Money Management

Maybe, but it’s important to consider all the angles. 

After enjoying a marked advantage in the housing market since the home-buying frenzy of 2020 and 2021, sellers are finally starting to feel the pinch. Mortgage rates shot up in 2022, and elevated home prices are discouraging buyers (according to Redfin, the median U.S. home price in November 2022 was $393,977, an increase of 2.9% over the previous year). We started 2022 with the average rate on a 30-year fixed-rate mortgage sitting pretty at 3.22%, and as of this writing, that same mortgage has an average rate of 6.31%, per Freddie Mac. With figures like these, it’s perhaps not so surprising that buyers are feeling a bit hesitant — it’s become a lot more expensive for them to take out a mortgage loan.

Recent data from Redfin shows that 1.9% of sellers have pulled their homes off the market during the 12-week period ending Nov. 27. This is further indication that sellers are being negatively impacted by the market shifts over the course of 2022. If you have your home listed and aren’t seeing any traction on offers, should you delist as well? Let’s discuss the pros and cons to help you decide.

The case for delisting your home

First and foremost, if you’re not getting offers (or are getting lowball offers), you may need to make some changes. The most drastic of these would be taking your home off the market altogether. Is this a good idea, though? In addition to the tricky market, if you’re trying to sell a home right now, you’re also reckoning with the season.

Winter can be a difficult time to sell a home for a few reasons. Not a lot of buyers will be looking, as it’s right in the middle of the school year and most people loathe disrupting their family life and kids’ school schedules. Winter weather can also impact showings, and it can be hard to show your home in its best light if it’s dark and cold outside.

You might also be dealing with some financial issues right now that could compel you to pull your home off the market. If you’ve lost your job (or seen your income decrease) and are currently living in a home you can afford, you may want to pull your listing and stay put for a while. Or if you know your home needs some repairs or remodeling, pulling it off the market could give you time to make those fixes before relisting it.

No offers or lowball offers, truly reckoning with the season, and financial issues might be good reasons to delist your home. Should you consider leaving it up, though?

The case for keeping your home listed

If you decide to leave your home on the market, but are still not seeing the kind of action you want, you might consider reducing your home’s sale price. It pays to approach this with caution, however, as you’ll lose your negotiating power and likely have to accept less than you want for the home. Plus, if buyers see “price reduced” on your listing, they will know they have the upper hand.

Another reason to keep your home on the market is if you’ve already had your real estate agent working overtime to sell it. If you’re selling it yourself, it may not bother you to pull the listing, as you’ve been doing the marketing. But if you delist it after an agent has already put in a ton of work (and gotten you offers you turned down), you may be on the hook for paying them for their time — possibly even the full 3% commission they would have received had it sold. Real estate agents can be your best friend when it comes to selling, and it might be worth asking yours to change tactics. Review your contract and consider whether it’s worth having to pay them anyway if you delist.

What’s the right call?

Ultimately, the decision to take your home off the market is going to be up to your personal situation. Consider the factors discussed above, and know that even if you decide to delist your home, this won’t be your only opportunity to sell it. The market could improve for buyers in 2023, bringing them back to the table, especially if interest rates start to fall again. So don’t lose hope.

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It’s a move you might sorely regret. 

When it comes to making investments, it’s a good idea to take a long-term approach. This holds true whether you’re buying stocks, index funds, or real estate.

In fact, it can especially take time for homes to appreciate in value. And so if you’re going to invest in a home, it’s important to proceed with caution — and that extends to not raiding your retirement savings to make a quick profit in real estate.

A dangerous move that could backfire on you

In a recent tweet, financial guru Ramit Sethi told the story of a couple who cashed out a pension and used it as a down payment on a home. The goal was to hold it a few years and then sell it at a profit.

The problem, though, is that this couple bought their home last year — when property values were already sky-high. And now, home prices are starting to fall. So rather than sell at a profit, this couple may end up taking a loss on that property.

That’s why if you’re going to raid your retirement savings to buy a home, you shouldn’t do so in the hopes of making a quick buck. It’s okay to take a chunk of money out of your IRA or 401(k) plan to finance a home to occupy, because you need a place to live. And if you buy a home during retirement and stay there for, say, a decade, there’s a good chance that if you then decide to sell it after 10 years, you’ll be in a position to walk away with a profit.

But you shouldn’t raid your IRA or 401(k) to put money down on a home, stay there for a couple of years or rent it out, and then hope to sell and make money. If anything, you might end up losing money.

Plus, there’s always the chance you won’t find a buyer. And that means you may get stuck with that home and the mortgage that comes with it.

Be careful with real estate in particular

Not only should you not try to get rich quickly with real estate, but you should also be aware that owning property is a risky thing due to the many costs that can raise. These include things like added maintenance and repairs you weren’t anticipating.

It’s an especially scary thing to take a huge sum of money out of your retirement nest egg and invest it in a single asset that may not pan out as an investment. So before you follow in the footsteps of the couple Sethi described earlier, consider different ways to make money in real estate. One option is to put money into REITs, or real estate investment trusts. You can buy shares of publicly traded REITs in your brokerage account.

Of course, many retirees own income properties — homes they don’t occupy, but rather, rent out. That’s not necessarily a poor choice. But if you’re going to buy a home to rent out, plan to own it for a number of years so you can eventually sell it at a profit. And be especially careful about buying a home at a time when real estate values are up across the board.

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This Dave Ramsey advice could help your retirement money to grow. 

Your retirement investments are ideally going to provide you with crucial income that you need in your later years. You need to make sure you’re investing wisely, though. And that starts with picking the right type of investment or brokerage account to put your money into.

If you’re not sure what type of account makes sense, there’s one option financial expert Dave Ramsey has discussed that might be a good one to look into.

How can this account shield you from the elements?

When picking a retirement account to invest in, an Individual Retirement Arrangement, or IRA, is one option available to you.

Dave Ramsey is a proponent of these tax-advantaged accounts and offers a simple explanation for why investing in one could be a good choice. “Think of your IRA as a sweater that protects your investments from the elements—the elements, in this case, being Uncle Sam’s cold, harsh taxes,” Ramsey said.

An IRA can shield you from the elements because these types of retirement accounts come with tax breaks that a standard brokerage account wouldn’t offer. If you choose to invest in a traditional IRA, for example, you get to claim a tax deduction for contributions you make up to annual deduction limits. If you opt for a Roth IRA, you don’t get that upfront deduction but you do get to make withdrawals tax free as a retiree.

Not only do IRAs offer these tax breaks, but your money can grow tax-free in them as well. If you have assets in a taxable brokerage account that you sell at a profit, you could end up paying capital gains taxes on them in the year you make the sale.

This won’t happen with IRAs. They’ll shield you from the “elements” as Ramsey said, and allow you to just reinvest the money without having to pay a big bill. So Ramsey is absolutely correct about this advice — an IRA can serve an important, protective role as the money you hold inside it grows big enough to support you without having to continually give a piece to the government.

Should you invest in an IRA?

Ramsey is right about what an IRA can do for you, but the big question is whether you should invest in one.

For many people, the answer is yes. While you want to put enough money into a 401(k) to get your full company match if an employer offers one, an IRA can be a great place for other retirement account contributions.

Traditional and Roth IRAs both offer more investment options than 401(k) accounts typically do, and you may be able to buy investments within these accounts that have lower fees than those within your company plan. You also get to decide what brokerage holds your IRA while your 401(k) is stuck being managed by whatever administrator your employer hires.

Because IRAs come with these benefits, it’s worth looking into them. Ramsey specifically recommends a Roth over a traditional IRA to defer your tax breaks until later in life, but you can decide for yourself if you’d rather deduct contributions now or get tax-free withdrawals later. Either way, an IRA can help you avoid taxes that could eat away at potential returns in other account types — and that’s a pretty good deal.

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These moves could put you on the path to homeownership. 

If you’re looking to buy a home, you’ll need more money than usual to pull that off. The reason? Home prices are up on a national level. And while they have the potential to fall next year, they’re unlikely to plunge to pre-2020 levels. The U.S. real estate market still lacks inventory in a very big way. And until housing supply picks up, higher prices are likely here to stay.

Meanwhile, it’s a good idea to bring a 20% down payment to the table if you’re planning to take out a conventional mortgage. If you put down less than 20% of your home’s purchase price, you’ll be hit with private mortgage insurance (PMI), which is a costly premium that typically gets tacked onto your monthly home loan payments.

PMI is worth avoiding at a time when you’re already looking at spending more on housing payments due to higher-than-average home prices and mortgage rates. So if you’re hoping to boost your down payment funds in 2023, here’s how.

1. Get on a budget

Following a budget could make it easier to manage your money and find ways to reduce your spending. It pays to set up a budget either on your laptop, on paper, or via an app. Many budgeting apps, in fact, link up to your checking account and credit card accounts so your purchases are tracked automatically, making it easier to see where your money is going.

2. Reduce a few key expenses

Are there things you’re spending money on right now that you can technically do without? If you’re hoping to buy a home sooner rather than later, it may be worth giving some of those things up to boost your savings rate. That could mean pledging not to dine out more than once a month in 2023, or sticking to staycations when you have time off from work rather than paying for flights and lodging.

3. Get a side hustle

The gig economy is strong these days, and working a second job could be your ticket to buying a home despite the challenges today’s buyers face. The beauty of side hustle earnings is that the money you bring home won’t be earmarked for existing expenses. If you’re able to earn $100 a week in 2023 after taxes, you’ll have a cool $5,000 more to put down on a home by the end of the year.

Don’t skimp on a down payment

Many mortgage lenders will let you put less than 20% down on a home. But if you want to avoid PMI, then it pays to aim for 20% — even if it means having to wait a bit longer to buy.

Also, the more money you’re able to put down on your home, the more equity you’ll start out with. That’s an important thing when you’re buying at a time when home prices are elevated. That way, if prices start to fall, you’ll be less likely to wind up underwater on your mortgage.

If you can’t manage a 20% down payment on a home given today’s prices, you should try to get as close as possible. And these moves could help you close out 2023 with a lot more money to put toward a home purchase.

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That’s good news for people who need to build cash reserves. 

Life has a way of throwing unwanted financial surprises at people. You could wake up in the middle of winter to find that your heat is no longer working, or try starting your car one morning only to find that it’s stuck in your driveway and not going anywhere. And let’s not discount the possibility of job loss — something more people might have to grapple with in 2023 if a recession hits the economy.

That’s why it’s so important to have money in your savings account for unexpected financial events. But many people sorely lack funds for emergencies. And so when unplanned bills arise, they’re instantly forced to go into debt.

A new bill, however, could make it easier for workers to build an emergency fund. And that could change a lot of people’s situations for the better.

Much needed-help with emergency savings

On Dec. 23, the House passed a major $1.7 trillion spending bill that includes a number of different provisions, including money for defense spending, aid for Ukraine, and disaster relief funding. Included in that spending bill is a provision that allows employers to step up and help workers build emergency savings.

Specifically, employers that offer retirement plans will be able to automatically enroll workers to set aside up to $2,500 of post-tax money for emergency savings purposes. Right now, many companies are set up to enroll workers in 401(k) plans for retirement. But 401(k)s can’t be tapped for emergency purposes, and taking withdrawals from one prior to age 59 1/2 generally results in a costly 10% penalty (the same rule applies for IRA accounts, which are a popular alternative to 401(k) plans).

The new bill allows workers to have a separate set of funds earmarked for emergencies — funds that can be tapped without penalty if accessed in a pinch, no matter what age that happens at. And like 401(k) contributions, emergency fund contributions of up to $2,500 would happen automatically at the payroll level. That’s important, because automating the process could make it easier for workers to stay on track.

In addition to letting employers enroll workers in automatic emergency fund savings, the new bill allows workers to withdraw up to $1,000 from a retirement plan to cover emergency expenses without incurring the aforementioned 10% penalty.

A step in the right direction

As a general rule, it’s a good idea to have enough money in emergency savings to cover a minimum of three full months of essential living expenses. These include things like rent or mortgage payments, food, utility bills, medications, and healthcare costs.

For many people, $2,500 won’t be enough to cover a full three months of essential expenses. But a $2,500 emergency fund is far better than no emergency fund at all. So if workers are able to save that much through automatic payroll deductions, it could put a lot of people in a much stronger financial position — and help many avoid debt when unplanned bills inevitably arise.

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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.The Motley Fool has a disclosure policy.

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