Love, Money + Real Estate #20
The Year in Review, Election Surprises, and Inflation Deflation
The Year in Review
I’m always exhausted at the end of a year. In this case, it’s been an extraordinary three-year pandemic period. I sure hope 2022 will be the last year I write about the pandemic and the pain and suffering it has caused for so many.
Let’s take a look at where we’ve been this year.
Looking back at housing 2022
At the end of 2021, I wrote that “Covid is a trend accelerator.” When it came to buying a home, the pandemic produced the lowest interest rates in history, the fastest jump in interest rates in history, and the fastest rise in home prices. It also exacerbated an ongoing housing shortage.
In June, 2021, the National Association of Realtors (NAR) declared a U.S. housing shortage of between 5.5 and 6.8 million units. In Harvard University’s annual State of the Nation’s Housing report, sponsored by Habitat for Humanity, the U.S. housing deficit is estimated to be 3.8 million units. NAR debuted a Housing Shortage Tracker, which estimates the U.S. is still short around 5.5 million homes.
It doesn’t look like the housing shortage is getting better anytime soon, according to the Counselors of Real Estate math:
The current annual pace of new residential supply is about 1.6 million units per year based on construction starts, which is close to the estimated demand from new households of 1.1 to 1.3 million-plus obsolescence/demolitions of 0.2 to 0.4 million.
In other words, if the U.S. produced 1.6 million new units, it would just about cover demand. Unfortunately, according to the latest Census figures, an estimated 1.49 million new homes will be completed in 2022, adding to the housing shortage.
The year of “never-befores”
Looking back, the real estate industry has experienced a whole slew of “never-befores.” Never before:
Have interest rates jumped up this quickly
Have home values skyrocketed in such a short period of time
Have home prices jumped as mortgage interest rates rose (typically higher mortgage rates mean lower home prices, at least eventually)
Has housing inventory been so low for so long
Have so many home sellers received multiple-bid offers
Officially, the housing market is now in a depression, with pending home sales down for 11 months straight, and the total number of homes sold in 2022 down more than 20 percent from a year ago.
Will home prices fall? Probably. In some markets at least. Time will tell. Interestingly, the vast majority of homeowners are paying off mortgages carrying an interest rate of 4 percent or less, and fewer seem inclined to sell, buy or refinance. As a result, the mortgage industry has laid off thousands of loan officers.
Will 2023 will extend the superlatives? And, after three years of a pandemic, what does a normal housing market look like?
2022: The year the long bull market came to a screeching halt
Look at your 401(k) lately? Wait - let me hand you a tissue.
This has been the worst year for stocks since 2008:
The Dow ended the year down nearly 9%
The S&P 500 ended the year down nearly 20%
NASDQ finished the year down more than 33%
Some of the biggest companies in the world are ending 2022 with their stock price in the toilet, including Apple, Amazon, Tesla, Microsoft, Meta (formerly Facebook), Nividia, PayPal, Netflex, Disney and Salesforce. Tesla’s 52-week range was 402 and 108. It ended the year around 123 per share.
Are we at a buying opportunity yet? Probably, for some of these companies, particularly those that are down more than 50%. But, it’s not at all certain that 2023 will live up to Wall Street observers’ hopes and dreams of a soft landing.
And, don’t forget the Crypto meltdown
This has been quite the year for crypto. FTX was the fourth crypto exchange to melt down in 2022. The price of a Bitcoin is 16644.38 as I write this on December 30, down from 46506.99 one year ago. This is a change of -64.21% in a single year, apace with some of the biggest names in tech. But those are real companies, with real business models. Bitcoin and the other crypto currencies aren’t real, remain the domain of the black and grey markets. As NPR put it:
In the future, 2022 may be regarded as a turning point for the world of virtual currencies, when they lost their luster and were cast out as a fringe product most people approach with skepticism and caution. Or it may simply be remembered as a stretch of excruciating growing pains for an industry still in its infancy.
Regardless, 2022 was one for the crypto history books.
Or, as Allan Sloan, one of my favorite business writers calls it: “Craptocurrency.”
New Year’s Resolutions for Home Buyers and Home Sellers
Although we don’t know exactly how high interest rates will climb in 2023, or how little inventory will be available, the handwriting is on the wall for home buyers: If you want to buy next year you’ve got to be ready to move quickly. As I wrote in this year’s New Year’s Resolution for Home Buyers:
Extremes are never a good thing in real estate (unless it’s the lowest mortgage rates in history). Yet those are already informing what next year will look like. With that in mind, home buyers may want to be ready to leap as soon as the housing door cracks open
Other ideas? Get preapproved for your mortgage, pay down your debt, build up your credit score and decide in advance what tradeoffs you’re willing to make. Rising home prices and higher interest rates mean you’ll likely get a lot less for your money.
As for home sellers, what you offer is still in demand, but in my New Year’s Resolutions for Home Sellers, I suggest you price your home competitively to focus available interest. Don’t worry about leaving money on the table. If demand is there, you’ll be the happy recipient of a bidding war.
2023 Personal Finance Resolutions
During the pandemic, we watched 22.4 million people lose their jobs, and the unemployment rate jumped up from 3.5% (an historic low) to 16.1% for women (who were hit the hardest). By January, 2021, the unemployment rate had dropped to 6.4%. In September, 2022, it was back to 3.5%. It was the steepest rise in U.S. unemployment. Ever.
So, where are we now? The job market remains extremely strong: There are two jobs available for everyone who is looking for one. The Great Resignation continues. Employees are speaking with their feet - and their mouths. They’re loudly telling employers that they want more flexibility to do their jobs from home. Or, they’ll quit.
Looking back over the pandemic, it’s clear that the Great Resignation might also be called the Great Recalculation: People are weighing their work lives and personal lives differently. Work lives are coming up short, and the balance is tilting toward enjoying more of your life now.
It’s making life more difficult for employers who need bodies in seats, or on the assembly line. But what did everyone expect? The pandemic accelerated the math associated with our lives. Work was found wanting, even as post-pandemic inflation caused more pain and wages rose.
I don’t think American employees are “lazy,” as Home Depot Founder Bernie Marcus put it in an interview the other day. And, I don’t think “quiet quitting” is anything new. I do think we’re exhausted, mentally and physically, by today’s physical, mental, and political challenges. And, many are willing to trade money for time.
If that includes you, here are some suggestions for making the most of your money in 2023:
Spend less. Or, spend what you spent in 2020, as the pandemic unfolded.
Save more. Make sure your expenses and income are in balance.
Challenge yourself. Write down your goals for 2023 and reverse engineer how to get there one step at a time.
Pay down your debt. No sense paying higher interest rates on debt.
Build up your credit history and raise your credit score. That way, you’ll pay less and get better terms when you do apply for credit.
Post-Election Thoughts and Findings
If you look past red and blue, there were some interesting lessons in the mid-term election cycle with important implications for health.
According to the Kaiser Family Foundation, when voters are asked whether they want to expand Medicaid, they often say yes. In November, South Dakota voters approved an amendment to expand access to Medicaid. The expansion affects anyone age 19 to 64, whose annual income is at or below 133% of the federal poverty level. It is the 39th state (plus the District of Columbia) to expand Medicaid under the Affordable Care Act.
Importantly, Governor Kristi Noem signed off on the legislation, “respecting the will of the voters.” As of early December, South Dakota began implementation.
Voters in Arizona, Massachusetts, and Oregon also voted on medical debt, dental insurance and healthcare as a right:
In Arizona, 72% of voters supported Proposition 209, the Predatory Debt Collection Act, which reduces the maximum interest rate charged on medical debt from 10% to 3% annually, increases the amount of certain assets exempt from debt collection, allows courts to reduce the amount of disposable income in extreme economic hardship, and restructures how medical debt is collected.
In Massachusetts, voters decided that dental insurance companies will need to spend at least 83% of the premiums they collect on patient care rather than business expenses, such as overhead, marketing or salaries. Massachusetts Question 2 passed overwhelmingly, requiring dental insurance medical loss ratios to be adjusted and the unused portion of premiums under the new rule returned to customers.
In Oregon, voters weighed in on Oregon Measure 111, amending the state constitution to declare affordable healthcare is a human right. Just over 50% of the population agreed, although it won by just over 23,000 votes out of 1.7 million cast.
In California, Michigan and Vermont, voters added abortion protection to their state constitutions, while voters in Kentucky and Montana rejected anti-abortion measures.
It’s clear that no one wants anyone from either side of the political spectrum messing with their health.
Hot Reads from ThinkGlink.com, LawProblems.com and BestMoneyMoves.com
3 Financial Struggles Faced by Black and Latinx Gen Zers — And How Companies Can Help
Financial Wellness Platforms: How To Launch the Best One for Your Employees
There’s a lot of new content to read on all three sites. Hope you’ll check them out, including:
New! This Week in Wealth Expands to One Hour
As of January 1, the WGN radio show I co-host with Tom Fortino, This Week in Wealth, expands to an hour and moves to 7:00am CT. You can listen live at 720WGN in Chicago or on the web at wgnradio.com. Past episodes are up online as a podcast, so you can download or listen at your leisure.
On a personal note
In 2023, I plan to write this newsletter more frequently, and add some features that will be available only to paying subscribers. I hope you’ll join me for the ride. I think 2023 is going to be a pivotal year for many and look forward to documenting the journey.
In the meantime, all my best wishes for a very happy, healthy, and successful 2023.
Best,
Ilyce