Money Management

Limited inventory has been hurting buyers for several years. Will it persist? 

There’s a reason so many buyers have struggled to purchase a home over the past couple of years. Not only have real estate prices been sky high, but inventory has been really limited. In fact, it’s that lack of inventory that’s contributed to higher home prices. And it’s hard to know when inventory will start to pick up.

Now, when we talk about real estate inventory, there are different kinds. One is existing homes, which refers to homes that have previously been lived in. The other is new construction. And the Census Bureau reports that housing starts, which are a measure of new home construction, fell 1.4% in December compared to November. More notably, new construction activity declined 21.8% from the previous December. And that’s not necessarily great news for buyers.

Are buyers in for another year of limited property listings?

Let’s be clear about one thing with regard to housing starts. The fact that they were down in December may not impact the 2023 real estate market all that much.

The reason? It takes a lot of time to construct a home. There are permits to be gathered, inspections to be had, and construction materials to be ordered (some of which can take months to come in). So all told, a drop in new construction may not impact this year’s housing market so much as next year’s.

But if the trend of declining housing starts continues, it could spell trouble for buyers. Housing inventory has been limited since the latter part of 2020. Back then, it was easy to see why homeowners wanted to stay put rather than list their homes during a pandemic. And it’s also easy to see why sellers may be hesitant to put their homes on the market these days.

In 2022, mortgage rates rose sharply. And while they’ve fallen modestly in January, they’re still considerably higher than they were a year ago.

In fact, borrowers who take out a mortgage today are looking at roughly twice the rate they would’ve paid in early 2022. Because of that, many would-be sellers are no doubt opting to stay in their homes and wait for borrowing rates to come down. That way, when they purchase their replacement homes, they won’t get stuck with an exorbitant mortgage rate.

The problem, though, is that we don’t know when mortgage rates will slip a notable degree. So all told, we could be in for an extended period of low housing inventory.

Buyers shouldn’t lose hope

Real estate inventory may be down right now. But at some point, it should pick up — even though we don’t know when.

Though buyers shouldn’t give up on purchasing a home, they should also pay attention to factors like mortgage rates and housing starts, as that data could help guide their decisions. Someone planning to push a home purchase to 2024 instead of 2023 to capitalize on higher inventory levels, for example, may be better off pursuing a home search now, since things may not end up being all that different in next year’s housing market.

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It’s like a time machine for car values. 

The COVID-19 pandemic hit pretty much everyone hard, but some places definitely show it more than others. The car market is one of those places.

Whether you’re looking for a new card or a used one, the market is absolutely wild. New car inventory has been slim for the last 18 months or so, and it’s caused prices to skyrocket. You could easily pay thousands over MSRP — assuming you can get your hands on the car you want at all.

And the used car market is, if anything, worse. A few years with stunted new car sales mean late-model used cars are hot commodities. Anything made within the last 10 years seems to be selling for close to its original sales price.

With everything so crazy, however, there’s one group who could actually come out of this with a big win: leasers. Yes, for once, leasing your vehicle may actually have been the smartest financial decision.

Basics of car leases

Leasing a car is essentially like renting one for a really long time. The length of a car lease can vary, but they tend to range from one to three years. Depending on the lease, you may have to pay some fees and a down payment, then you make regular monthly payments.

Car leases are useful for people who always like to have a new car. The monthly payments are typically lower than what you’d pay if you bought the car, and at the end of the lease you can trade it in for the latest model.

At the same time, leases are frowned upon by personal finance experts because you’re making payments but you aren’t building any equity. (Sort of like the difference between renting and buying a house.) Moreover, you can’t sell the car if you need cash or want to upgrade. And if you want out of your lease early, you’ll likely be hit with all kinds of fees.

Despite the downsides, however, the current car market means your leasing contract may include something extremely valuable: the buyout clause.

Buying out your lease

Most car leases include a clause that gives you the option to buy your leased vehicle at the end of your term. Even better, the sales price for the vehicle is typically included in the contract.

In other words, the buyout price for your leased vehicle is set based on valuations made when you start your contract, not when you end it.

With car prices so high right now, the buy-out price in your contract is likely much lower than the current market value of the vehicle. Indeed, a late-model vehicle leased in 2019 or 2020 could potentially sell for the same price — or even higher — than it went for brand new.

With your lease’s price locked into pre-pandemic values, buying out your lease could save you thousands compared to the market rate.

Keep it, or sell it and lease again

If you do decide to buy your leased vehicle, you have a few options. For one thing, you could just keep it. It’s certainly the most affordable way to buy a new (or new-to-you) vehicle right now, and the used car market is likely to remain pretty hot for at least a few years.

Alternatively, you could buy the car — and then sell it to someone else. Depending on the vehicle and the buy-out price, you could come out ahead by a few grand. At the very least, you could potentially get back what you paid for the lease.

Of course, that then leaves you with no vehicle, and needing to buy a different car in an inflated market isn’t ideal. But if you intend to lease another car anyway, then buying — and immediately selling — your current lease could make a lot of sense. You skip any turn-in or excess-mileage fees, and you could potentially come out with a bit of profit, to boot.

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Should you take advantage of lower rents? 

If you’re looking to move or rent a new apartment, now might be the time to do it. According to recent reports, rents are dropping in many parts of the United States. This could be a great opportunity for renters and those looking for a new place to call home. But before you sign on the dotted line, let’s take a look at whether it’s worth locking in a new lease now.

The new reality for renters

The median rent in the U.S., similar to the price of homes, hit an all-time high of $2,053 in the summer of 2022. Since then, the median monthly rent has dropped to $1,978. Rents from November to December of 2022 decreased by 1.41% but are still 4.77% higher than the previous year.

Rents skyrocketed after the pandemic began, as demand outpaced supply and more people began to work from home. Supply chain issues, steady demand, the war in Ukraine, and economic uncertainty led to iInflation hitting a high of 9.1% this past summer. The latest inflation numbers have dropped, but are still at elevated levels. The cooling of the housing market, increased supply, and lower demand has impacted rents, giving an excellent opportunity for anyone looking to rent an affordable apartment or house.

So what does that mean for you?

There are several factors that can determine how much of a discount you can get when renting right now. Depending on where you live and the availability of apartments in your area, you may find that rent prices are still high or you may find that your dream apartment is suddenly within financial reach.

Many of the price drops have been based on which part of the country you live in. Ten states saw rent prices decrease, with four of the largest decreases in the West (Idaho, Nevada, Arizona, and Oregon). Among the largest 50 cities in the U.S., 14 saw rent decreases while cities like Salt Lake City and Raleigh-Cary, North Carolina saw increases of 29.8% and 24%, respectively.

What are the advantages of locking in a lease now?

If rent prices in your area have dropped significantly, you can guarantee yourself lower monthly rent payments over an extended period of time, typically one year, if you lock in a lease now. If rental prices go up again, your rent will remain unchanged until your lease expires (unless otherwise stated).

Even if rental prices rise significantly over the next few months or years, you’ll still be able to enjoy lower rates until your current agreement runs out. The winter months typically have slower demand before picking up again in the spring and summer, so it is possible prices may go back up.

What are the disadvantages?

To combat high inflation, the Fed raised interest rates eight straight times since starting to raise them in March 2022. This has led to higher borrowing costs, which has impacted the economy, stock market, and the housing market. The Fed has projected that interest rates will hit 5.1% by the end of the year, which is another quarter percent raise from its current rate.

It is possible that rents will continue to go down as the higher interest rates and the slowdown of the economy further impact the rental market. If you lock in a rate now, you will be paying more if rents do continue to decrease. Ultimately it is important to do your research and understand the rental trends in your neck of the woods before signing on the dotted line.

Renting during this time of economic uncertainty can seem daunting; however, it is possible to take advantage of lower rents if you know where to look and what kind of deals landlords are offering. By researching different areas and finding out rental trends in their area, renters can benefit from locking in a new lease while rental prices have dropped. However if they continue to drop, you may be locking yourself into paying a higher amount. Whether it’s finally getting that dream apartment or simply saving money on monthly payments over time; taking advantage of dropping rents could give savvy renters more bang for their buck!

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If your child is too young to get a part-time job, there are other ways to earn money. 

Teaching your child valuable financial lessons like how to earn money and the importance of saving can set them up for success in adulthood. However, most kids have to wait until they reach their teenage years to work a traditional job. But that doesn’t mean your child can’t work to earn money. Here are seven ways your child can earn money by helping others.

1. Shovel snow

If you live in an area where you get snow in the winter, your child may want to shovel driveways and walkways for nearby neighbors. This is an excellent way to assist neighbors who may be unable to do this task themselves and could be a great way to earn extra cash.

2. Tutor other students

If your child excels in a particular area of study, they may want to offer tutoring services to struggling classmates. Some students need a bit of extra instruction or learn better from peers. By tutoring other students, your child can earn money while helping their classmates better understand complex material so they don’t fall behind in school.

3. Dog walk or pet sit

Many kids and teenagers run successful side hustles as dog walkers and pet sitters. Not everyone wants to board their pets when they vacation or travel for work. Your child can feed and care for pets and walk dogs. It’s the perfect side hustle for kids who love animals.

4. Water plants and collect mail for out-of-town neighbors

Your kid can also help out-of-town community members, even if they don’t have pets. They can collect mail and newspapers, water plants, and take care of the trash cans on garbage day while neighbors are away. This is an excellent way for your child to learn to be more responsible.

5. Babysit for local families

If you have a pre-teen or teenager in your family, babysitting is one way they can make money. There are likely families in your community looking for trustworthy babysitters for the occasional date night or event. A child care and safety course could help your child better prepare for this job and make themselves more marketable to potential families.

6. Take care of lawn care tasks

If your child likes to spend time outdoors and enjoys being active, they might consider taking care of lawn care tasks for people in the community. Many people are too busy or unable to take care of lawn care tasks like weeding, lawn mowing, and raking leaves.

Your child can start by offering services to people who provide their equipment and tools. If they hope to expand their business, they might consider setting aside some of their earnings in a high-yield savings account to purchase their own lawn care equipment in the future.

7. Help elderly neighbors with housework and errands

Some older people don’t have much support from nearby family and friends and could use help running errands or taking care of some household chores. Your child can help older adults in your community by offering to take care of small jobs around the house or by running errands for them. It’ll make a difference and may help your elderly neighbors feel less alone.

It’s never too early to learn about money

Just because personal finance topics aren’t usually a focus in school doesn’t mean your child can’t learn more about money. If your child is interested in working, gigs like these can allow them to learn new skills while helping others. As they work hard to earn their own money, they’ll develop essential money management skills well before adulthood.

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Buyers shouldn’t get too excited about lower home prices just yet. 

If you’ve been trying to buy a home for quite some time now, you may be wondering when housing prices will finally start to come down. The answer? It could be a while.

The Federal Housing Finance Agency just released its latest House Price Index with November 2022 data. It found that this past November, home prices fell 0.1% on a national level compared to the month of October.

At first glance, seeing a drop in home prices might give you something to be happy about as a buyer. But it’s important to keep this decline in perspective. For one thing, we’re talking about 0.1%, which is not a huge decline. Also, while U.S. home prices may have dropped between October and November, on a year-over-year basis, they were still up 8.2%.

All told, anyone who struggled to buy a home in 2022 might continue to struggle in 2023. And higher home prices aren’t the only reason for that.

Mortgage rates are a factor, too

Elevated home prices mean having to bring more money to the table for a down payment to sign a mortgage. That alone could be a challenge, especially at a time when inflation is still rearing its ugly head.

But compounding the affordability issue for buyers is higher mortgage rates. Last year, borrowing rates rose across a range of consumer categories on the heels of rate hikes by the Federal Reserve. Even before the Fed started getting more aggressive with its rate hike policies, mortgage rates had already begun to climb.

So all told, anyone looking to buy a home in 2023 — or at least at the start of the year — is looking at not only paying more in terms of a purchase price, but also getting stuck with a higher interest rate on a mortgage. And so it’s easy to see why many buyers might have to put their house hunting on hold this year.

Low inventory is still an issue

Part of the reason home prices are up is that there’s not enough inventory on the market to meet buyer demand. But will that change in 2023? It’s hard to say.

In 2020 and 2021, inventory was low, but much of that trend could be attributed to the pandemic. In 2022, inventory didn’t exactly explode, but inflation and economic concerns may have fueled that standstill.

At this point, we’re still not out of the woods with regard to a recession. And so it’s easy to see why sellers aren’t rushing to get their homes listed — they don’t want to deal with financial upheaval at a time when the economy has the potential to take a nosedive.

All told, it’s fair to say 2023 might end up being a difficult year for home buyers, just as 2022 was. This doesn’t mean you have to give up on buying a home. But you should be aware of the circumstances you’re looking at and the challenges you might face.

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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.The Motley Fool has a disclosure policy.

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How often do you find a cheaper product that’s actually better than its costlier counterpart? 

When buying life insurance, the first key decision to make is whether to purchase a term or whole life policy. Whole life policies are more expensive, so they may seem like a better option. After all, costlier insurance should offer better protection, right?

Surprisingly, that’s not necessarily the case. Term life policies can cost considerably less than whole life coverage, and finance expert Dave Ramsey said they are a much better life insurance option for most people. Here’s why.

This is why Ramsey says to opt for a term life policy

When it comes to buying life insurance, Ramsey is very clear that the lower-cost term life policy is almost always a better option.

“Just like coffee, the cheaper version of life insurance is actually better (drip coffee, black!),” Ramsey said. “If you choose term life insurance (please do) it won’t cost nearly as much as some other bad options — like paying triple for that frappamacchialatte (which we all know isn’t coffee — it’s just a milkshake for adults).”

Ramsey went on to explain why term life insurance offers a better value for most people. The big issue is that whole life policies not only offer lifetime coverage most people don’t really need, but they also have an investment component. Part of the premiums go toward investments, and the policies accrue a cash value as a result of that. But the investment isn’t actually a very good one.

“Just like you’d expect ice cream from a business that also does dog grooming to be pretty crappy, the investments in a whole life policy are really crappy,” Ramsey said. “And the dog-hair-covered cherry on top? Tons of fees.”

Is Ramsey right?

Ramsey is completely correct that whole life insurance policies aren’t a great investment and not worth the extra cost.

Typically, it’s not too difficult to earn a far better return on investment by buying other assets rather than investing in a whole life policy. Consumers can simply take the money they save by buying a term life insurance instead of whole life insurance and use it to buy a safe investment such as an S&P 500 fund. Over the long term, they are all but guaranteed to end up with more money in the end than they’d have with a whole life policy.

Whole life policies also come with lots of restrictions on when and how the policy can be cashed in, and there are lots of fees, as Ramsey explained. These fees and restrictions can further reduce the value of the whole life insurance investment while also making it more difficult to access the funds.

The bottom line is, unless lifetime coverage is absolutely needed — which it rarely is — there is essentially no reason to buy a whole life policy. This would require paying more for a worse product, and that doesn’t benefit anyone.

Consumers looking for life insurance should shop for an affordable term life policy, find the right coverage at the best price, and put their investment dollars into a retirement or brokerage account that gives them the flexibility, options, and return on investment that they deserve.

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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.The Motley Fool has a disclosure policy.

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