This week’s theme on the Retirement Quick Tips Podcast is: How Pre-Retiree Homeowners Can Benefit From Higher Interest Rates.

Today I’m talking about why I think we’re just at the beginning of price declines in housing.

• Personal savings rate has plummeted to levels not seen in 15 years, dropping to about 3% in 2022 from a peak of over 30% in the early days of the pandemic. After inflation took hold, the checks from the federal government stopped, and post-pandemic life largely resumed to normal, Americans started rapidly depleting those savings. Since 1960, personal savings rates have been well above 5%. The only other time savings rates have been this low were just before the financial crisis in 2008, when they hovered in the 3% range in the years leading up to that. 

• The problem here, is that Americans have no more breathing room in their finances, so it’s a house of cards for many. Homeowners may have equity in their homes, but they don’t have the ability to weather an economic storm like a job loss.

• The housing market has already cooled significantly, and it’s only a matter of time in my opinion - probably later in 2023, that businesses will feel the pain of lower spending by consumers, and higher costs to service their debt, and you’ll see layoffs and job losses accelerate. 

• No income and no savings is a bad combo for housing prices that have already been in decline. 

• In many places, housing prices have cooled, but I would expect a freeze over and more people in a position of needing to sell because of needing to relocate for work, they lost their job, they needed to start paying on their student loans again, and the math just doesn’t work - they can no longer afford the house they bought 

• With inflation being stubborn, interest rates will simply not go down anytime soon and there’s a reckoning coming, because the house of cards that many Americans have built relies on the economy continuing to grow and keeping their job. Both of which are unlikely to continue in this rising interest rate environment. 

• So it seems reasonable then, that bargains in housing are coming. 

• I’ll talk later this week about specific areas where this could benefit you, but especially if you’re looking to buy a 2nd home, looking to downsize, or looking to move to a desirable location that has recently become unaffordable, you can benefit from the downward pressure on house prices that I think will accelerate in 2023. 

• I think in some markets, especially the hottest ones with the eye-popping jump in prices - you’ll see the biggest declines there - possibly 20-30% or more as prices finally come back down to reality. And if you’re house declines in value too - you still benefit unless you’re trying to sell in one of the overheated areas. If you’re house loses 5% in value, you still benefit if your new home has dropped 20% in value

 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.    

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance