Money Management

The Fed may not have lowered rates, but it doesn’t really matter if you’re looking to buy a home. Buy anyway — here’s why. 

So, it happened. The Federal Reserve Board met this week and to the surprise of many, they didn’t lower rates. For some potential home buyers, this may crush all their hopes and dreams for a home purchase in 2024, but it really shouldn’t. Here’s why.

1. The federal funds rate doesn’t directly impact mortgage rates

Oh, you thought the federal funds rate influences your mortgage rate? It’s understandable, as many people talk about the federal funds rate like it’s the root of all things — good and bad. The truth is, though, that the federal funds rate rate is simply the rate that banks in the United States charge one another to borrow money overnight. It’s a very short-term lending rate that isn’t tied directly to the consumer. Banks themselves set the rate of mortgages, which is why you can shop your mortgage rate with different mortgage lenders and often come up with very different options.

The federal funds rate and mortgage rates do tend to trend together, but they don’t have to. For example, over the last three months, the Fed has held the federal funds rate steady, but as of the writing of this article on Jan. 4, 2024, the average 30-year fixed mortgage rate is about 6.62%, according to Freddie Mac. That’s down from the peak in October of 7.79%, despite there being no decrease in the federal funds rate in 2023.

2. Home prices are likely to continue to increase in 2024

No one is forecasting growth like we saw earlier in the decade, but housing prices have almost no choice but to continue to increase throughout 2024. According to the Federal Reserve Bank of St. Louis, existing home inventory was sitting at just 3.5 months in November 2023, with no indication of any serious change in that condition. That means that if the number of people looking for a home in November remained steady and the supply didn’t change, it would take three and a half months to sell everything.

In other words, if there are 10,000 qualified buyers, and 35,000 available homes, it would take three months like that to sell all 35,000 houses in a perfect system. It’s generally accepted that six months of inventory is pretty ideal to achieve a balance between a seller’s and buyer’s market, so we’re still a long way away from balance.

It would be true to say that housing prices are down for the year as of November 2023, but that’s pretty normal. The real estate market is seasonal, there’s generally a lot less activity during the holiday season (ideal time to buy, really, if you’re not too picky), and the best homes have already sold, leaving a lot more houses that are less than ideal to choose from, resulting in decreasing seasonal prices. HOWEVER, year over year, prices have not dropped at all.

In fact, the median price of an existing single family home in 2020, according to the National Association of Realtors (NAR), was $300,200; the same for 2022 was $392,800. We don’t yet have final numbers for 2023, but NAR’s projected figure for October 2023 was $396,100 — up year over year and despite a significant increase in mortgage rates. The Federal Reserve Bank of St. Louis puts the figure for November 2023 at $392,100 — still up significantly over November 2022’s $378,700.

3. Housing creates permanence, security, and community

Even if I didn’t expect housing prices to continue to rise as mortgage rates will likely moderate, there’s one more incredibly important reason to ignore what the Fed is doing and just buy that house you’ve had your eye on: owned housing creates security, which in time improves your financial life in a million ways.

Owning a home is a foundation for your entire financial life. We too often severely underestimate just how much owning a house helps people build community, establish permanence, and allow people to work on their financial lives.

Although a lot of this is pretty intangible, a recent study from the Federal Reserve looked at all kinds of different ways family finances changed between 2019 and 2022, and one really interesting housing number popped up. Families who owned their homes had a median net worth of almost $400,000, versus the net worth of renting families, which was just about $10,000. (Remember, net worth is after your debts are cleared out, so if you have a $400,000 home, but a $350,000 mortgage, that’s only $50,000 in net worth.)

Of course, there’s a lot more at play here than simply owning a home — this figure could be influenced by the types of people who tend to be homeowners, for example, but there’s no ignoring the idea that homeownership contributes to this calculation.

Pay attention to the Fed, but don’t make your decisions by its moves

If you’re thinking about getting a mortgage in 2024, you don’t need to be worried about where the federal funds rate stands. It may influence your mortgage payment some, but it isn’t the end-all, be-all behind where your finances are headed. Far more important things to pay attention to include your credit history, any first-time home buyer assistance you may qualify for, and what kind of loan you’re getting.

So, go forth, buy a house, find a financial foundation to start from, and be merry — regardless of what the Federal Reserve does at its next meeting.

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Most electric vehicles already cost more than gas-powered ones. Don’t overlook these expenses that could push your EV ownership costs even higher. 

Electric vehicles are quickly gaining attention among consumers thanks to their improved mileage ranges, faster charging, and the potential for a $7,500 discount thanks to a federal EV tax credit.

But EVs are more expensive than their internal combustion engine (ICE) counterparts, with the average price of an electric vehicle now $51,762, more than $3,800 pricier than the average ICE vehicle.

And then there are unexpected costs of owning an electric vehicle that can potentially drain your bank account. Here are five you should consider if you’re planning for an upcoming EV purchase.

1. Repair costs

Maintaining an electric vehicle will, in general, be less expensive than owning a gas-powered vehicle, but EV owners should know that when you do need something repaired, it’ll likely be more expensive.

The latest data shows that the average repair cost for an EV is $269 more than a traditional vehicle, and some EVs are much more expensive. For example, repairing a Tesla costs a whopping $1,347 more on average.

The higher repair costs come from the unique design of some EVs, battery repair and replacement costs, a lack of EV mechanics, and the cost of replacement parts.

2. Car insurance

Not only will you pay more to repair your EV, but you’ll also pay more to insure it. Car insurance companies have noticed the higher repair costs for electric vehicles and adjusted premiums accordingly.

It’s difficult to nail down how much more you’ll pay to insure an EV over an ICE vehicle because other factors contribute to the cost, including your driving record, where you live, and what vehicle you own.

The higher costs make it all the more critical for EV owners to shop around for car insurance to find the best deals.

3. Battery replacement

One of the most costly parts of an electric vehicle is its battery, which accounts for up to 40% of the vehicle’s cost.

This means it will be very expensive when it needs to be repaired or replaced. While some warranties and insurance can cover the cost, if neither applies, you could be on the hook for $5,000 to $20,000, depending on your vehicle.

4. Time

Most of the time, charging your EV won’t cost you more money than a tank of gas. But even if the electrons you put in your EV are cheaper than gasoline, the time it takes them to travel from the charger to the EV’s battery will certainly cost you.

According to the U.S. Department of Transportation, some of the fastest charging, which uses a 350kW system that’s not available everywhere, takes between 20 minutes to one hour to get a battery to 80%.

Remember that you’d need to buy an EV that can handle these fast-charging connections — not all of them can — and charging stations are not as common as gas stations.

5. Home charging equipment

Some automakers may offer rebates or discounts on home chargers, but you may still end up footing part of the bill, which can be a hefty one.

Capital One says home EV-charging equipment costs can range from a few hundred dollars to thousands of dollars, depending on what level of charging you’re doing and what vehicle you own. And if you need to upgrade your home’s electrical connections to handle the added charging capacity, you may end up paying even more.

How to plan for EV costs

The most obvious way to plan for these costs is to put extra money into your savings account. If you’re planning to buy an EV or already own one, it might be worth automating monthly deposits into a bank account in case of an unexpected EV cost.

Additionally, you may want to spend a little extra time comparing car insurance rates. Car insurance is an annual expense you can’t avoid, so shopping around for the best deal could save you a significant sum every year.

Get quotes from multiple car insurance companies to ensure they’ll cover the EV repair costs you might need, and try to weed out the coverage you might not use.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

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Although you can no longer claim stimulus payments, one tax credit offered during COVID-19 is still available. Learn about how you can save on your tax bill. 

During the COVID-19 pandemic, the federal government made 476 million direct payments and sent out $814 billion in financial relief. The final round of stimulus relief went out in March of 2021, though, and no further checks have followed.

In addition to the direct payments that were made, the American Rescue Plan Act also provided an expanded Child Tax Credit that offered eligible parents $3,000 per child over age 6 and $3,600 for children under 6. This expanded credit has also not been available since 2021.

Despite the fact that no further stimulus payments are likely to hit your checking account any time soon, this doesn’t mean your chance to get free money from the government is over. A valuable tax credit remains for those who are able to qualify for it.

This tax break didn’t disappear with the end of the pandemic relief

Laws passed to provide COVID-19 relief made important upgrades to the Child Tax Credit. Not only did the pandemic stimulus bills expand the tax credit to provide more money, but they also arranged to have half of the amount delivered directly into your bank account at a rate of $250 or $300 a month.

This meant you didn’t have to wait to file your tax return to claim the credit that was owed to you. It just showed up. It’s not doing that anymore, though. But the good news is, the Child Tax Credit itself did not disappear even though the expanded credit did. You can still claim the original tax credit that existed pre-pandemic — although the amount you’ll get is smaller and you need to submit a tax return and wait for the IRS to process it before you get paid.

If you got used to having the money sent to you automatically, or if you didn’t know until the pandemic that you could claim the credit, it’s really important to remember that some of the money is still available to you even though you need to jump through some extra hoops.

The Child Tax Credit currently available offers up to $2,000 per qualifying dependent child, down from the $3,000 or $3,600 you got during COVID-19 — but that is a generous amount when you think about how tax credits work. Unlike deductions, which just reduce the amount of income you’re taxed on, credits actually lead to a dollar-for-dollar reduction in the taxes you owe.

Say, for example, you had a $2,000 deduction. You’d simply subtract that $2,000 from your earnings to get your taxable income and you wouldn’t be taxed on the $2,000 you deducted. If you were in the 22% tax bracket, not being taxed on $2,000 of income could save you up to $440. But a credit doesn’t do that. Instead, it brings your actual bill down. So if you owed $5,000 on your taxes and claimed a $2,000 credit, you’d only owe $3,000 to the IRS.

Since your credit can save you a lot, you’ll want to make sure you claim it — especially since the government isn’t doing as much to subsidize parents and families as it did during the height of COVID-19.

Can you claim the Child Tax Credit?

You have to meet certain requirements to claim the Child Tax Credit. For example:

Your child must be under 17 at the end of the tax year.The child must be your dependent and related to you in a specific way, such as by being a child, stepchild, foster child, full or half sibling, or a descendent of those individuals.The child must have lived with you for at least half the year in most cases and you must have provided at least half their support.Your child needs a Social Security number and must be a U.S. citizen, national, or resident alien.

If your modified adjusted gross income exceeds a certain level ($400,000 for married joint filers and $200,000 for others), you’ll also lose eligibility for some or all of the credit.

If you do not owe the full $2,000 in taxes, you can also benefit from the fact that up to $1,600 of it may be partly refundable. This would mean that you actually get more money back than you paid into the IRS. But you cannot claim the full $2,000 unless you owe at least that much in taxes. If your tax bill is just $1,000, the maximum you’d get back is the $1,600 of the credit that’s refundable and you’d miss out on the remaining $400.

The IRS has an interactive tool you can use to determine if you qualify for the tax credit, so use it before tax-filing season officially starts so you can see if this valuable credit is yours to claim. Give it a try today and, if you’re eligible, be sure to submit your tax forms and get the money you deserve.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Citigroup is an advertising partner of The Ascent, a Motley Fool company. Christy Bieber has positions in Citigroup. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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A new job could benefit you financially. But read on to see why you may want to stick with a job in your current city. 

Now that 2024 has officially begun, you may be eager to tackle a move that’s been on your to-do list for a while — look for a new job. A new position could work wonders for your financial situation. It could lead to better benefits, higher pay, and the opportunity to work toward different goals, like funding your savings account.

Plus, the start of a new year is often a good time to look for a new job. It’s when companies are ready to kick off new projects and, just as importantly, it’s when hiring budgets tend to refresh.

But if you’re going to look for a new job this year, you may want to limit yourself to a role in your current city. Relocating could prove to be an expensive endeavor due to the state of the housing market.

Buying a home this year might really cost you

It’s not a given that you’ll buy a home if you decide to move somewhere for a job. But if you’re currently a homeowner, you may not want to go back to renting. Doing so means having to follow a landlord’s rules. And that’s not an easy thing when you’ve had autonomy over your living situation for quite some time.

However, if you take a job that requires you to relocate, you may end up having to spend a lot more money than you’re comfortable with to buy a home. First off, home prices are pretty elevated. The median existing-home sale price was $387,600 in November 2023, according to the National Association of Realtors. That’s a 4% increase from a year prior.

There’s also a matter of mortgage rates to consider. The average mortgage rate for a 30-year loan is currently 6.61%, according to Freddie Mac. That may be a lot higher than the interest rate on your mortgage now.

What’s more, don’t forget that housing inventory is generally pretty sluggish these days. If you take a job that requires you to relocate, you might struggle to find a suitable replacement home, even if you can afford one in your new locale.

Even if you aren’t looking to buy a home in a new city as part of a job-related move, rent isn’t exactly cheap these days. On a national level, the average rent price in November was $1,966, says Rent. And while that does represent about a 2% decline from a year prior, it’s still a substantial number.

Don’t hesitate to negotiate your job offer

You may realize that you’ll need to relocate to pursue your dream job or a notably better job than what you have today. If that’s the case, don’t just talk salary when it comes to your offer. Also, try to negotiate a relocation package.

This doesn’t mean your employer is going to pay for you to own a new house outright. But it’s not unheard of to get a sign-on bonus, and that could at least help cover a down payment on a new home at a time when property values are up. Or, it could cover your security deposit for a rental.

Plus, it’s not uncommon for an employer to cover the cost of an actual move — such as hiring movers or paying for a moving van. So at the very least, that’s something to ask for.

All told, a new job could do a lot of great things for your finances this year. But relocating for a job is something you may not want to do because of how bonkers the housing market is right now.

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If your home value has gone up, you may be tempted to sell to cash in. Read on to find out why the downsides may outweigh the pros in some cases. 

Home prices increased dramatically in many parts of the country during 2020 and 2021, and the median price was $431,000 in the third quarter of 2023, according to data by the St. Louis Fed. If you’re one of the many people who has seen your home price climb rapidly, you may be tempted to sell while the market is hot and cash in your equity.

Before you do that, though, you should think about these two huge potential downsides of putting your home on the market and moving to a new place right now.

1. You may have a hard time finding a new home

If you are selling your home, you are almost definitely going to need a new place to live — unless you happen to be moving in with family or friends. Unfortunately, buying a home right now could be really challenging.

Once you become a buyer, you’re faced with the same high prices that pushed your own home’s value up. So, while you may have sold your home for more money due to rising property values, you’re also going to pay more to buy your next place.

Not only is this an issue, but you may also have a hard time finding a place you even want to purchase. While more homes went on the market in November 2023 than in 2022, this was the first time in four months that inventory was up on a year-over-year basis instead of down (according to Realtor.com). Despite this bit of good news, there were still 37.8% fewer homes on the market than during the 2017 to 2019 period.

There have been too few homes on the market for a while, ever since the COVID-19 pandemic wreaked havoc on the housing market. If there are not a ton of houses to choose from, this means home buyers may have to settle for an imperfect place if they can even find something to buy at all.

If you’re picky about where you live or your primary hope is to cash out equity and find a cheap new home, you may come to regret selling. So before you move forward with listing your house, you may want to check what’s available in your area to get an idea of whether there are homes you like that are priced reasonably.

2. You could get stuck with a much more expensive mortgage rate

There’s another big issue if you try to sell your house. Unless you are paying cash for your next property, you are probably going to have to get a mortgage loan to buy it.

Now, if you got a mortgage in the past five years or so before April of 2022, the mortgage lender probably offered you a rate somewhere in the 3.00% to 4.00% range. And if you bought during the heart of the COVID-19 pandemic, your rate was likely very low and perhaps even slightly below 3.00%.

If you have to borrow now when rates have been hovering closer to the 7.00% range or higher, you are going to end up with a much more expensive loan. In fact, for each $100,000 you borrow at 7.00% versus 3.50% with a 30-year loan, you’re going to end up paying $665.30 per month and $139,508.90 in total interest over time versus $449.04 a month and $61,656.09 in total interest costs.

Between paying a high price for a home you buy, perhaps having trouble finding a new home, and getting stuck with a much more expensive loan, there are a lot of downsides to selling. So be sure you consider these possible disadvantages before deciding to sell and cash in your equity during this time when homes are priced so high.

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