Don’t Buy a Home!

A U.S. housing market, as unstable as the current one, hasn’t been the case since 2006...and most recall what happened post.   The key figure that defines today’s market is the HOAM index (Home Ownership Affordability Monitor) produced by the Atlanta Fed. - something I explored in detail in my Q2 letter last year; To drive the point further, below more info from Trading Economics: 

• The price-to-rent ratio averaged 101.8 nationwide from 1970 to 2023.

• In the second quarter of 2022, the ratio reached an all-time high of 141.2.

• The last reading in Q4 2023, the ratio is still “high” @ 135…again, mirroring 2006

The price-to-rent ratio is calculated by dividing the median home price in the area you’re looking to buy in by the average dollar amount of renting a comparable home in the same neighborhood. A low ratio indicates people may prefer to buy rather than rent. A high ratio suggests renting is more attractive than buying.

Currently, the ratio is very high. This highly favors renting in today’s market.

While emotions tend to drive decision-making, we need to rely on data to see financial success. For the current market to correct itself, we need to see:

1. Housing prices go down. This could happen, but no time soon mainly due to the substantial equity people have in their homes today, so there’s no incentive for people to walk away from their homes like in the Financial Crisis. Especially the ~60% of our country with a mortgage rate of 4% or less.

2. Interest rates go down. This will happen too, but it’s anyone guess when, maybe the Fed will make one reduction this year.

3. Incomes go up. Historic trends reflect this too will happen, but it will take time. 

The key point. however, is the above are not in control of the public, not you, not anyone. But such events guide your life and financial decisions. What I see is there are three types of people in the current market:

• The Quitter: Those who have thrown their hands up, complaining about how unfair the market is and have essentially given up

• The Patient Saver: Those who save every penny, praying for a market miracle.

• The Opportunity Taker: Those who ignore the noise of the crowd and get qualified help to achieve their goal. 

The Quitter is out of the housing game. The Patient Saver will get there one day, but often at the expense of any other financial success. The Opportunity Taker is the person who has the best chance of succeeding in the current market. If this sounds like where you stand today, then you’re already ahead of the curve. Start with, did you know about the HOAM Index, the price-to-rent formula; why should you unless you’re in the finance world. The alternative: there’s never been a better time to consider the help of a trusted Wealth Advisor. 

Someone who you can consult with, you can learn with, who can steer you on the right path to making financial decisions that will persevere. The beginning of this journey can be just one, no-obligation call away.  

Let’s chat juliuswealthadvisors.com, via email or calendar call.

Disclosures

This piece contains general information that is not suitable for everyone and was prepared for informational purposes only.  Nothing contained herein should be construed as a solicitation to buy or sell any security or as an offer to provide investment advice. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. Past performance does not guarantee any future results. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. For additional information about Julius Wealth Advisors, including its services and fees, contact us or visit adviserinfo.sec.gov.