Love, Money + Real Estate #28
Definition of Middle Class, Real Estate News and Notes from San Francisco
Greetings!
I’m just back from spending a week in San Francisco, working, visiting my son, eating (such great restaurants!), and enjoying Sumo Oranges. More on that in a moment.
Real Estate News
Here’s the headline: the housing market lost steam in January as mortgage rates stopped falling and prices kept rising:
Redfin reported new listings dropped for the first time since June and pending sales growth slowed; stagnating mortgage rates and the biggest home-price jump in over a year caused the market to lose momentum.
In another study, Redfin found that the typical homeowner is spending nearly 12 years in their home, up from 6.5 years two decades ago. Why is this happening?
Baby Boomers are aging in place. Nearly 40% of Boomers are living in the home where they have lived for at least 20 years. Another 16% have lived in their homes 10 to 19 years. 35% of GenXers have lived in the home they currently own for at least 10 years.
Millennials and GenZers are staying for shorter periods of time, mostly because they’re young and switching jobs, the study found.
But older homeowners are incentivized to hang onto their homes either because they own them free and clear and/or they have super-low interest rates. If that’s you, then the monthly cost of owning a home is around $600 (taxes and insurance) - far less than you’d pay if you sold and bought new.
Some states incentivize older Americans to stay. Texas homeowners can defer property taxes until they sell and in California, Prop 13 limits property tax increases but also allows older homeowners to buy a new home and port their current property taxes over to the new property.
Medical and tech advances mean more people can age in place.
None of this is a surprise. But it’s contributing directly to the fact that we only have 3 months of inventory (homes available to buy) right now. A very low number. In more real estate news:
The number of single-family housing starts declined by 4.7% in January, mostly due to cold weather, according to Doug Duncan, Chief Economist of Fannie Mae. November and December’s numbers increased.
LendingTree says that renting is now cheaper than owning in all top 50 metro areas.
If you’re still paying off your mortgage, renting is likely cheaper than owning in each of the nation’s 50 largest metros. The difference between median housing costs for homes with a mortgage and median gross rent is $563 a month.
The spread in costs between renting and owning a home with a mortgage is widest in the San Jose, Calif., San Francisco and New York metros. The difference between the median monthly housing costs for homes with a mortgage and the median monthly gross rent in these metros is $1,341, $1,303 and $1,289, respectively.
Phoenix, Orlando, Fla., Jacksonville, Fla., and Atlanta have the narrowest gaps between renting and owning a home with a mortgage. In Phoenix and Orlando, median gross rent costs are $87 and $145 less than median monthly housing costs for homes with a mortgage. In both Jacksonville and Atlanta, the difference is $216.
Fannie Mae and Freddie Mac released their annual reports last week.
Fannie Mae had $17.4 billion annual net income and $3.9 billion fourth quarter 2023 net income, with net worth reaching $77.7 billion as of December 31, 2023.
Freddie Mac had net income of $10.5 billion for full-year 2023, an increase of 13% year-over-year, and net revenues were $5.4 billion for the fourth quarter of 2023.
As a point of comparison, OpenAI had $2 billion of revenue and is worth about $100 billion. If you haven’t heard of ChatGPT yet (or Claude, Anthropic’s large-scale language model), you will soon. It’s on the same track as OpenAI in terms of value.
What’s the Definition of Middle Class?
The Washington Post ran an interesting story last week. They ran the results of a survey asking what is the definition of middle class. The respondents’ answers were entirely reasonable.
Unfortunately, most Americans don’t earn enough income to match their vision of what a middle class income should be able to provide.
Most Americans consider an income of $75,000 to $100,000 to be middle class. Pew Research Center says middle class income ranges from two-thirds to twice the national median income: $67,819 to $203,458.
The majority of Americans don't have the financial security they associate with middle class income:
62% are living paycheck to paycheck, according to the Federal Reserve Bank.
Nearly 60% of parents say they're providing financial support their their adult children (aged 18 to 34) according to Pew Research Center.
It seems as though this mismatch of expectation to income is fueling class grievances. What do you think?
Hot Reads from ThinkGlink.com and BestMoneyMoves.com
How to Transfer a Home Into a Living Trust
Who Should Inherit My Mom’s House?
Sell Without Paying Capital Gains Tax?
Neighbor Problems: Dirty Fences (this is one of my favorite stories so far this year)
Video: Using Technology in Financial Wellness Services
4 Things You’re Missing About Employee Financial Stress
Sumo Oranges and Lessons of Inattention
There’s a charming market in San Francisco’s Mission neighborhood. It’s an expensive place to buy groceries everyday, but everything you buy there is perfect. I stopped over there one morning to pick up some flowers as a house gift for a friend who was making brunch and saw these amazing Sumo oranges.
I bought some. And, because I was in a hurry I did something very unlike me: I didn’t notice the price.
I have to say, they were THE MOST delicious oranges I’ve ever eaten. But at $6 per orange, they better be. And, did I mention that each orange weighed about a pound?
Happily, on my next trip to Costco I found a box of the same oranges (though not as perfect-looking) for a whole lot less.
But the whole experience reminded me of what can happen financially when we’re not really paying attention. If you leave your money with an investment company, and then 10 years later you wonder why your returns don’t seem to be as good as what’s happening in the market - and you’re paying 1.5% for the privilege. Or, on a lesser, but still expensive note, when you’re buying a new car and fall into the “decision exhaustion” trap, and say yes to extras you don’t really need.
So much is being thrown at us everyday - it’s hard to keep it all straight. So, stop. Make a list of what’s really important. Focus on those. And when you’ve got those straightened out, take the next chunk on the list.
There will always be noise. Our job is to filter that out and focus on what really matters.
Thanks for reading. Type to you soon.
Ilyce
P.S. Just want to say "Thank You” and kudos to Ruth Gottesman, whose late husband was an early investor in Warren Buffett’s companies. She gave $1 billion to the Albert Einstein College of Medicine yesterday, so that that medical students at the College can attend tuition-free. Gottesman, 93, is the chair of the Boar of Trustees of the College.
That’s what we need these days: More doctors. Less Debt. It’s a win, win all around.
The middle class is falling farther and farther down the stream. Is the cost of college really worth it? The kids have all this school debt and never stay at a job long enough to get the benefits of a large company. I will bribe my granddaughter to go to a JC & CSUN or become a LADWP employee and be set for life with a rewarding career!!! Anyone else!!! I am so tired of hearing, "I cant make any money". I have plenty of time to show you how to do it!!!