The Weekly Wrap: Housing Market Shift, Portfolio Cleaning, Something For Nothing

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The Housing Flip

Just as the growth in housing prices has begun to slow, mortgage rates are beginning to rise. As a result, fewer buyers may be able to purchase a new home.

At the same time, buying opportunities may increase.

Rising Interest Rates

Pending home sales dropped 2.3 percent in September when mortgage rates increased. It went from 2.87 percent at the first of the month to 3.01 percent by the end of the month.

The average 30-year fixed-rate mortgage was 3.33 percent Friday, according to Bankrate.

Fed Tapering Effect

The Federal Reserve Bank (Fed) announced this week that it would reduce the amount of government bonds and mortgage-backed securities it purchases each month. That practice is called tapering. 

Prior to tapering, the Fed infused the economy with large sums of cash. As a result, borrowing has been easy, and interest rates have been low.

Interest rates are expected to rise as the Fed slowly reduces its bond and mortgage purchases.

Even before the Fed’s action, markets began pricing in rates hikes. That, despite the Fed’s insistence rates, will not increase any time soon.

Low Supply – High Demand

The balance between the supply of homes versus the number of buyers is still out of kilter. As a result, prices will remain high.

“Although home sales activity has retreated from its earlier highs,” writes Realtor.com Chief Economist Danielle Hale. “It is roughly stabilizing at a level of activity that is above pre-pandemic pace thanks to a combination of eager young buyers, lingering pandemic savings, and low mortgage rates creating opportunity despite ongoing home price gains and climbing mortgage rates.”

Homebuyers’ Opportunity

Changes in the housing market may be an opportunity for the right buyers.

“Higher rates could help dampen demand for homes somewhat,” Lending Tree analyst Jacob Channel told CNBC, “which could result in less dramatic home price growth, homes staying on the market for longer, and fewer bidding wars.”

“This could actually make it easier for some homebuyers — like first-time buyers — to enter into the housing market,” said Channel.

Year-end Investing

In addition to the holidays, many people prepare for investment adjustments toward the end of the year. So, let’s take a look at some things you might want to consider this year.

First, two fundamental principles to consider.

Diversify for Safety

You should spread your money over a mix of investments, such as stocks, bonds, real estate, and cash. That spreads your risk, so one bad actor doesn’t tank your entire portfolio.

If you don’t have the funds to buy a range of individual stocks or bonds, you can still diversify with a mix of mutual funds or ETFs.

Be Consistent

Dollar-cost-averaging is a method of consistently investing. The idea is to contribute a specific dollar amount or percentage of income to your portfolio on a recurring basis.

Most people employing this technique invest monthly or every time they get paid. The result is a consistent investment that smooths out fluctuations in costs and builds equity.

If you have an amount taken out of every paycheck to contribute to your 401(k) you are already dollar-cost-averaging.

Invest To Meet Your Goals

Most people have financial goals. You might want to set money aside for your first baby, to send a child to college, start your own business, or retire. You should always have those goals in mind when making investment decisions. Ask yourself, “does this investment meet my goals?”

With the above in mind, let’s look at some current trends and possible investment opportunities right now.

Inflation Investing

Inflation is here. It’s like the weather, most of us complain about it, but nobody does anything about it. However, there are some things you can do that will benefit your portfolio.

Do not buy long-term bonds and certificates of deposit if you think inflation will last a year or more. These investments lock in rates that do not rise with inflation.

An exception to the rule in bonds is the Treasury Inflation-Protected Securities (TIPS). This investment produces interest tied to the rate of inflation.

Growth stocks are another area of concern during inflation. These companies attract investors with the prospect of future income. That income is usually reduced during inflation.

Sectors To Watch

Healthcare will continue to grow at a rapid pace. The Bureau of Labor Statistics reports that five of the 20 fastest growing industries are in health care and social assistance.

Energy prices are high right now. Typically energy companies ramp up production when prices get to levels we’re seeing right now.

So, you say, doesn’t that mean there will be more supply? And won’t that drive energy prices down?

Yes, on both counts. However, boosting supply takes a lot of time in the oil and gas business. In fact, the International Energy Agency (IEA) predicts oil supply will not meet demand until sometime next year.

Real Estate prices continue to rise (see above). That makes investing in property a good investment. You may not want to be a landlord, but you can still get in on the market.

One way to invest in real estate is through a Real Estate Investment Trust (REIT). They operate like mutual funds with a company buying and managing income properties for investors. Similarly, you can make a fractional investment in real estate through a crowd-sourced company.

Buying Nothing

So you have nothing to sell? Don’t worry, there is a growing number of buyers for just that.

Whaaaaaaaaaaaat?

Buy Nothing Project

Let me explain.

Back in 2013, two women from Brainbridge, WA. decided nothing should be thrown away. However, they were not hoarders. Their idea was that if one person could not use something, there were probably others who could. All that was needed was a way to connect them.

No, I’m not talking about eBay. These items would have little to no monetary value.

Thus was born the Buy Nothing Project.

Sustainability

“We have plenty right here within each of our local communities to sustain us,” Liesl B. Clark, founder of Buy Nothing told the New York Times. “If we can reuse and refurbish and fix and repair and just keep recycling these items, nothing needs to be discarded.”

Building Gifting Communities

Buy Nothing has grown to 4.27 million members in 6,800 communities in 44 countries.

There is a strong social component to the Buy Nothing Project.

“We exist for the sole purpose of building community,” Buy Nothing posts on its website. “We believe a gift economy’s real wealth is the people involved and the web of connections that form to support them.”

By giving away items, members are encouraged to build relationships with their neighbors.

Each community is limited to a specific geographic area and members can only belong to one community. Some groups only operate within a few city blocks.

Read More

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Max Erkiletian

Max K. Erkiletian is a seasoned journalist and analytical reporter with nearly 40 years of experience. He has been nominated for several honors and was part of a team that won the Missouri Press Association’s Community Service Award.

His experience has included covering a wide range of topics, from crime reporting to politics and music. His interview subjects have included U.S. Senators, such as Tom Eagleton; economists, such as Arthur Laffer; former Fed Chair Paul Volcker; and musicians, such as Muddy Waters and B. B. King.

Today, he focuses on personal finance, consumer protection, economic shifts, and investment trends. His reporting aims to make complex issues understood and show how events impact consumers’ wallets.