Money Management

What goes up must come down. 

Home flippers have hit a rough patch. In an attempt to cool inflation, the Federal Reserve has spent the past 10 months steadily increasing interest rates. The idea is to cool inflation by making it more difficult for people to overpay for housing and consumer goods.

In January 2022, the average interest rate on a 30-year mortgage sat at 3.439%. Today, it’s 6.875%. To put that in perspective, that moves the principal and interest payment on a $400,000 loan from $1,783 to $2,628 — making it tough for some buyers to qualify for a mortgage.

But it’s not just everyday households who are feeling the sting. Home flippers have also been hit hard by the market lately. Here’s why.

What is home flipping?

“Flipping” is the term used to describe the purchase of a home strictly for resale. An individual or corporation buys a property, makes necessary repairs, adds cosmetic features designed to attract the average home buyer, and sells the home.

While there’s plenty of blame to go around, these investors are partly to blame for skyrocketing home prices during the COVID-19 pandemic. They were often able to outbid other buyers by making all-cash offers. They gambled on the fact that housing prices would continue to soar and, if they could flip a property quickly enough, believed they would walk away with a tidy profit.

Getting burned

As the Fed systematically raised the interest rate, potential home buyers slowly dropped out of the market. With fewer buyers, home sellers across the country have been forced to lower their asking prices. By the time kids went back to school last fall, the typical house was sitting on the market for longer, and the average home sold below the asking price.

Suddenly, home flippers who’d banked on the belief that they could scoop up a property, make some changes, and watch home buyers trip over themselves to pay far over the asking price were left out in the cold.

They’re not alone

Home-flipping reached record highs in early 2022. According to a Redfin report, investors purchased 18.4% of all properties sold during the fourth quarter of 2021. This number represents the largest share of homes ever purchased by investors.

Whether they were a seasoned investor or an individual who’d watched enough HGTV to believe they could cash in on the trend, rising interest rates and dropping sales have them caught in a vice.

The result

Many of those investors who entered the market hoping to rake in cash must now consider lowering the asking price on their properties. Simply put, slumping demand means they’re not likely to get as much as they hoped for the homes they purchased to flip.

It may be time to face the facts. The red-hot demand for houses we experienced during the early stages of the pandemic may never return. If it does, it could be years. The task now is to unload any properties they’ve invested in, a job that is not likely to be as easy today as it was just last year.

The goal of any home flipper is to find an undervalued property to purchase. Due to the highly competitive market of 2020 through 2022, undervalued properties became unicorns, nearly impossible to find. That means that many flippers also paid more for their investment than they hoped, cutting into potential profits. Now that prices are melting like an ice cream cone on a hot day, they face the chance of losing money.

For flippers who borrowed the money to buy a property, holding onto it until the “right” buyer comes along could be costly. Realistically, their best bet may be to take the best offer available to them.

While home flippers profited by the red-hot housing market, it seems that many are now feeling the pinch of dropping home values.

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Anyone who doesn’t have life insurance yet should read this. 

Anyone who is currently putting off the purchase of life insurance may be making a big mistake. While it may not seem like a fun purchase to make or an enjoyable thing to spend money on, it’s best to take action and get covered ASAP.

Why is that the case? Check out these three big downsides of waiting to purchase life insurance.

1. The desired coverage may not be available later

The single biggest reason not to wait to buy life insurance is because purchasing the desired coverage may become impossible over time.

To be clear, anyone can buy life insurance. For those who are old and sick, there are guaranteed issue policies that can provide a limited death benefit large enough to cover burial expenses and a few other costs for surviving family members.

But not everyone can buy the most desirable type of term life insurance. That’s because medical underwriting is required. Insurers consider health status and age when deciding whether to issue a policy.

Waiting to buy life insurance increases the risk that age or illness will make purchasing the best policy to protect loved ones impossible. No one wants this to happen, and this downside can’t be ignored.

2. Premium costs may climb a lot higher

Life insurance policies get more expensive for older people. Delaying means premiums go up in the future. If a policy isn’t affordable, then it may be impossible to purchase one or a policyholder may need to get a reduced death benefit if they can’t afford the amount of coverage they want.

To get the most affordable coverage, it’s best to purchase life insurance as early as possible when coverage becomes necessary or when future coverage needs can be anticipated. For example, someone who isn’t married yet but who plans to get married and have children may want to buy coverage even before they find a spouse, so they have protections in place when they become necessary.

3. A tragedy could happen before coverage is obtained

Finally, the last and most obvious downside of waiting to buy life insurance is that a tragedy could happen before a policy can actually be purchased. If someone dies, life insurance should be there to provide for surviving family members. The policy can pay for funeral expenses and give surviving loved ones the funds they need to maintain their quality of life.

In many cases, a life insurance policy will also have a terminal illness rider. This can provide money to cover medical care expenses and end-of-life costs when someone is dying. It essentially allows the policyholder to access part of the death benefit early if it is needed.

This money, in case of a terminal illness or after a death, can save policyholders and their families from significant financial hardship during a difficult time. But, it won’t be available if someone waited too long to buy life insurance and got sick or died before they could act.

In light of these three big downsides, it should be clear that waiting to buy life insurance just isn’t worth it. Get covered today.

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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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More jobs could wind up on the chopping block this year. 

The scary thing about job layoffs is that they can sometimes arise out of the blue, leaving workers scrambling to figure out their next move. The good news is that the national unemployment rate is not only low right now, but also the lowest it’s been in 20 years. That’s certainly an encouraging data point.

On the other hand, a number of well-known companies have already announced plans to reduce their staff. That’s something financial guru Suze Orman talked about on a recent podcast episode, where she also warned workers to gear up for a period of general economic decline.

Now, it’s important to recognize that recent layoff news has largely been concentrated in the tech sector. That sector ramped up on hiring during the pandemic, and is now backtracking.

But still, Orman is right to warn workers that layoffs are already starting, despite a low unemployment rate. And it’s a good idea for everyone to prepare for them. Here’s how.

1. Know the signs

In some cases, layoffs can really come from out of nowhere. But often, there are warning signs, albeit subtle ones.

If your employer has started to pull the plug on things like workplace benefits and new projects, it’s a sign your company may be trying to conserve cash. And it may be doing so because revenue has dropped. If that’s the case, layoffs could be right around the corner.

2. Shore up your savings

When you lose a job through no fault of your own, you’re generally entitled to collect unemployment benefits. But those might only replace a small portion of your income, depending on what state you live in and how much you earn.

That’s why it’s so important to boost your savings account balance. The more money you have on hand in the bank, the more options you’ll have for continuing to pay your living expenses while you look for work in the event of a layoff.

A more robust savings account balance could also spare you from having to take a job you don’t want after losing one you liked. Without savings (or without a lot of savings), you might rush to accept the first job offer you get so you have a way to cover your living costs without incurring debt. But if you have a larger cushion, you might buy yourself the option to take your time and find a replacement job that’s a much better fit.

3. Start networking and boosting relationships

The more people you know within your company and industry, the easier it might be to either avoid unemployment or get a new job if yours lands on the chopping block. Say you get to know managers across different teams at your current company. If layoffs hit your department, another manager might be able to find you a role on their team.

What’s more, perhaps your company is forced to implement layoffs, but a competitor is thriving and has positions available. If you get in touch with the people you met at that company at a conference a couple of years back, they might think of you as openings pop up — and they may be more than happy to submit your resume if you’re forced to proactively apply for a job there.

Just because there’s been a recent string of tech layoffs doesn’t mean there’s a reason to panic. But it certainly wouldn’t hurt to prepare for layoffs in case broad economic conditions decline and more companies are forced to let workers go.

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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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