real estate

How Working From Home Just Made Your House Worth Thousands More

June 5, 2021 By Kathryn Vercillo Leave a Comment

The COVID-19 pandemic has significantly changed the face of the workplace. More workers than ever went remote. Zoom became the new normal. Work from home became the norm. Although some employees have or will return to the office, many will continue to work remotely either part-time or full-time. One of the unexpected benefits of this arrangement is that working from home increased home value for many people. How could that be?

What Happens When You Can Work from Anywhere

Many people chose their housing location because of their jobs. They chose the city they wanted to live in because of its work opportunities. Moreover, they chose the neighborhood in part because of its proximity to the office. However, when you work from home, you don’t have to consider those things anymore. Instead, you can choose where you want to live based on entirely different factors. As a result, people have been (and are continuing to) move to new locations.

Where People Are Moving to and From

According to FlexJobs, people are generally moving away from expensive urban areas and towards more affordable smaller towns and cities. For example, people fled California, New York, New Jersey, DC, and Illinois. In other words, people who worked in big tech-heavy cities left for areas that were significantly more affordable. They moved to Idaho, Vermont, Maine, New Mexico, and the Carolinas.

Working from Home Increased Home Value in Those Areas

People who left California and New York had been used to paying exorbitant rents for very small spaces. Therefore, they were often shocked at the low cost of very large homes in these other cities. They could easily afford to pay for the luxury of a big space. In fact, many people who were renters for years became home buyers during the pandemic. That sounds counterintuitive until you think about the difference in cost between San Francisco rent and a New Mexico mortgage.

In fact, according to that FlexJobs survey, 65% of respondents would be likely to move if they knew that they could get a permanent work-from-home position. If they don’t have to return to an office in a big city but can still keep their jobs through remote work, then they would move. They cited many reasons that they’d make the move. However, nearly half of them said that a lower cost of living was a major factor.

Because of this migration of people who want to buy homes in these small areas, the supply of homes in those same areas began to shrink. People moved in, bought up the real estate, and the whole supply/demand issue came into play. There are only a certain number of houses available in each of those cities. Sure, eventually these cities can build new housing. However, that’s going to take time. Moreover, lumber prices are high right now, so that’s not going to help anytime soon.

As a result, home buyers are going to keep buying at higher prices. Therefore, if you’re a homeowner or landlord in one of those cities, your home value automatically increased just due to the market. You didn’t have to do anything at all.

Even Home Values in Suburbs Increased

Working from home increased home value in suburbs near major city centers for the same reason of supply and demand. Many people want to stay near the big cities that they love. However, if they can work remotely all or part of the time, then they’re more willing to move further out away from those city centers. They’re moving to neighborhoods that are a bit cheaper. Alternatively, they’re moving further out to the suburbs.

In those areas, they can get more house for their money. And people definitely want more house. Think about it. If you and your partner both work from home and the kids are going to school at home full-time or part-time, then you’re all on top of each other all day long. We’ve seen throughout the past year how stressful that can be. Suburban houses with home offices, dens, extra bedrooms, and more play space immediately become more appealing.

Just like in more rural areas, there are only a certain number of houses available in those neighborhoods and suburbs. The more people want to move there, the higher the price goes up. People who are used to paying city prices may still be willing to pay these increased home values to make that move. In particular, those people who can keep their high-paying jobs while working remotely are often comfortable spending a lot of money on a larger, more comfortable house.

Running the Numbers

According to Investopedia and Redfin, it’s definitely true that working from home increased home value. As of early May 2021, using prices were more than 20% higher than at the same time last year. New housing listings were selling faster than ever. Moreover, nearly half of them sold for higher than the original asking price. Prices are expected to continue to rise, likely by more than 6% this year. There is still 30% less housing available for sale than there was a year ago, which means that the supply and demand situation remains in the favor of home sellers.

How You Can Further Increase Home Value

If you’re thinking about selling or renting out a home to these people who are moving to your area, then there’s one big thing that you can do to further increase the value of the home. Make it home office friendly. Working from home increased home value because people can work from anywhere. However, they want to be comfortable in their home offices. So if you can make some tweaks to the home to create more private office space then you’re more likely to get a significantly higher value for the home.

You might also want to consider becoming a pet-friendly landlord if you’re not one already. After all, many people decided to adopt pets during the pandemic. They were finally going to be home enough to enjoy and care for their animals. They aren’t going to want to move to a house that won’t let them take their furry friends with them. Therefore, if you’re interested in renting out your home to new people as housing values rise, you’re wise to allow pets to move in with them.

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Is It Inflation Or Fear of Inflation?

May 23, 2021 By Max Erkiletian Leave a Comment

You may read or hear the term “inflation fears” being used with increasing frequency. In turn, that raises the question of what we’re dealing with — is it inflation or fear of inflation?

What Is Inflation

Let’s start by defining terms. We will assume you know what fear is. On the other hand, you may not be sure about inflation.

Inflation is the increase in prices throughout the entire economy. Consequently, a rise in gas prices alone is not inflation. However, if food, housing, general goods, and gas prices jump together, you are dealing with inflation.

The primary measures of U. S. inflation are the Consumer Price Index (CPI), Producer Price Index (PPI), and personal consumption expenditure price index (PCE).

In April, the CPI jumped to 4.2 percent, its biggest 12-month increase since September 2008’s 4.9 percent hike.

Markets React

With one of the primary inflation indicators jumping, many wall streeters started selling. (Cue Chicken Little!). However, the Federal Reserve did not take the bait and stilled inflation fears by reasserting its stand against raising rates. The Fed has said repeatedly it expects “transitory inflation” as the economy reopens.

Fed Chair Jerome Powell has stated he does not see a need to tighten monetary policy until inflation runs above two percent for an extended period.

The central bank’s consistency calmed fears and stocks bounced back.

“Inflation is a process and not a one-time event,” said Chris Low, chief economist at FHN Financial told Reuters. “These bottlenecks are one-offs. The Fed will not consider action until it views price levels changes as permanent rather than temporary, something it does not consider possible until the economy is at full employment.”

Was April a False Inflation Positive?

There is an argument to be made that April’s CPI was a reflection of the anormal not the new normal.

Many areas seeing inflation in April’s CPI were the result of an economy recovering from the pandemic. About half of price increases came from four segments. They were: used cars, car rental, airfare, and dining out.

With more vaccinations and COVID-19 restrictions relaxing, Americans accelerated travel and leisure activities. As a result, there was a sudden burst of demand hitting a limited supply. The April CPI reflects the difference between a pandemic lockdown economy and a rapidly rebuilding economy.

Used Car Prices Lead the Way

“The index for used cars and trucks rose 10.0 percent in April,” according to the U. S. Labor Department. “This was the largest 1-month increase since the series began in 1953, and it accounted for over a third of the seasonally adjusted all items increase.”

Shortages

Like many industries, the rise in used car prices is the result of shortages.

The shortage of semiconductor chips has lead to an increase in electronics and automobile prices. With new cars in short supply, the demand for used cars has increased.

At the same time, shortages brought on by the pandemic have moved other prices higher. Car rental companies that drastically cut their inventories during the pandemic are now swamped with customers.

Travel bans and lockdowns lead to airlines cutting back and reducing staff. Meanwhile, restaurants went through the same process. Ramping up again takes time.

The elevated price of lumber has contributed to the rising cost of home purchase and home repair prices.

Is It Inflation or Fear of Inflation?

Shortages are often overcome with increased output. However, it takes time for services and products to catch up. As a result, some sectors, such as leisure, the automobile industry, and travel will recover in time. The question is, how much time?

The Fed’s criteria of two percent inflation over an extended period gives businesses time to recruit workers and ramp up manufacturing. However, it takes more time to grow a tree.

What To Do?

If Chair Powell is right and all the economy needs is a little time for supply to catch up with demand, all we need is patience.

However, some expenses are high regardless of inflation. The cost of education drives most college students into debt and medical expenses are the leading cause of bankruptcy in this country. Nonetheless, those costs may be considered systematic failures rather than inflation factors.

Safe Havens

If you are concerned that inflation is coming sooner rather than later, you might want to make a few moves to balance your assets.

If you have an adjustable-rate mortgage, you might consider locking in a low rate with a fixed-rate mortgage.
Floating rate bonds. As the name implies, the interest rate on these bonds fluctuate based on inflation. To get maximum diversity, you can invest in a portfolio of these bonds through mutual funds and ETFs.
Gold. Owning gold has been a favorite tactic of inflation bears for a long time. They like the fact that it holds its value. Again the best way to own gold may be through an ETF or mutual fund.

Caution

Some investments can get you stuck with low returns if inflation does not materialize.

Long-term bonds. Many investors favor these bonds for safety. They do protect principal but lose ground when interest rates take off.
Long-term CDs. Again, this is a popular investment for those seeking safety. Like long-term bonds, CDs protect your principal. However, if inflation accelerates, your CD will be left at the starting gate.

Conclusion

George Bernard Shaw said, “If all the economists were laid end to end, they’d never reach a conclusion.” And people thought he was trying to be funny.

A lot of analysts are talking about inflation. As a result, a lot of average investors are becoming concerned. However, the Fed, which is tasked with reining inflation, is advising patience.

If you’re confused about what to do, that’s understandable. For most of us, the right move is to keep our investments balanced and flexible. That means not getting locked into long-term fixed rates – unless your talking about your mortgage. It also means spreading investment risk through diversity. For most of us, that means finding a few mutual funds or ETFs that align with our financial goals and investing in them monthly.

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Weekly Financial Wrap: Housing, Car Subscriptions, Inflation and Value Investing

May 22, 2021 By Max Erkiletian Leave a Comment

Housing Market Peaking?

Home sales continue at record levels. However, prices show signs of easing — indicating a slightly more buyer-friendly market.

“Even though homes continue to sell faster in what is solidly a sellers’ housing market in most areas, another jump in the number of new sellers compared to a year ago has caused some of our weekly metrics to take a tiny step in a more buyer-friendly direction,” writes Danielle Hale, chief economist for Realtor.com. “Home price gains eased this week although they continue to grow at a double-digit pace. On top of this, the size of inventory decline held steady. Buyers will still have to move fast and are likely to face competing offers, but there are signs that as sellers come to market, the intensity of the competition could lessen.”

Stiff Competition

Over the past 39 weeks, demand for houses has exceeded the supply of houses for sale. As a result, many houses are selling above their asking price.

A Realtor.com survey found that 25 percent of first-time buyers lost a bidding war for a home.

On the bright side for buyers, new listings were up five percent the week ending May 8. Plus, another Realtor.com survey indicates more sellers are getting ready to jump in the pool.

More Sellers

“The survey results show that 10 percent of homeowners across the United States plan to sell within the next 12 months,” writes Realtor.com Senior Economist George Ratiu. “The figure is noteworthy because it is 25 percent higher than the typical share of homes which come to market in a typical year.”

That same survey reveals that 16 percent of homeowners said they are likely to list their homes in the next two to three years.

For now, costs are still high with May’s median listing price expected to top April’s $375,000. However, with more sellers indicating they are ready to enter the market, buyers may get some relief.

Car Subscriptions Growing

The next trend in the automobile industry is vehicle subscription services. This business is projected to grow into a $12 billion industry by 2027.

How It Works

A car subscription service provides you with a vehicle for a monthly fee. Subscriptions run anywhere from one to 12 months. The service often includes maintenance, 24/7 road service, and insurance. In addition, you can switch cars as often as every month.

The Future

“Flexibility, affordability, and convenience along with better benefits as compared to leasing drive the growth of the global car subscription market, “ according to a report by Allied Market Research.

Corporations will continue to lead the auto subscription market through 2027, says Allied. However, the greatest growth in subscribers is expected to be consumers. The private segment of the industry will leap almost 24 percent.

Big names have gotten into the car subscription business. Volvo, Nissan, Porsche, BMW, Audi all offer subscription service. In addition, leasing giants such as Hertz and Enterprise are also in the game.

Moving to Electric

In 2019, about 75 percent of subscription vehicles were gas-powered. That dominance is expected to continue for most of the next six years.

“However, the electric vehicle segment is estimated to witness the highest CAGR (compound annual growth rate) of 26.5% during the forecast period, owing to high penetration of the electric vehicle sales and traction towards electric mobility,” said allied.

In fact, one auto subscription company, Steer, only offers electric vehicles.

Is Inflation A Fear or A Reality?

A little over a week ago the stock market panicked over inflation fears. Then it bounced back after those fears subsided. So, are we headed toward inflation or not? How do you measure inflation after a pandemic? How do we guard against such uncertainty?

SA will try to answer those questions in Sunday’s focus article.

Return of Value Investing

Corporate earnings for the first quarter have largely exceeded expectations. In addition, the economy is opening wider all the time. As a result, the stock market is simmering just below record highs. However, some analysts say continued gains may be choppy citing the uncertainty of inflation and tax issues. Consequently, investors are turning from growth to value.

Role Reversal

“The S&P 500 Value index — made up of the top 100 S&P 500 stocks deemed to be cheapest as per their price-to-book value, earnings-to-price and sales-to-price ratios — has returned 8.6% in 2021 as of March 8, beating the 2.0% gain for the broader S&P 500 index,” writes S&P Global’s Peter Brennan.

The S&P Growth Index has declined 3.8 percent over the same period, Brennan points out.

So far this year, Russell indexes reflect the same trend. The Russell 1000 Value Index is up 11%. Meanwhile, the Russell 1000 Growth Index is down 0.2%.

That is the widest gap between growth and value stocks since the burst of the tech bubble in 2000.

Results Now

Growth stocks typically refer to stocks with the potential to one day deliver a return while surviving on debt. Low interest rates allowed tech companies to fund their growth that way. However, with concerns about the prospect of inflation, investors are looking for immediate value.

“As the rollout of Covid-19 vaccines quickens and the economy bounces back from last year’s shutdowns,” reports the Wall Street Journal, “portfolio managers are snapping up cyclical stocks—banks, energy companies and others whose fortunes are closely linked to economic growth. Those shares often fit the description of value stocks, which trade at low multiples of their book value, or net worth.”

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House Hacking Your Way to Passive Income for Life

May 18, 2021 By Vicky Monroe Leave a Comment

Housing is most people’s biggest expense. On average, Americans spend 37% of their take-home pay on rent or their mortgage, which doesn’t leave much room for saving after their other bills are paid.

The rising cost of housing is making it harder for the average American to build wealth. But luckily there’s a way to get your housing costs down so you can invest more of your salary.

It’s called house hacking, and it involves renting out a portion of your home to cover some or all of your monthly mortgage payment. To help you get started, here’s an overview of what house hacking is and how to pull it off.

What is House Hacking?

House hacking is a popular way to reduce or even eliminate your mortgage payment. By renting out parts of your home to tenants, you’ll be able to generate enough revenue to offset or completely cover your housing costs.

You’ll also be able to earn rental income without the costly mortgage rates that come with investment properties. Many banks require investors to put 20% or more down on the real estate they buy. Lenders also charge 0.5% to 0.75% higher interest rates for investment properties than primary residences.

But by living in the home you’re renting out, you’ll be able to put down as little as 3% and qualify for the lower interest rate associated with primary residences. That’s why some investors live in their rentals for a year or two before moving on and buying another property.

It’s usually easiest to house hack by purchasing a multi-family property with several rental units rather than a single-family home. Houses that have multiple apartments typically earn more rental income. You’ll also have more privacy if you go the multi-family route because you won’t be sharing a house with your tenants.

But if you already own a single-family home or condo, that doesn’t mean you have to move to house hack. You can rent out your spare bedrooms or basement to offset your housing costs and build equity. It might be a little awkward to live with tenants, but it’s worth it to save a big chunk of change on housing.

If you don’t have any extra space in your home, you can even generate extra income by putting up a tent or yurt on your property and renting it on Airbnb. Believe it or not, travelers may be willing to pay to go camping in your backyard, especially if you live in a scenic area.

How Can House Hacking Help You Build Wealth?

House hacking can help you build wealth by increasing your home equity and freeing up some of the money you’re currently spending on housing. This will enable you to invest a bigger portion of your income and have a more comfortable retirement.

Even if you only rent out a spare bedroom and earn a couple of hundred dollars from house hacking, that money will really add up over time thanks to compound interest.

Say you’re able to invest an extra $500 per month over the course of your 30-year mortgage because you rent out your basement. If the money you invest earns 8% interest, you could have an extra $679,699 in retirement.

You can even continue to rent out your home after it’s paid off to give you an extra passive income stream in retirement.

Wrapping Up

Some financial experts believe that homeownership isn’t a good investment. They argue that residential real estate doesn’t appreciate enough to cover all the maintenance and insurance costs that come with owning a home. In the end, they think you’d earn more by renting and investing the money would’ve spent on home maintenance in the stock market instead.

But with house hacking, you don’t have to choose between owning a home and investing. Renting out your spare bedroom can help offset the costs of homeownership like mortgage payments and property taxes so you can fully fund your retirement account. You’ll even qualify for a lower interest rate and down payment because the home you’re renting out to tenants is also your primary residence.

If you decide to move, you can keep the home as part of your investment portfolio. You can even continue to rent it out after it’s paid off and earn passive income for life.

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Can the Housing Market Get Any Hotter or Is It Cooling Off?

May 3, 2021 By Melissa Batai Leave a Comment

Are you trying to buy a house? If so, you are likely familiar with how quickly houses are currently selling. Buyers have sometimes only minutes to decide if they want to buy a particular house, and competition is fierce. Many houses in especially hot markets like California are selling far over their listing price. Desperate buyers are even offering to forego house inspections in their urgent desire to buy a home. This kind of a crazy market begs the question, can the housing market get any hotter, or is it cooling off?

Factors Creating the Hot Housing Market

There are several factors that have created this hot housing market:

The Pandemic

Many Americans have been working from home now for over a year thanks to the pandemic. Our workplace has been forever changed, and a large swath of workers plan to continue to work from home even after the pandemic is over.

This situation is one reason why so many new buyers are entering the housing market. If they can work from home, they want a bigger living space than the apartments they currently live in. Also, many city dwellers want to move into the suburbs or the country so they have more space, especially since the commute is no longer a factor.

Millennials Ready to Buy

Many of those new home buyers eager to leave apartments are millennials who are naturally at the age where they may want to buy a home and start a family, regardless of the other factors heating up the housing market.

Millennials are currently the largest group of home buyers on the market.

Low Interest Rates

Another reason so many people are looking for homes is that mortgage rates are enticingly low. Currently, mortgage rates are averaging 3 to 3.25 percent, which can make homeownership attractive to new buyers. “Ali Wolf, a chief economist at real estate data and advisory firm Meyers Research. . .says, ‘If you look at what the monthly payments would be today versus a few years ago in some markets, the rates—as low as they are right now—[are bringing] that monthly payment back to 2015 or 2016 levels’” (Forbes).

Delayed Construction

Can the Housing Market Get Any Hotter or Is It Cooling Off? — Photo by Brett Jordan on Unsplash

The final reason the housing market is so hot is simply the rule of supply and demand. There are more sellers looking than homes available, in part because construction has not kept up with population growth.

Construction is happening, but thanks to the pandemic, there are supply chain and skilled labor issues. As a result of this, builders are having trouble producing houses quickly.

Can the Housing Market Get Any Hotter or Is It Cooling Off?

Simply put, the housing market will likely remain hot for the next few years. There simply aren’t enough available houses for the current need. When you add in building delays due to supply line issues thanks to the pandemic, one can see that this situation will likely persist.

Final Thoughts

While this hot housing market is great news for home sellers, it’s not good news for home buyers. Unfortunately, as prices rise, more and more Americans who are trying to find an affordable house will be locked out of the buying market, at least for the next few years.

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Will Supply Shortages Cost Consumers More

April 25, 2021 By Max Erkiletian Leave a Comment

Production cuts during the pandemic, drought in Asia, increased demand, and a shipping bottleneck. All are factors in current and coming supply shortages that have exposed the frailty of supply chains around the world. To you, that means a scarcity of some goods and higher prices.

We will examine supply shortages that have and will lead to price increases in general. However, let’s first take a look at three resources in short supply now that are pushing prices upward.

Gas Prices Increase

Despite an increase in demand, prices at the pump have remained fairly steady, according to the American Automotive Association (AAA). So far this month, a gallon of gas has averaged $2.86 reports AAA. However, that is about $1 higher than this time last year.

One of the reasons gas prices have climbed is OPEC production cuts. The cartel decreased production earlier this year. However, on April 1, it announced gradual production increases. That may stabilize prices for now, but future production changes could increase what you pay at the pump.

Outlook Steady

“For all of 2021, we expect U.S. retail prices of regular-grade gasoline to average $2.66/gal and retail prices for all grades to average $2.78/gal,” states the U. S. Energy Information Administration, “which would result in the average U.S. household spending about $480 (31%) more on motor fuel in 2021 compared with 2020.”

Traditionally, demand for gas increases as people hit the road on vacation. That didn’t happen much last year. However, this year is expected to be different. More vaccinated people with more money are expected to increase their travel this summer. That will increase demand. If supplies do not keep up, prices will increase.

Rubber Supply Shortage Expanding

Natural rubber climbed to a four-year high this week, trading at $2.20 per kilogram. The price increase is attributable to a rubber supply shortage. How nice, you say, for those traders who bet on rubber. But how does that affect me?

It means you will pay more for many things you use every day.

Rubber Used in Many Products

As you go through your day, take note of the rubber in all the products you use. Do you walk across a floor? There is rubber under the carpet or wood. In fact, your shoes probably contain rubber. Do you go to a doctor? Those gloves they wear are made of rubber. Do you drive or take public transportation? Rubber is used in the tires and belts of those vehicles. It is also used in adhesives, clothing, and many other products.

Tire Prices Rising

Because rubber is used in so many products it is hard to break down price hikes in each one. However, one of the most noticeable products being affected by the decreased rubber supply is tires.

Major tire manufactures have raised prices an average of eight percent in recent months.

The China Factor

Contributing to the rubber supply shortage was a drought in Thailand and Vietnam. However, China has had an impact. It began stockpiling rubber in 2012. As rubber made its way to the market this year, China has been quick to make purchases.

Wood Growing Scarce

If you are building a new home, you will pay on average $24,000 more this year than in 2020, according to the National Association of Home Builders (NAHB). The increase is due to increasing lumber prices.

“The escalating lumber prices are largely due to insufficient domestic production and extremely large lumber mill curtailments that lasted well into the 2020 building season,” says the NAHB.

Other Causes of Supply Shortages

Though there are specific causes for some shortages, there are some general causes that impact almost all products.

The Pandemic

Many companies cut production in anticipation of reduced demand during the height of the pandemic. They also reduced production capacity by exercising safety precautions. Those safety measures, such as social distancing, reduced the workforce. As a result, fewer goods were produced.

Jammed Seaports

Consumer demand has increased as the economy recovers. As a result, international shipping has accelerated and ports are clogged.

As many as 41 container ships have been forced to lay at anchor waiting for a birth in the Los Angeles/Long Beach port, according to a report in the Seatrade Maritime News. Other ports are also jammed. As a result, there is now a backlog in rail shipping.

Economic Recovery and Consumer Spending

Some factors such as drought in Southeast Asia or a deep freeze in Texas are unpredictable forces of nature. However, they may not be as big as human actions.

People and computer models trying to forecast supply needs did not anticipate the economy rebounding as quickly as it has.

The ramped-up vaccine rollout and increased stimulus money have got more people out and spending. Consequently, we are buying more gas and ordering more products than businesses planned for.

Light at the End of the Funnel

One person who thinks the supply shortages will not last is Federal Reserve Chairman Jerome Powell.

“It’s not like the supply side will be unable to adapt to these things,” Powell said at a March 17 press conference. “It will—the market will clear. It just may take some time.”

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