G-Morning folks! Welcome back to HomeSweet - where homeowners get their news. We will give you - the holy homeowner - the tools, resources, insights, and memes to both build wealth and build a better life at home. This is our way of picking up where MTV Cribs left off; the only difference? Less Vitamin Water in the see-through refrigerator and more tips on how to stack cash and equity from your home. Let's go!
The Blueprint 🗺️
🗞️ Front Porch News: Baby dip in home prices. Highest rates since 2008.
🛠️ Weekend Warrior: The great decluttering.
🧠 Shower Thought: Dollar? Too strong!
🧰 The Toolshed: What to do with your increased home equity?
🤡 Meme Menu: Well, I OUGHTA!!!
Front Porch News 🗞️
As we near Q4: the ever slightest dip in home prices (CNBC). It's not all doom-and-gloom out there, gang. While our arms are still crossed when looking at the overall housing market right now, we are seeing home prices in select markets starting to fall a bit. The median listing price in July dropped ~3% (from $449k to $435k). Further, see a recent screenshot below for a ~10% reduction in Miami home prices of all places (maybe buyers smell a city-leveling hurricane a-coming?) While this is likely good news for the aspiring homebuyer, it's complicated on both sides of the transaction. The homeowner has seen her net worth fall as soaring mortgage rates weaken buyer demand (plus she probably overpaid $50-100k if she bought this year), while the homebuyer must wait for prices to correct 20%+ (probably in the next quarter or three). Don't worry, though, we got you :)
Chloe Says: If you're looking to buy your first or second home, hang tight. Per the Miami example above, we may see more 10-30% price-drops in the coming 1-6 months. If you are a homeowner, do your best to weather this storm by adding evergreen value to your home (affordable renovations, kitchen tune-ups, vintage bowling alley just kidding). Again, we will keep you apprised on when you should probably be looking to buy; in the meantime, sideline cash for when that day inevitably comes.
Highest mortgage rates in 14 years (WSJ, CNBC, WSJ). There's no other way to put it: rates currently are higher than Bob Marley's bass player. Nothing cools a housing market faster than the highest rates we've seen since 2008, clocking in at 5.89% for 30y fixed. Twelve months ago, rates were half of that! Citi is even laying off some of their mortgage workforce, which rarely happens btw, but makes sense with mortgage originations near zero right now. The Fed's only job at present is to control inflation, which in its eyes cannot return to its 1970s form; what's crazy is that the Fed Chairman Powell still has raised rates at a pace not seen since the early eighties. Back then, Gordon Gekko didn't complain. These are unusual times indeed. The consensus is that September will bring a 75 bps rate hike, keeping mortgage rates elevated for the foreseeable future. Could we witness 7.00%, 8.00% rates? If so, we're here to guide you through the rough waters.
Chloe Says: We'd like to clear something up that many folks get wrong, especially during all this turmoil. Here it is: you want low entry price way more than you want low rates. First off, as a practical matter, if you wait and wait and wait for rates to go down, you could be waiting forever lol. However, if you instead buy low (like we've said, probably sometime b/t Q4 '22 and Q2 '23), then at least you won't lose your down payment like you would if you bought high. If by chance you bought a house this year, you paid high, period. There are always exceptions to the rule but there's a good chance you lost your entire down payment (in paper losses). We only stress this point because it's easy to get wrapped up in something wonky like the zig-zagging daily chart of mortgage rates and the like. Grandpa's advice still reigns supreme: buy low, and then lock in the lowest possible rate.
Weekend Warrior 🛠️
Clean your room(s). We heard this one a lot growing up, either because our rooms were objectively cluttered or because our parents needed us out of their sight for a second. *queue dad's audible exhale before privately sparking up a cigarette behind the garage* At any rate, as adults we kinda know what our folks were going for: decluttered rooms make for more peaceful, more spacious homes. Here are a few tips to clear the room:
Do you need big pieces of furniture, like the dresser? Be honest. Do you?
Using short (not tall) lamps simply because they take up less space
Go for shear curtains to let natural light come through
Lightly colored bedding/upholstery with smaller splashes of color (e.g. pillow, blanket)
Add a mirror opposite of the windows (more light = feels bigger)
Affix puck lights to the ceiling to light up a room without cluttering
Shower Thought 🧠
Like we mentioned last week, the US dollar has not been this strong since 2002: the year Spider-Man and Crank Yankers premiered. The Fed's almost-certain 0.75% rate hike this month will strengthen the dollar even more. With the Eurozone looking more fragile than ever, we think the US Dollar dominance is here to stay, as international investors flock to any asset with a semblance of stability.
So what's the move? Either do nothing or consider arbitrage-buying higher ticket items abroad. If you plan to jump on the bandwagon of Americans traveling to Europe on the cheap for more than two weeks, you can rent out your residence. The rental market is on fire with vacancy rates at 30-year lows (despite rents going up 10% year-over-year), so do with that information what you will. We think paying a management service like Airbnb upwards of 25% of total revenue is INSANE, but it's short-term and you can still be cash flow positive if you know what you're doing.
The Toolshed 🧰
One thing we found this week that will make your life better as a homeowner:
In spite of all the headwinds faced by homeowners this year, home equity rose 28% in Q2 of 2022 (translation: ~$60,000 gained in the past year, over $100,000 in some west coast states). Recall that home equity is your home's current value minus the loan amount still owed. This applies to the 62% of US property owners who carry a mortgage.
Thanks to this fast-growing home equity, homeowners have more breathing room to consider their options (traditional HELOC, Chloe's HELOC credit card). Contact a trusted real estate agent to help you find out how much equity you have and then get in touch with us for next step recommendations.
As background, the main reasons HELOC products should be used are home improvements, consolidating debt, covering an emergency expense, or buying an investment property. As for investments in this market environment, we think that self-storage, mobile home parks, and select rental units (1-3 bedrooms; no studios and no mansions) will win.
Meme Menu 🤡
Thanks for coming through and we hope you enjoyed it. See you next week.
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