Real Estate & Financial Market Update | November 2022

Halloween is just a couple of days away, but the real estate & financial market update isn’t as scary as some portray. Yes, shifts are continuing to take place in both markets, but where does that lead us heading into November 2022? Let’s take a look at what’s happening and how that affects us here in Metro Detroit and beyond.

Gas Prices

We had previously seen a 99 day decline on gas prices moving through the summer into September, but couldn’t quite make it past the 100 day mark. A group of countries including Russia and the OPEC Nations who control 50% of the oil supply decided to ship 2 Million LESS barrels of oil per day to countries that rely on the supply such as Europe and the United States. Why? It’s all about the Benjamins. They feel that they are not being paid enough, so we can likely expect to see higher prices at the pump as we move towards the holidays. President Biden did order for 15 Million barrels to be released from the nation’s oil reserves, but the effect will be minimal, if it is noticed at all.

     

Jobs Report

The latest Jobs Report was recently released and is keeping with the trend we have seen over the past couple of months. The expectation was that we would see an addition of 250,000 jobs added, which was exceeded at 263,000 jobs, driving the unemployment rate further down from 3.7% to 3.5% - the lowest seen since May of 1969. While this is a positive, the downside is that this is also the slowest jobs creation month since December of 2020. The upside of this is that seeing less jobs created is a sign that the rising interest rates are starting to have an effect on hiring, causing businesses to spend less money. Businesses put a large strain on the supply chains, and when consumers are trying to purchase those same items from the supply chains we see the supply vs demand come into play, which causes prices to increase - i.e. inflation. While we certainly don’t want to see anyone lose their jobs, in a perfect world, the jobs report would cool through the winter to between 100,000 to 150,000 jobs added with each report, keeping the unemployment rate below 4%, and wage growth slowing from 5% to 4,5%, in order to continue pushing down inflation rates. 

Inflation

Speaking of inflation, yes, it is still high. Everyone has felt and continues to feel the costs of inflation each day at the gas pumps, grocery stores, and nearly everywhere else that involves pulling out their wallets. Inflation remains particularly high in the food and energy departments and with the rate still sitting at 8.2% as of the latest report (Sept 2022), we have yet to feel any relief in our pocketbooks. But, we will remain hopeful all the same that inflation will soon drop.

Interest Rates

The Fed has been continuously raising interest rates over the past months and they are not done yet. In September we saw a 0.75% rate hike, but with inflation still sitting above 8% we will most likely be seeing yet another interest rate hike of an additional 0.75% take place over the next 30 days. That said, if you are still in the market for a home or vehicle, make that purchase soon before the current rates increase further - and they will. With the Fed pushing another upcoming rate hike it is probable that we will also see the economy and the stock market take a hit in a negative fashion. It is our prediction that interest rates will drop and drop fast sometime between late 2023 and early 2024 when the Fed realizes that they have overcorrected in their battle against inflation, being forced to overcorrect in the opposite direction, thus driving interest rates downward to spur the economy. When this happens, it will also drive a large number of buyers back to the real estate market, along with an increase in home prices with the sharp rise in demand. The problem with this is the homes won’t be there. With the overwhelming number of homeowners who either purchased or refinanced during the record low interest rates over the past 2 years, there will continue to be a shortage of available homes on the market giving sellers the edge and leaving buyers in deep competition on desirable homes. 

If you ARE looking to purchase a home and interested in a way to get a lower rate, one of our Lender Partners has a project called a 2-1 Loan, or a 3-2-1 Loan to help qualified buyers do just that. What this does is provide buyers with a lower intro interest rate for the first 1-2 years before it returns to the current rate being offered. The incredible value in this is when interest rates DO drop by 2024 as we expect, buyers can refinance their home, saving THOUSANDS of dollars over the lifetime of their loan.

If you're interested in hearing more about this opportunity, visit us HERE or call today at 248-221-1224.

   

Stock Market

Historically, over the majority of the past 50 years, we have seen the September stock market drop 1% every year, but in 2022 we saw it fall a little over 9%, wiping out TRILLIONS of dollars in equity in the process. The worst fall we had seen previously was 20 years ago in 2002 when it fell a whopping 11%. As seen in October of 2002, we can expect to see the October market of 2022 continue to fall due to the strong jobs report mentioned above, the still-soaring inflation rates we are experiencing, and some weak earning reports that are beginning to surface. 

We aren’t investment advisors or accountants, so please always consult your professional before making any moves concerning your portfolio. However, there are four things to take into consideration when the market dips as we are currently seeing.

1. America still has the strongest economy in the world. International companies tend to carry more risk, so we recommend investing in Mutuals and ETFs packed with American Companies. 

2. “Sexy” stocks don’t necessarily equal profit. Stocks like Coca Cola, Pepsi, and Darden Restaurants tend to take a beating like all others, but people will still purchase soft drinks and go out to eat during down times. Additionally, these stocks also provide a decent amount of dividends and are considered dividend aristocrats, which of the 65 listed have always raised their dividends over the last 25+ years. 

3. Keep Investing. No matter which way the market shifts, the proven method of success has always been a slow, yet steady investment into the market.

4. Call your accountant TODAY and ask about tax-loss harvesting. When the market is down, you may as well try to get some sort of a tax advantage on it. It generally works like this. You sell an investment that's underperforming and losing money. Then, you use that loss to reduce your taxable capital gains and potentially offset up to $3,000 of your ordinary income. It's generally a poor decision to sell an investment, even one with a loss, but tax-loss harvesting can be a useful part of your overall financial planning and investment strategy, and should be one tactic toward achieving your financial goals.

Real Estate

Yes, we’re a real estate company, so it probably comes as no surprise when we say it’s always a good time to buy a home - but it’s the honest truth. Real Estate is always a solid investment when trying to build your future income and wealth creation. 

Taking a look at today’s market, monthly payments are up significantly today in comparison to just one year ago. This of course is largely due to the jump in interest rates. Today, a monthly payment on a $200,000 loan will cost you $381 MORE than it would have a year ago. For a $600,000 loan, you would be tacking on an additional $1,142 per month in your payment.

The current number of homes on the market here in Metro Detroit are up 14%, while sales are down 17%. This may sound like a negative, but in reality it is just the market returning to its “normal” state after the white hot market we had been experiencing since 2020. One out of six homes on the market are still receiving multiple offers, which is typical of a balanced market. 

This means that if you were previously boxed out of the market due to high competition, or matching or exceeding terms being offered, now is your time to make that move. Seller concessions are back and many homes are seeing accepted offers negotiated below the listed price. If you have a home to sell before making that next purchase, we will always take your current circumstances under consideration and if now is NOT the best time for you to sell, we will tell you that. Renting your home for a couple of years after purchasing a new home may also be a great strategy. Rent prices have been climbing significantly over the past two years and home values will climb back by 2024, so additional income from renting your home in combination with paying the extra mortgage payments could drastically help offset the current higher interest and inflation rates.

Recap

So let's recap some key points...

  • If you’re renting, buy a home if possible. 

  • If you’re selling, consider renting out your current home for a couple of years for extra income. 

  • If selling doesn't make sense for you at this time, stay put. 

  • Gas prices and inflation rates are likely to stay higher than we would like in the coming months, pushing interest rates higher. 

  • Because interest rate increases are coming, wage growth will slow - so ask for that raise now. 

  • If you’re considering a switch in employment, do it quickly while we have a strong jobs report.
     
  • If you have sold a stock, mutual or an ETF for a loss in 2022, call your accountant today to ask about tax loss harvesting and see if you are eligible to claim up to $3,000 on your taxes.

  • Inflation is still sitting high at 8.2% and the Fed is going to continue battling this by increasing interest rates. It is very possible that we will see home mortgage interest rates as high as 8% by December of 2022 or January 2023.

  • Tax bracket adjustments. To end on a good note, tax brackets typically adjust at roughly 1.5% to 3% to match with inflation. For 2022, they have adjusted up a full 7% to try to match the higher inflation rates we are experiencing, meaning lower tax brackets have also moved up a full 7%. This may not save a lot of money, but in times like today, every dollar counts. 

If you are looking to make a move anytime in the future, or have questions regarding whether it makes sense for your family at this time, give us a call at 248-886-4450 or click on one of the buttons below for more information.


     

Posted by Michael Perna on
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