 2021 and we are expecting similar market appreciation in 2022.
While it has left many home buyers frustrated and increasingly disappointed, this is not the time to be giving up on the real estate market. Whether you’re a first time buyer just looking to get into your first home, an upgrade buyer looking for somewhere to settle down for the next few decades, or you’re ready for a lifestyle change completely, the market is providing you with some really amazing opportunities if you’re patient enough to jump in.
Here’s just a few reasons you should buy a new home in this market:
Fixed monthly budget:
If you don’t currently own a home, you’re most likely renting. Rental rates nationwide increased over 15% in 2021 and are on track to exceed that in 2022. Landlords, especially in the Texas market, are raising rents to offset increasing tax and insurance bills, but also to be competitive with the increased home pricing, labor, and repair bills. It is safe to assume that if you have $1,500/month rent today in 2022, that your rent will be $1,725/month in 2023, and $1,985/month in 2024. Unless your income rises at a similar pace, your housing costs in future years will continue to take up more and more of your available income. This limits your ability for discretionary spending as well as the potential to save and invest for the future.
Purchasing a home in today’s market locks in your monthly housing expense in your monthly budget permanently. If you know your income will rise in the coming years, locking in your long term monthly housing expenses today gives you greater ability for discretionary spending, saving, and investing into the future.
But what if you already own a home? Why should now be the time you jump into the market and buy that “forever home?”
Home Value Appreciation:
There are a dozen different items we could point to that are fueling this home value appreciation we’ve seen over the past few years, and especially the past 24 months. The “why” behind what’s happening isn’t nearly as important as the fact that it is happening and is going to continue at least for a few more years into the future. Real estate in Texas has a historical appreciation rate of 3% annually over the long term, even when factoring in market collapses like the 2009 housing crisis. Over the past 5 years or so we’re averaging 7% appreciation and over the past 2 years we are well over 12% appreciation.
So your $300,000 house today will likely sell for $335,000-$345,000 12 months from now. But that also means a $500,000 house today will likely sell for $560,000-$575,000 12 months from now. That’s what we saw happen in 2020 and we saw it again happen in 2021. If you’re not in the home you want to see your family in the long term, it is only getting more expensive the longer you wait. You can lock in your long term monthly housing costs at today’s rates and values and still have the benefit of long term home value appreciation.
Interest Rate Changes:
We had a really weird season right after Covid broke out in March 2020 where 30 year mortgage rates plummeted below 3% for the first time. While we’re not in those days anymore, mortgage rates are still at historic lows in the 4%-4.5% range as of this writing. With inflationary concerns impacting the markets today, it is anticipated to see interest rates climb throughout 2022 and be in the 5%-5.5% range by this time next year.
What’s that mean for you? On a $450,000 loan that’s a long term difference of $267/month for 30 years. It’s a $96,000 cost of interest difference between buying a home now and waiting as interest rates rise, in addition to whatever the cost of the home actually appreciates.
If you own a home today, it is likely you have substantial equity in your home. While it is impossible to time the “top of the market” this is a great time to sell your home to cash out that equity and put it to work in other areas of your financial life. You likely don’t need all of that equity to be put into your new home. You can instead use some of it for the down payment on your next home, and use the rest to pay off consumer debts, boost your emergency account, and look for other investment opportunities to grow your wealth even further.
Some of our clients this past year have used their equity to purchase their dream forever home, become debt free, and use the rest as the down payment on rental property where they can earn more cash flow each month and enjoy the financial benefits of owning multiple real estate properties. There are a ton of equity and wealth building opportunities this market has provided.
These of course are just a few of the basic reasons you should buy a home in this market. Your unique circumstance may include some other reasons too. If you’re considering a move in 2022, you should reach out to your Realtor to discuss what options are available to you and develop a strategy to make it happen.
We have several options for home buyers and home sellers to make the process convenient and the moving process seamless. We can help juggle the intricacies of selling your home in order to buy another home, find the perfect next place, and even arrange interim housing if necessary. Learn more about our team and how we can help you here.
When home inventory is limited like it is right now across the country it can become frustrating for everyone. Homebuyers obviously struggle to find a home they’d like to purchase and struggle even more against competing offers to actually be able to purchase a home. But even home sellers face some frustrating challenges.
What if your family has outgrown your “starter home” and it’s time to buy a new place with some more space? And you can’t compete because all of your equity is tied up into your current home and there are dozens of other buyers in your same market with the same challenges competing for the one or two homes that have come on the market? That of course leaves your starter home unlisted on the market and unavailable for the next owner. It’s a compounding issue that’s difficult to resolve.
The solution often is purchasing a new construction home.
New construction homes can provide homebuyers with more flexibility, certainty, and favorability than trying to compete in the open real estate market for already existing homes. The great news is that in a market like this current one, home builders are building homes as fast as they can. We have a ton of new construction home options and more on the way.
But purchasing a new construction home does come with some challenges and you need real estate professionals representing you and your interests in the transaction. Why?
For starters, as nice as your new construction salesperson is going to be to you, they represent the builder and the builder only. They’re not going to volunteer information that is not required. They’re not going to help you navigate upgrade options, contract terms, incentive programs, or anything that is not beneficial to the builder. They aren’t going to care too much if they’re delayed or off schedule. They aren’t going to advise you about what a typical contract looks like or voluntarily make terms favorable to you. They do not represent you. You are on your own. If you know homes and real estate and purchase transactions and do them often, that may be fine. If not, you need an agent on your team.
Home builders include in their pricing the cost of real estate commissions. You don’t get a better price by purchasing a new construction home without using a Realtor. Home builders typically enjoy having a real estate professional involved in the transaction because it helps them coordinate the transaction, make the process more smooth, gives them someone to communicate with that speaks a common language, and is understanding of the construction process. Builders like for you to have representation and that’s why they pay a real estate brokerage fee.
Home builders have taken the time to strategically form relationships with lenders, title companies, and attorneys that will all pay affiliate fees, kickbacks, and marketing agreements. In some cases the home builder even owns the title company or the mortgage company. Your agent not only has relationships with multiple lenders, title companies, and attorneys, but they also know the programs and customary charges associated with those services. They can make sure you’re getting the best deals available from these ancillary services and that you are being served well. In addition, your real estate professional will have relationships with other home builders and know of all the new construction opportunities that are available to you, not just what that one home builder may have available.
Floor plan, lot, design selections, and cost savings:
In addition to their fiduciary duties in representation your Realtor can advise you of options available to you when choosing your floor plan, lot, and design features. When you meet with a builders representative, they have the options available to them and them only. Your Realtor may know of another neighborhood directly adjacent that better meets your needs with lot sizes or home types that more match what you’re looking for. Your real estate agent may be able to advise on future resale value and desirability of your choices throughout the build process to make sure you are making wise decisions and investments.
Your agent can also advise on areas where you can install an upgraded option or have better design selections by going outside of the homebuilders standard choices. They’ll help you from overbuilding/overdesigning and also help you focus your upgrade dollars in the areas that will make the biggest impact on your future home.
Contract to close:
If you’re unfamiliar with real estate contracts and terms, this is where having an agent on your team really helps. The builder’s salesperson isn’t going to be looking out for your best interests when it comes to contract dates and deadlines. Making sure you meet the contingencies and deadlines in your contract is your agent’s job. Coordinating with the lender and title company to make sure you get to the closing table on time with all of the needed documents is a key part of your agent’s job. And ensuring you know about all of the options available to you from lenders to title policies to surveys and more are all part of an agent’s fiduciary duties to you.
Construction Process and checkpoints:
A great real estate agent will be checking in on your project jobsite regularly and providing you with updates. They’ll attend your pre-construction meeting with detailed notes to make sure everything that you have requested for your new home is on the builders radar. They’ll walk the home weekly to make sure your wishes are actually being installed in the house and raising red flags along the way as things get missed. Having an agent on your team during the construction process ensures you have an advocate that does the fighting for you so that you can stand on the side and know your interests are being addressed. When you have concerns, they’ll communicate directly with the builder on your behalf and make sure that all of your concerns are taken care of along the way. And if they think something is being done incorrectly, they’ll get professionals involved early in the process. The vast majority of the time, construction goes on without many issues. But in the rare instance that construction doesn’t go as planned or there are issues, having an agent on your team is an invaluable part of the process to make sure your best interests are protected, that your money is protected, and ultimately that you get the home you want at the end.
Closing, follow up, and warranty:
Having an agent make sure you get keys, move in, and that everything is as you expected is putting someone in your corner to represent you. As things settle and you get moved into your new home, there will come times for warranty requests and repairs that need addressed. An agent can help you navigate warranty claims and know what you should request.
Ultimately, the builder is an expert at building homes and has a team of professionals, attorneys, architects, engineers, sales people, title companies, and lenders that are all on their team and representing them and their best interests. The home builders are willing to pay your real estate agents commission on new construction. You need a Realtor on your team protecting you and making sure that your new home construction experience goes smoothly and reaches the finish line the way you intend.
I spoke with a friend the other day after they received January’s newsletter and he asked, “Could you really sell my home for $xxx,xxx?!” I ran a quick market analysis on his home and let him know I could actually sell his home for $60,000 more than he was thinking!
The Mansfield, TX real estate you own will likely sell for more than you think it could. You have a once in a lifetime opportunity right now to build wealth using the equity in your home. Interest rates are still at historic lows (even when the Fed raises rates this year). Home values have appreciated 15%+ two years in a row and are already rising in 2022.
So if your current home isn’t quite matching your needs… If you see a need for a different home on the horizon… or if you want to take advantage of some wealth building opportunities… there truly isn’t a better time to take some action in the real estate market. Rates and prices are still rising. We can help you navigate all of the intricacies of making the move to make this easy for you. If you’re even remotely thinking of making a move, we should talk about what that can look like.
Voting is open right now for Living Magazine’s Best of 2022. You can vote for your favorite local restaurants, stores, and service based businesses! It takes about 90 seconds for you to nominate and vote for Casey Lewis Realty as your favorite Mansfield Realtor. You can vote here: https://www.surveymonkey.com/r/6TBWSY5
Last week the stock market was thrown right into the main stream discussion in ways it never has before. It has left a lot of people wondering WHAT IS HAPPENING WITH THE STOCK MARKET!?
For starters, you should know that none of what is happening has anything to do with real investing. The stories you heard last week and what will be ongoing discussions for the following few weeks are essentially gambling where several bets went very wrong for some very wealthy people and some smart everyday people wreaked havoc on Wall Street.
To best understand what’s happening there are some terms that you need to know the definition:
Hedge Fund: A hedge fund is a group or partnership of investors that use high risk investing methods to realize higher gains in the stock market. They are typically wealthy investment groups that use borrowed money or often times have institutional investors backing them with funds from 401k’s and Pensions.
Short Selling: If an investor believes a stock is going to go down in price by a certain date, they can make profit off of that loss in value by borrowing a share of that stock from their broker and sell it on the market today. Then in the future when that stock has a lower price, they can buy the stock back at the lower price and return the share of stock to their broker. The investors profit is the difference between what they sold the stock for initially and the lower price they’re able to buy the stock for in the future.
Retail Investors: If you’re independently investing in the stock market without the assistance of a fund manager, stock broker, or financial advisor utilizing online platforms like Robinhood, ETrade, WeBull, or others, then you fall into a category known as retail investors.
How to profit when the stock price goes down.
If you owned a stock today but believed it was going to go down in price over the next 60 days and that the highest price you could sell that stock for is the price it is selling for today, you would sell that stock today.
But what if you don’t actually own the stock today and are confident it’s going to drop in price in the future? This is where Short Selling a stock comes in. You borrow a share of stock from your broker and sell it today. Short sales have an expiration date in which you must return the share of stock back to your broker.
Investors then make money on a Short when the price of the stock does indeed drop. They sell it today at the highest the stock can sell for and buy it in the future at a lower price so they can return the share of the stock back to their broker. The risk of course is that the price doesn’t go lower but instead goes higher. In this case, the investor that borrowed the stock has to pay more money to buy the stock and return it than the amount they made when they sold the borrowed stock.
What happened this week on the stock market?
A group of retail investors who have been reading a Reddit thread online, primarily run by a group called Wall Street Bets, discovered that several stocks had been shorted by some hedge funds. What they discovered is that these stocks had been over-shorted, meaning that more shares of the stock had been sold short than actually existed on the market.
The hedge funds borrowed and sold more shares of stock than they can now buy and return to their brokers. The time for returning the shorted shares is basically now. The only way the hedge fund makes a profit on the deal is if they can buy back the stocks at a lower price than they sold them for.
These retail investors have chosen to go all in on the stocks that the hedge funds shorted. The sudden increase in buying activity on these specific stocks has caused their trading price to be above what the hedge funds sold them for. Now the hedge funds have to scramble to buy back the stocks thus creating more buyer demand and sending the price of those stocks up higher. The longer the retail investors hold on to their shares, the higher the price will go until the hedge funds can return all of their shares of the borrowed stock.
In order to “cover” their short position losses, the hedge funds have had to sell some of their long positions (stocks they like and that are increasing in value). This sudden sell off of high quality stocks caused the prices of those stocks to also go down, and lowered the overall Dow Jones Average.
There has been a tremendous spike in the volume of transactions occurring as a huge number of new retail investors have jumped into the market. When you open a new brokerage account and deposit money into that account, the money doesn’t immediately transfer. It takes a few days to go from your bank account and be received by your brokers account. The brokerage will still typically allow you to make trades during the waiting period, you just can’t cash out until your funds have all cleared. This has caused strain on the infrastructure system for brokers like Robinhood who cater to the retail investor. To put it most simply, these brokerages had to make a choice to either limit their financial exposure or allow all of these trades to go through even if there were issues a few days from now getting the actual cash transfers into the bank. The controversy here is that retail investors clearly wanted to participate in the market and buy into these various securities they were hearing about on the news and social media. These new investors buying into those securities could have and should have allowed the price of those securities to continue to rise. Because of the limits placed on the retail investors which limited the number of shares of a security could be purchased or held, the price of the securities didn’t rise as much as anticipated which scared off many of the retail investors into selling their securities for a loss. This ultimately allowed the hedge funds to buy back those same securities at a lower price than they were going to be buying them for.
On its surface, what it appears is that the brokers facilitated “stealing from the poor to give to the rich,” which is the opposite of Robinhood. These retail investors overpaid for a stock with the almost certain knowledge that it was going to increase anyway. However due to the actions these brokerages took in limiting purchase transactions, they squashed the price trajectory of these securities. These actions helped hedge funds minimize their losses and cost retail investors losses.
What does all of this mean for the average person?
Ultimately, the value of a company and the price of their stock are typically somewhat equal. Occasionally things get out of whack, like they are right now. The underlying assets in the middle of the stock market mess this week are brick and mortar companies that have had their doors closed for the past 6-9 months by the government in the middle of a pandemic and were already being subjected to digital changes in their markets. The reality is, their stock price likely should not be what it is trading for today. It likely won’t be trading at anywhere near this price 6 months from now.
This is not investing. It is gambling. It is trying to find the perfect time to jump off of a rocket ship in order to profit and if you miss the mark, you will lose money. If you want to play in that game, fine. Just be careful to only invest what you can afford to lose. Don’t bet your rent money on this fiasco and don’t change your long term financial strategies on a whim.
Real investing is following a disciplined strategy of making consistent investments over time into a well diversified portfolio. For the average person, payoff your consumer debts and build a small emergency account to free up your monthly cash flow. Then use your income to follow a proven investment plan that will help you build wealth.
If you’ve read any of my books or listened to The Casey Lewis Podcast in the past you know that I have taught the best way to use credit cards is to never use a credit card. Don’t touch them. Cut them up. You don’t need them. That’s been my financial advice for the better part of a decade. And in most cases, that advice has been spot on accurate. In some cases however, that advice has been wrong and possibly even detrimental.
Nobody that has a mountain of credit card debt ever intended on wracking up bills that they couldn’t pay. Of the hundreds of clients I’ve coached through paying off their credit card debt, very few can point to exactly which purchase or purchases caused their financial issues. The vast majority of credit card debt I encounter comes from the irresponsible use of swiping a piece of plastic, using the cards as a replacement for emergencies, and not having a strategy in place to be intentional about using credit cards as a financial tool.
But there are several advantages to using credit cards wisely as a financial tool that can’t be ignored.
Credit Cards are the fastest way to boost or improve a credit score. I have documented my financial collapse during the Great Recession quite well. Not using credit cards wisely played a large role in my personal financial struggles. My instinct was to eliminate them entirely, call them evil, and never touch them again. For years, that was my path and advice. It worked! We became debt free quickly and began to build some wealth. Everything was going great until about 5 years after our financial recovery when we were ready to buy a new house. We were consumer debt free, hadn’t been late on our mortgage in years, had great cash reserves in the bank, had a 25% down payment, and our new mortgage payment was less than 20% of our gross monthly income. Under almost all circumstances, we’d be easily approved for a mortgage. The problem, our financial collapse from years before was still negatively impacting our credit score. From the perspective of the banks, we had not “re-established” after our collapse and our current credit scores were too low to qualify for a mortgage and because we had credit scores we were ineligible for manual underwriting. What solved this problem was me walking into my local credit union with my terrible credit score, asking them to look at my checking account history, and asking them to give me an unsecured credit card with a $200 limit. This one action caused my credit score to climb by 200 points overnight and we could then qualify for a mortgage.
In general, I do not care about your credit score. Your credit score is just an indication of how well you manage debt and has nothing to do with how successful you are financially. If you live a 100% debt free life for long enough, your credit score is going to become zero. But if you already have a credit score today, it is going to take many years of being debt free to get your credit score to zero. Even if you are able to successfully get your credit score to zero and then do a manual underwriting process for purchasing a home with a mortgage, you will then have a credit score generated because of that mortgage. So all of the work to eliminate your credit score gets wiped out the second you get a mortgage. The only way having a zero credit score makes sense is if you intend on never borrowing money for a mortgage and paying cash for real estate and every other purchase forever. For everyone else in the world, your credit score becomes an important factor in getting a mortgage, the interest rates you’re charged for that mortgage, the premium rates you’re charged for various insurance products, and even can impact security clearance for some employers. Responsibly using credit cards has a huge positive impact on your credit score.
Credit Cards have many built in financial protections not available with cash and debit cards. It is true that many studies show swiping a card causes you to spend more on purchases than if you were to use cash. It is also true that a debit card can be used for most every purchase the same way a credit card can be used.
While travel has become easier with a debit card, it is still not convenient. Hotels and rental car companies place large holds on the cash in your account for the duration of your trip. Even if the cost of your hotel or rental car is only a few hundred dollars, many of the company policies require holds of $500+, limiting your access to the cash in your bank account until the holds are removed at checkout.
Further, should your debit card be stolen and used by the thief then the cash in your bank account is immediately drained. You have to dispute the charge and the bank will investigate the fraud prior to putting money back in your account. This leaves your bank account without available funds, which could then negatively impact your other financial obligations including automatic bill pay and automatic investing. Your bank can take several days up to several weeks to resolve the fraud and restore everything back to normal. With a credit card, your money is protected and you are not responsible for any of the fraudulent activity. The credit card company works behind the scenes to resolve the disputed items but your day-to-day spending and financial transactions are not negatively impacted.
In the same way, using only cash for purchases isn’t nearly as secure due to the potential of theft or misplacement of the money. Even misplacing just $20-$40/year offsets the potential benefits of cash spending versus credit.
Many credit cards come with bonus financial protections such as automatic extended warranties on purchases, trip protection for travel booked using the card, and consumer protection on various types of purchases.
Credit Cards make tracking your spending more efficient Categorizing your spending is one of the best ways to manage your monthly budget. Most credit cards give you the ability to categorize all of your spending transactions automatically and then give you a detailed report each month of how you spend your money. This eliminates the dozens of transactions that go through your checking account and give you one location to easily track your spending and compare it against your monthly budget.
Airline Miles, Reward Points, and other incentives You are not going to get rich off of airline miles or reward points. You shouldn’t make your spending decisions or long term financial planning based on various rewards programs offered by credit card companies. I will say that the various rewards programs and cards available can make things like travel more affordable and within reach for the average person. Even just putting your monthly utilities on automatic bill pay with your credit card results in thousands of airline miles a year which can pay for a flight or two annually.
So, what is the best way to use credit cards?
In light of my past struggles with credit card debt, my experience of coaching hundreds of families out of credit card debt, and the benefits of using credit cards wisely I’ve come up with some rules on how to responsibly use credit cards:
Never use a credit card if you have any outstanding consumer debts.
You must have a monthly budget and systems in place to track your spending versus your monthly budget on a regular basis.
Have a fully funded emergency account of at least 3 months of your GUTS (Groceries, Utilities, Transportation, and Shelter) set aside.
Never make a purchase on your credit card unless you have the cash in the bank to be able to pay for the item with cash instead.
Never pay credit card interest, late payment fees, or carry a balance. Be overkill about paying off the credit card account in full every month, or even as frequently as once a week.
Do not open multiple credit card accounts. Choose 1 or 2 cards and keep those accounts open for a long time. Do not get enticed to open new accounts for their reward programs or introductory offers. Do not open store specific credit card accounts just to save $35 on your purchase.
Do not move credit card debt around from account to account taking advantage of the various 0% balance transfer options. Payoff the card in full every month and don’t carry debt.
Do not exceed a credit card balance of more than 30% of the credit card limit. This will negatively impact your credit score.
Do detailed research on multiple types of cards prior to applying to make sure you understand all of the card benefits that are available to you and that you can utilize those various offers to your benefit. You will have this card in your wallet for a very long time, so make sure you get it right up front.
Automate the minimum payment. Yes you are going to be paying this card off in full every week or every month. But life happens and something may happen where you forget. Missing a minimum payment will due far more damage to your credit than any benefit you could ever get from having a card would achieve.
The last and probably most important rule for the best way to use credit cards is that if you mess up on any 1 of these rules above then you should stop using your credit card and go back to using a debit card and cash. Nobody that ever ended up in credit card debt intended on being in credit card debt. It’s debt by a thousands swipes. But if you can be intentional, proceed with caution, and understand the potential risks, then you also can take advantage of the benefits that using credit cards wisely as a financial tool will provide for you and your family.