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Can a Drop in the Housing Market Impact Your Portfolio?

Oct 31, 2023

How in the world does a first time homebuyer afford a house in today's market? The average price of a home sold in August was $420,000. The typical interest rate for a 30 year fixed rate mortgage today is 7.7%. Not only does that make new homes unaffordable for most buyers, it locks many homeowners into their current homes. Why would they give up a 3% mortgage for one at 7.7%?

So homeowners aren't selling, which has reduced the number of homes on the market, a half of what it was in early 2020. At the same time, homebuyers need to make 50% more than they did back then to afford a typical home today. That's right. In early 2020, you needed to earn $75,000 a year to afford a typical home. Today, you need to make $115,000.

If you're a prospective home buyer, what do you do? A few months ago, the advice might have been, well, wait until winter, when mortgage rates and home prices are likely to soften. But prices have firmed up. And the smart money says interest rates are likely to stay higher for long as the Federal Reserve continues its war on inflation.

So what are your other options? If you're a first time homebuyer, you might consider a condo or townhouse, which are less expensive than a single family home. Or if you can work remotely or can tolerate a longer commute, you could consider moving to a more affordable location. Another option is to rent and save. I mean save in two ways.

One way is that renting in many places is cheaper now than owning. While rents have risen, they haven't risen as fast as mortgage payments, so you might be able to rent a house you couldn't afford to buy. And the first time the HVAC breaks down or you discover a leak in the roof, you'll appreciate an advantage of renting over owning.

It used to be that you'd rather own than rent in order to tap the high appreciation rates of housing. Those days are gone for a while. Many real estate markets will struggle to keep up with inflation. That's certainly been the case in much of the country since home prices peaked last year. I mean save in another way, too. That is, putting your money to work so you can afford to buy when market conditions improve. And they will improve. I've been around for a while. I've seen great markets and awful markets. They all pass. The key is to be prepared to act when conditions change. Preparing helps you to be patient and being prepared helps you beat others to the prize when it's time to act. To be properly prepared, you need a financial plan with a balanced portfolio that both grows faster than inflation and protects your wealth from the shock of the unforeseen.

We all know we live in a time of the unforeseen, the unforeseeable. Gold plays a crucial role in balancing a portfolio in such times, protecting one's wealth against the kinds of shocks that seem so common now. Here at U.S. Money Reserve, we talk about gold as a reliable form of wealth insurance because over hundreds of years, gold has been the go-to asset worldwide, providing financial security to families in uncertain times. I hope you'll follow up with us to learn more.

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