Episode 29
Housing - From Frustration to Opportunity: The Right Mindset for Today's Market
Episode Description
In episode 29 of "The Big Bo $how," host Jason Blumstein, CFA® (aka Big Bo), CEO & Founder of Julius Wealth Advisors, tackles the increasingly frustrating topic of housing in today's unpredictable market.
With post-COVID price spikes, rising interest rates, and stagnant wages, many feel locked out of homeownership. Big Bo breaks down:
The current market conditions,
Challenges common myths, and
Provides insights for making smarter, more strategic financial decisions.
Plus, enjoy a special segment drawing surprising lessons from the world of baseball.
Whether you're a first-time listener or a loyal follower, this episode is packed with valuable advice and fresh perspectives you won’t want to miss. Tune in and discover how to turn frustration into opportunity with the right mindset!
Episode Transcript
Hello everyone and welcome back to The Big Bo $how. I’m your host, as always, Jason Blumstein, also known as Big Bo, CEO and founder of Julius Wealth Advisors.
Today, we're diving into a topic that's on everyone's mind, housing. Recently, this topic has become quite frustrating for many due to the current market landscape. So, on Episode 29 of The Big Bo $how, “Housing - From Frustration to Opportunity: The Right Mindset for Today's Market”, we're going to explore how you can change the way you think about your financial future.
We're living in an unpredictable time, with housing market prices spiking post COVID, interest rates rising, and wages not keeping up. This has left many feeling frustrated and locked out of the housing market. Amidst this chaos, you might feel the urge to secure that coveted title of ‘homeowner’ to capture the quote unquote, American dream.
But before you take the plunge, let's explore some key topics. Breaking down the current market conditions, challenging some deeply held myths, and equipping you with insights that can lead to smarter, more strategic financial decisions. And make sure you stick around to the end for a special treat, where we'll draw some surprising lessons from the world of baseball, showing how the right financial mindset can make all the difference.
Whether you're a first-time listener or loyal follower, this episode is packed with valuable advice and fresh perspectives you won't want to miss. So, sit back, relax, and welcome to Episode 29 of The Big Bo $how.
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All right, let's get after episode 29 of The Big Bow $how, and let's start by understanding the current market because you don't know where you need to go unless you understand where you are. A U.S. housing market as unstable as the current one hasn't been this way since 2006, and most of us unfortunately remember what happened after that - a housing crash that led to a financial crisis.
Now, don't worry, I'm not saying we're all doomed, but knowing what to do in times like this is crucial. The key figure that defines today's market is the HOAM Index, H-O-A-M Index, or Home Ownership Affordability Monitor, produced by the Atlanta Fed. As its name implies, this index measures the ability for a median income household to absorb the estimated annual cost associated with owning a median priced home.
Sitting at historically low levels at the moment, not seen since 2006, we can see that most Americans are having trouble affording homes. Even for those who managed to put a down payment on a home, they're facing historically high costs. This means that not only is it harder for many to enter the housing market, but those who do are paying far more relative to their income than in previous decades.
Let me give you an example of this. I personally was fortunate to buy my home in 2019 and take advantage of the historically low interest rates during COVID-19. With my mortgage rate currently being at 2.75% today, Zillow states that my home is worth about 53% more than I bought it for. And a 30-year mortgage rate is around 7%.
This means that if someone were to buy my home, with the traditional 20% down payment needed for a mortgage, their monthly payment will be almost two and a half times higher than mine. Think about that for a second. They would need to come up with two and a half times more money every single month for the next 30 years than I do. That stat embodies what's taking place today in the housing market. The price to rent ratio is another crucial metric to understand the current market.
So, what does this ratio mean? It's calculated by dividing the median home price in the area you're looking to buy, by the average dollar amount of renting a comparable home in the same neighborhood. A high ratio suggests that renting is more attractive than buying and vice versa. This stat averaged 101.8 nationwide from 1970 to 2023. In the second quarter of 2022 this ratio reached an all-time high of 141.2. And the last reading in Q4 2023, this ratio is a still high 135 - closely mirroring the peak ratio reached in 2006 prior to the housing collapse. In other words, right now for many, renting is not only the more affordable but also a more prudent choice compared to buying in today's environment.
I hear you saying, “But Big Bo, I eventually want to own a home.”
Don't worry. This should become achievable at some point. Let's see how. There are three things that need to happen for the market to correct itself and for it to be affordable for you to buy a home. First, number one, housing prices obviously need to come down. However, in my opinion, this isn't likely to happen anytime soon because many homeowners have substantial equity in their homes today. Meaning that they actually own a large portion of their home relative to what they owe the bank. Unlike during the financial crisis, there's little incentive for people to walk away from their homes and sell their homes especially given the fact that 60% of Americans have a mortgage rate of 4% or less - which is substantially lower than today's prevailing rates. On the flip side, this is also good news, though, for current homeowners, where a forecast in the drop of your housing is not expected.
Second, interest rates need to decrease. While this can eventually happen, it's anyone's guess when. Despite people telling you that interest rates are high and mortgage rates are high, mainly due to our brains anchoring to the last 15 years of low interest rate environment and COVID years of unprecedented low mortgage rates, current 30 year mortgage rates are actually below the 50 year average and where they were in the early 2000s.
Third incomes need to go up. Historically this happens over time, but it's a slow, gradual process. The key takeaway here is that none of these factors are in the control of the average person. They are macroeconomic trends that we can't influence directly, but they significantly affect our financial decisions. But there is one thing you can control, and that is your mindset and your strategy. So let's take a quick break, step back and discuss what's in your control. We'll be right back.
All right. Welcome back. Now let's talk about your mindset. This is what's in your control. The way I see it, there are three types of mindsets in this market. The quitter, the patient saver, and the opportunity taker.
Let's talk about the quitter. This person has thrown their hands up in frustration, lamenting about how unfair the market is, and deciding to bow out entirely. They have succumbed to the overwhelming challenges and decided that the dream of home ownership is just out of reach. By exiting the housing game, they miss out on potential opportunities and growth, letting the market's volatility dictate their financial future.
Then we have the patient saver. This individual diligently saves every penny, patiently waiting and hoping for a market miracle. The dream of the day when housing prices will plummet or interest rates will drop, making ownership more affordable. While their perseverance is commendable, their focus on saving can sometimes come in the expense of other financial opportunities. They might miss out on investments or experiences that can contribute to their overall financial health and happiness.
Then we have the opportunity taker. This person tunes out the market noise and seeks out qualified help to achieve their goals. They understand the importance of making informed decisions based on data rather than emotions. By working with experts, they navigate the complexities of the market, identifying strategic opportunities that others might overlook. They balance patience with proactive steps, positioning themselves to succeed regardless of market conditions. If you identify as the opportunity taker, then you're already ahead of the curve. You understand the importance of seeking qualified help and making informed decisions based on data rather than emotions.
At this point you're probably wondering why you've never heard of somebody encouraging you to rent. Well, the truth is many people think they need to buy a home as soon as they can to get their life started. It's easy to get caught up in this mindset because a home is a tangible thing. It feels like a solid step towards adulthood and stability. But let's take a step back and reevaluate this notion. As I always tell people number one answer in finance is “It depends”.
Buying a home is a significant financial commitment, and rushing into it without considering all factors can lead to financial strain. Renting, on the other hand, isn't a bad option. In fact, in the current market, we've seen why it could be a better choice. Renting provides flexibility, less financial burden, and the opportunity to save and invest money that would otherwise be tied up in a mortgage and home care.
By renting, you're putting yourself in a better position to buy a home in the future when the market conditions are more favorable. You'll have more savings, potentially better credit, and a clearer understanding of what you truly want in a home. The goal is to build wealth for the long game through well informed strategic decisions rather than rushing into home ownership just because it seems like the thing to do.
Remember, Building wealth is by choice not chance.
All right. It's back. Everyone's favorite segment. “Bo Knows” it took a couple episode hiatus and now we're back. Here on this segment we draw a parallel between the current housing market and the world of sports. While I love football, the truth is my first love was the game of baseball.
My son and I made a pact to see every single baseball stadium together while he is a kid. Recently, while also visiting clients on the West coast, we went to see the Dodgers, Angels, Padres, and Giants Stadiums - an amazing time that I’m sure we'll remember for the rest of our lives.
So let's talk some baseball taking on the current housing market is like stepping up to the plate in an MLB game. Let's look how the three stars would address such market challenges in our three examples of housing market mindsets.
The first approach is swinging for the fences. In this analysis, I think of Kyle Schwarber on the Philadelphia Phillies. Kyle Schwarber focuses on hitting home runs despite having a low batting average and limited fielding abilities. Like Schwarber, the quitter has given up on other parts of their game.O nly aiming for a home run in the housing market, they get frustrated at high prices and interest rates, deciding to give up entirely. This high-risk move driven by a single-minded goal often leads to missed opportunities and growth, allowing the market's volatility to dictate their financial future.
Then we have stealing bases. Known for his speed and agility, Jose Altuve of the Houston Astros, often attempts to steal bases, looking for a shortcut to the plate. You might get on base, but you're at risk of getting thrown out if the timing isn't perfect. This mirrors the approach of being a patient saver, saving all your cash until you find the quickest way to buy a home. At the end of the day, much like his and the Houston Astros cheating scandal in 2017, this person can cheat themselves out of true success.
Then you have the person who reads the pitcher. And here, as I'm sure my son will get upset with me, I'm going to talk about Aaron Judge. With his high batting average, many home runs and many skills, he works with his coaches to study the pitcher’s tendencies. He waits for the right pitch and makes calculated swings. The exact approach of an opportunity taker. With the right strategy and timing, you can hit solid singles and doubles, steadily advancing, and eventually getting that proper fat pitch for a home run.
Just like in baseball, where the best players rely on strategy, discipline, and patience, in the housing market, you need a solid plan, patience, and the right guidance to succeed.
So where do you stand today? Are you the quitter, the patient saver, or the opportunity taker? If you're feeling overwhelmed by the housing market, now is the perfect time to consider getting help from a trusted wealth advisor. Someone who can guide you, educate you, and help you make the right financial decisions.
Buying a home is just one part of the bigger journey to financial success. All it takes to start is a single step, a step that can be as simple as a no obligation call to discuss your situation and goals. At Julius Wealth Advisors, we're here to help you build wealth by choice not chance. So, what are you waiting for?
Visit JuliusWealthAdvisors.com. Send an email to info@JuliusWealth.com or give us a call at 201-408-4644. Let's take that first step together. So, thank you for joining me today on the Big Bo $how. If you enjoyed this $how, please subscribe to the podcast on YouTube, Spotify, or Apple. Remember, always live a life of integrity, obtain as much knowledge as possible, and always live a life that you're passionate about. Until next time, all the best.
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