TOGETHER WITH  | Good Thursday to you. According to Freddie Mac, can you guess how much a homebuyer can save on their home loan by getting one additional rate quote? a. $150, b. $1,500, c. $15,000. 🌊 Check below for the answer. Our topics for today: 🔸Another housing market update 🔸Tax breaks before the year is up 🔸Rebalancing in a volatile market | |
HOUSING Another Housing Market Update | | | | A lot of chaos has ensued across the economy this year, and although inflation might've stolen the show, the housing market comes in at a very close second place. It's a critically important sector facing an equally important crossroads, and we're taking one more close look before closing out the year. What we need to know - Prices: The median sale price for homes across the US has continued to rise, but at a much slower pace. Between Q3 2020 and Q3 2021, prices shot up over 21% from $337,000 to $411,000, but between Q3 2021 and Q3 of this year, we've only seen a 10% climb — a number much closer to average.
- Demand: Interest rates have returned to near historic averages, but this quick spike combined with high prices is dissuading borrowers. Per our most recent update from October, existing home sales continued their fall for a 9th straight month, ending down 28.4% over the last 12 months. Pending contracts fell in three out of four regions, with only the midwest seeing a slight uptick.
- It's a perfect storm, thanks to rising rates, record high prices, an economic slowdown, a bear market, and fears of a looming recession — one that many would argue was needed.
What's ahead Most forecasts call for home prices to continue to correct throughout 2023 as we wade through these uncertain waters. Bank of America's CEO, Brian Moynihan, predicts two years of pain ahead in the housing market before things return to normal. Take this related lesson on this topic and earn Dibs 🟡 while you're at it: | | | |
TAXES Tax Breaks Before The Year Is Up | | | | Tax breaks are something we all wish for, but it always seems like there's a catch or a qualification barrier we don't meet. But, that's only if you don't look hard enough. Tax breaks can be found by almost anyone, and it's often the best ones that are the least known. Top tax breaks before 2023 - Donations: Taxpayers are allowed to write off up to 60% of their adjusted gross income (AGI) by way of charitable donations, but most of us aren't super wealthy. If you want to give but don't plan on giving enough to exceed the standard deduction, consider "bunching" your donations into one single year instead of across multiple years, and ideally in a year where you make more. Instead of donating $10,000 in years A and B, plan ahead and donate $20,000 in year B alone.
- Harvest losses: There's no doubt that most investors have some capital losses this year, so we might as well use them for good. You can tax loss harvest (TLH) your way to a tax reduction by selling off some underperforming assets, and subsequently reducing your taxable income by up to $3,000 this year. Got more than $3,000 in losses? That's okay too, you can defer the excess into next year too.
- Make a conversion: The average IRA has lost $34,000 over the last year, so what better time to convert than when you've got less to pay taxes on? Converting your traditional IRA to a Roth will increase your taxes this year, but it can save you money in the future as your assets continue to increase in value, especially if you anticipate being in a higher tax bracket later on.
- Check on your withholding: As they say, "everything's high" due to inflation, and the IRS has also adjusted their tax underpayment penalty accordingly — now at 6%. It's not something W-2 employees have to think much about, but now might be a good time for both employees and business owners alike to double-check that their withholding and estimated taxes are on the level and updated.
- Delay some income: If you've been doing well this year or anticipate a sizable portion of your income to arrive soon before the year's end, it might make sense to try and delay this to January if possible. Whether it's a bonus or a contract, pushing that income to a year where you expect to be in a lower bracket could give you a tax break.
Take this related lesson on this topic and earn Dibs 🟡 while you're at it: | | | |
FEATURING FARMTOGETHER | | | | Despite the turbulent year we've experienced, including record inflation and substantial volatility across the financial markets, farmland values continue to surge. In fact, the average value of American cropland across the country rose sharply by about 14% in 2022. Interested in adding farmland to your portfolio? For a low 15k minimum you can now invest through FarmTogether. Farmland: a historically low volatility investment, uncorrelated with stocks, bonds, and broader market indices, and a historically superior inflation hedge. Learn more here. | | | |
MONEY TIP Rebalancing in a Volatile Market | | | | Rebalancing your portfolio is like getting your tires balanced. Just as you'd want to wear your tires evenly at all times to get the most life out of your car, the same logic applies when it comes to rebalancing your portfolio. If you own stocks, bonds, mutual funds, or ETFs in any combination within your retirement or taxable accounts, rebalancing applies to you. But see, rebalancing in a normal year is one thing, but in an unpredictable volatile market? That's a little different. Volatility can throw our portfolios out of whack, and make it more difficult to discern how to properly rebalance it come year's end. So, how do we navigate this? A unique time for rebalancing - Assess your risk: 2022 saw many indexes drop beyond the 20% mark and no doubt countless more individual stocks that fell further. The bond market suffered too, providing almost no place to hide. The average 401(k) has lost almost $30K over the last year because of all this, but there's no denying equities are the main source of drawdown for most. When rebalancing for 2023, it may be time to reconsider your risk based on your age, and subsequently your equity allocations.
- Consider the future: The future goes hand-in-hand with assessing your risk. Sure, it's been a really bad year for investments across the board, but what does the future look like? How long do you think this will continue, and does it matter? If you're looking to retire soon, the longer outlook doesn't matter that much, next year does. However, if you're a young investor, it might make sense to underreact to all this mayhem if you believe in the market's historical resilience.
- Don't overreact: Instinctually, it can be tempting to jump to the other extreme in search of safety during a bear market, but that's often a mistake. Shuffling the cards too much will eventually thin out the deck, and making too many changes trying to keep up with market trends will do the same to your portfolio.
Take this related lesson on this topic and earn Dibs 🟡 while you're at it: | | | |
🌊 BY THE WAY | - 💰 Answer: $1,500. According to Freddie Mac research, homebuyers could save an average of $1,500 over the life of the loan by getting one additional rate quote and an average of approximately $3,000 if they compare five quotes. Freddie Mac's weekly survey focuses on rates for borrowers who put 20% down and have an excellent credit score (Yahoo Finance)
- 🏡 270,000 homebuyers who bought in 2022 are underwater on their mortgage (Yahoo)
- 👉🏽 ICYMI. What's rent-to-own? (Finny)
- 🪶 Robinhood wants to be your retirement fund, offering a 1% match (CBS)
- ❄️ Gen Zers coming home for the holidays on mom and dad's dime (CNBC)
- 🏦 Finny lesson of the day. As Ben Franklin said, "nothing is certain except death and taxes." So for today, best we refresh on some US tax basics as the year comes to a quick end:
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| Finny is on a mission to simply finances & benefits for employees. The Gist is Finny's twice-a-week (Tues & Thurs) newsletter covering personal finance & investing insights and money trends. The content team: Austin Payne & Carla Olson. Finny does not offer investment and stock advice. Please support our brand sponsor—FarmTogether—as they make rewards on our platform possible. If you're interested in sponsoring The Gist, please reach out to us. And if you have any feedback about this edition or anything else, please email us and we'll be sure to respond. | | | | | | | |
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