Inflation and Recession
All the news today is about inflation, rising rates, and the
prospect of a recession. What does all
this mean for homeownership? We want to
stress that home ownership is historically the best hedge against
inflation. Although interest
rates have returned to “normal” territory, reducing affordability for many in
comparison to the last two years, there is still a good argument for buying now
vs. waiting.
We are NOT going to see a big drop in property values and a
wave of foreclosures, recession or no recession. All homeowners since the 2008
meltdown have qualified ON PAPER for their loans, and have also seen dramatic
increases in their home value, which means they have plenty of equity. Plus, there are many many safeguards in place
since the meltdown to prevent fraud and guarantee that borrowers are
well-qualified for their mortgages.
Although renting today for the next five years may cost a
bit less than buying a home, a homeowner will have greater net worth vis-à-vis
their equity and principal paydown during that time period. And, the longer you hold real estate the
greater the net worth of the owner. This
is the best way to create wealth. On average homeowners have 40 times the net worth of renters. In
addition, there are some tax benefits to owning property. The the interest
paid for the loan and the real estate taxes are deductible up to a specific
limit. This deduction saves on income
taxes.
In a recession, unemployment usually rises. However, unemployment is currently so low,
even if it increases it is hard to see that it will have much impact. The technical definition of a recession is
when our nation’s Gross Domestic Product (GDP) declines for two consecutive
quarters. So far, so good.
There is currently no bubble in real estate values as demand
remains strong. The primary driver of an impending recession today is the
current rate of inflation. Rising interest rates can cause a decline in economic
activity. We will see how high the Fed
will go! If we enter recession, rates
will eventually come down to stimulate the economy.
In the meantime, mortgage rates have fallen in the last two
weeks. This is thought to be a reaction
to the fact that the market had already “built in” the expectation of rising
rates and inflation, and they are balancing out.
At its worst, a recession typically lasts for 18 months. Not
longer. Most pundits are predicting a very mild recession if it does become
reality. Bottom line: don’t wait on the sidelines!
DIVORCE
We all know someone who is either contemplating a separation
or going through divorce. These
individuals require special planning to prepare for a refinance to “cash-out”
the departing spouse, or to prepare for the purchase of a new home. There is a great deal of strategizing
involved to achieve a successful result.
In the
instance where a spouse has not been working, and will be relying on spousal
support, six months of documented receipt of said support will be
required. Start the support payments early! Obtaining new employment to
qualify is a possibility, depending on prior education and work experience.
We have quite
a bit of experience handling these circumstances both before, during, and after
a final judgment is received. These can be tricky situations!
Reach out
to my team for professional guidance.
DID YOU KNOW?
We have a CARD TEAM YouTube channel with all kinds of great information on a wide variety of topics including how to prepare for a home purchase; How to repair credit; how to plan for a refinance or home purchase during divorce; why Reverse loans are picking up in popularity; how to hold title to real estate, and More! Here is the link to check out our channel: The Card Team YouTube Channel
Happy Summer! Please
call us with any questions you may have.
Karen
