Money Management

The Federal Reserve Board is poised to cut the federal funds rate in a couple of weeks, but it won’t be enough to shift the housing market. Find out why here. [[{“value”:”

We know that the week of September 16 is going to be pretty interesting. Not just because estimated quarterly taxes are due, but because of the Federal Reserve board meeting to decide if it’s going to cut the federal funds rate, and what happens after that.

I’m nearly positive that this will happen this month. I’m also following experts who think the Federal Reserve will do it again in November. But I am not convinced that the corresponding response by mortgage rates will be enough to really change anything for the housing market.

Let me explain why.

Limited existing home listings are driving prices

This isn’t a thunderbolt revelation by any means, but it bears repeating: Existing home prices are being driven by a lack of housing inventory. As of July 2024, the National Association of Realtors reported there was an estimated 3.6 months of supply available. This has largely remained steady for the last year, with July 2023 having three months — not a significant change when a balanced market is considered to be achieved at six months of supply.

Days on market remain really low, even for more expensive homes, which generally take longer to sell. In July 2024, million-dollar houses sold in 18 days. Starter homes priced between $100K and $250K sold in 15 days. The only group that took longer than 20 days was the under $100K set, which tend to either be located in rural areas with limited buying pools or are investment homes in need of significant repair.

These two factors taken together, coupled with a median sales price over $400K, point to the market still being just as desperate as it was last year, even if it’s not still making the news every day.

Existing homes are limited by reluctance to sell

Another perhaps unoriginal conclusion here, but it’s necessary to include it in this argument. People like me with 3% mortgages aren’t selling our homes. We just aren’t. Would you, unless you absolutely had to? We not only have amazing rates, but we’re trapped in our mortgages because selling our homes to buy new ones at today’s prices (even with all our equity) doesn’t get us ahead.

Let’s do the math. Let’s say you bought your home in April 2020 using a 3.15% mortgage. In Q2 2020, the median home price was $317,100. Today, the average mortgage interest rate is 6.46%, and as of Q2 2024 (the latest data), the median home price is $412,300.

If you put 10% down when you bought, your monthly principal and interest payment on the April 2020 loan is $1,226.43, and as of September 2024, you’d still owe $258,835 on your loan. We know it costs between 6% and 10% of your home’s sales price in fees at closing to sell your home. So we can assume your original down payment is eaten up in fees. That still leaves you $58,265 to put down on your next house, which costs $412,300.

You now have to borrow $354,035 to just buy the same house you sold — we’re not even talking about upgrading anything. At 6.46%, that monthly payment is now $2,228.44. You made no forward movement on the property ladder and still have to pay an extra $1,000 for the pleasure of hiring movers. No wonder people aren’t selling.

According to Freddie Mac data, as of January 2024, 62% of mortgages have rates below 4%. Here’s something even more mind-boggling: 29% of mortgages have a sub-3% interest rate.

What will it take for housing inventory to rebound?

What would it take to move the needle? Where does that magic number have to be? Economists smarter than me think it’s a sub-6% rate, but I’m not sure that’s enough. Let’s just look at our example above again.

If your mortgage lender offered you a 5.5% rate in the same situation, your payment would still be $2,010.17. Maybe that’s low enough for some people to bite at. But for most? Not unless they become very desperate for change very soon.

We’re not only having to compensate for higher interest rates but also for higher closing fees, higher insurance rates, higher everything associated with housing. Even at 4.0%, you’re still going to be going into that vertical movement home for $1,690.22 per month.

What it’s going to take for housing inventory to rebound is a lot of people without mortgages selling their homes, whether that’s from an inheritance (I’m sorry for your loss) or because they’ve paid their homes off and want to downsize.

So, although a lower rate will help home buyers who are able to compete today, it’s not going to change the fundamentals that have left the market stuck like it is. People like me are not selling our homes. We can’t. These golden handcuffs chafe sometimes, but at least it’s a roof over our heads.

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Rethink Kevin O’Leary’s personal finance advice in 2024. Read on to learn when to break the rules and make smarter money moves. [[{“value”:”

Kevin O’Leary, aka Mr. Wonderful from “Shark Tank,” is synonymous with business savvy, bold investments, and the occasional stingy comment about saving money. While he’s built a reputation for dishing out tough love and sometimes valuable financial advice, not all of his tips are as timeless as his crisp suits. In fact, some of them could use a refresh for 2024.

Here are three pieces of O’Leary’s personal finance wisdom that you might want to rethink in the year of AI-driven stock predictions and avocado toast being declared actually affordable by millennials. (Yes, we’ve come a long way.)

1. You should never buy coffee out

Ah, the infamous anti-latte stance. O’Leary is adamant that buying coffee every morning is a stupid financial decision that can ruin your budget. He believes you should brew it yourself, save that $5 a day, and let it grow into an early retirement.

But here’s the thing: In 2024, coffee is practically a utility. It’s not just about the caffeine (though, yes please), but about the mental break, the social interaction, and even the free wifi. And let’s not forget: Personal finance is about balance.

If your $5 coffee habit is the only thing keeping you from becoming the next Warren Buffet, then sure, maybe rethink your priorities. But if grabbing a cup of joe while scrolling through work emails is your version of a morning ritual that keeps you sane, go for it. Instead, you should focus on cutting back on real budget busters, like streaming services you don’t use or that gym membership you swore you’d use but haven’t since last January.

2024 update: The real financial win here is not skipping the latte but budgeting for what brings you joy. That morning coffee? It’s more about fueling your productivity and happiness. And that’s priceless.

2. You should save 10% of your income

This is one of those tips that sounds great, and O’Leary has advocated for it forever. Saving 10% of your income seems like a solid plan — until you realize the cost of living has exploded, and 10% might not even cover your Uber Eats bill. Inflation is real, and it’s rude.

If you’re saving only 10%, you may not be putting enough aside for emergencies, retirement, or that inevitable rainy day when your water heater decides it’s had enough. With everything costing more (thanks, inflation!), it might be time to bump that savings rate up to 15% or 20%, depending on your income and lifestyle.

Now, I know what you’re thinking — where am I supposed to find this extra cash? A key step is to automate your savings. Take a chunk out of your paycheck before you even see it and pretend it was never there. Out of sight, out of mind.

2024 update: The 10% rule? Toss it. If you want to really set yourself up for future success, aim to save closer to 15% or even 20%. Your future self will thank you — possibly from a beachfront villa during your early retirement.

3. Always pay off your credit card balance in full every month

Kevin O’Leary is a firm believer in paying off your credit card balance every month; honestly, that’s great advice most of the time. Carrying a balance and racking up interest charges is a sure way to make your finances feel like quicksand.

According to O’Leary, letting interest accumulate is just throwing money away. But in 2024, this advice needs a slight update — because sometimes, not paying off your balance can actually be a strategic move.

Enter the world of 0% interest credit cards. These cards offer a promotional period — sometimes up to 18 months — where you won’t be charged a single penny in interest.

If you have a big purchase, emergency expense, or need to do a balance transfer, using a 0% APR card and spreading out your payments over time without accruing interest can help you keep more cash in your pocket for other bills, like high-interest debt. It’s all about knowing when to break the “rules” and using credit as a tool, not a trap.

2024 update: While paying off your credit card balance every month is generally sound advice, it’s okay to carry a balance if you’re using a 0% APR card and you’ve got a plan to pay it off before the promotional period ends. Think of it as a free loan — just make sure you read the fine print and set yourself a payoff deadline.

While Kevin O’Leary’s financial wisdom holds up in many areas, 2024 calls for a bit more flexibility. Sometimes, it’s okay to grab that coffee, save more than 10%, or strategically carry a balance on a 0% interest card.

Personal finance isn’t one-size-fits-all — it’s about making the rules work for you. So, go ahead, make your money moves, and remember: Smart tweaks to old advice can still lead to financial success.

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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 positions in and recommends Uber Technologies. The Motley Fool has a disclosure policy.

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You may want to take advantage of today’s CD rates. Read on for tips on figuring out which CD length is best. [[{“value”:”

Since CD rates are sitting at near-record highs, you may be thinking of opening one this September. And if so, you may be looking at a rate of around 5%. That’s pretty hard to beat in the context of CDs.

But when you open a CD, you commit to keeping your money in place for a preset period of time. And withdrawing money from a CD before its maturity date could result in a costly penalty that wipes out a good chunk of your earnings. So it’s important to choose the right CD term.

Here are some options to consider this month.

Consider a 12-month CD for the highest rate available

As mentioned above, some CDs are still paying 5% today. If that’s the rate you’re after, and your priority is to get the best rate out there, then a 12-month CD may be your best choice.

Another benefit of a 12-month CD is that you’re not making too long a commitment. If your life takes an interesting turn during 2025, by the time you’re possibly ready to make a major financial change, your money might very well be free.

Look at a long-term CD to capitalize on strong rates for longer

While you’re likely to snag a higher interest rate on a 12-month CD than a 48- or 60-month CD, there’s a benefit to going with one of these longer terms. With a 12-month CD, you’re only guaranteed a great rate for the next year. With a 48- or 60-month CD, you might end up making more money in interest all in despite having a lower rate to start with. That’s because you’re locked into that rate for a longer period.

Of course, one thing to consider is that 48 or 60 months is a long time. And a lot can change during a period that long.

You could meet someone, get engaged, and end up needing your money to pay for a wedding. You could switch careers and decide to go back to school, which could make it so you need your money in three years to pay tuition or cover costs like rent while you stop working to pursue a degree.

So you may want to avoid locking your money up for 48 or 60 months unless that timeline fits with a specific goal you already have in mind. For example, if you’re new to working in finance and you want to apply to business school after getting five years of experience, you may decide that a 60-month CD is perfect.

Investing your money in stocks is dangerous if you only have a five-year window, because that’s not much time to ride out a market downturn. Locking in a decent CD rate for five years could be a great solution, though.

Ladder your CDs for more flexibility

If you’re not sure which CD term to choose this month, why limit yourself to a single CD? Instead, set up a CD ladder to get the best of all worlds.

Let’s say you have $10,000 to put into a CD. Maybe you like the idea of not tying up your money for too long, but you also like the idea of locking in a decent guaranteed rate for more than a year.

What you could do is open five separate $2,000 CDs with the following terms:

12 months24 months36 months48 months60 months

This way, a portion of your money frees up every year. And meanwhile, you get the benefit of a higher interest rate on a 12-month CD, but the peace of mind that you’re guaranteed a good rate for a longer term, too.

No matter what strategy you land on this month, take the time to think through your options. That way, you’re more likely to end up happy with your decision to open a CD this September.

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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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