Updated April 3, 2023
Bill Chen, CFA
The Piggy Bank
🏡 A Nation Divided… by Real Estate Prices
An Unprecedented Trend
America is experiencing a truly unique housing market – one split almost symmetrically down the middle.
In the twelve major markets west of Texas, home prices are dropping rapidly. Meanwhile, for the 37 major metros east of Colorado, home prices are still hitting record highs.
This trend likely has much to do with the recent layoffs in the tech sector. Headquarters for major tech companies are highly concentrated in the West. As employees get laid off, they’ll look to flee the sky-high cost of living in markets like San Francisco and Seattle in search of new opportunities and cheaper real estate.
East vs. West
Still, it’s not exactly the worst of times for homeowners on the West Coast.
Thanks to the success of major technology companies like Google, Meta, Apple, and more, western real estate markets have enjoyed over a decade-long boom in housing prices. The success of the tech sector brought unprecedented wealth to these areas, which in turn led to an increase in home prices. Now, in the face of recent layoffs, this trend is merely correcting, reversing course toward the norm.Meanwhile, many companies on the East Coast are still adding jobs and attracting new employees. In particular, house prices in major Florida markets like Orlando and Miami have risen over the past year – 9.4% and 12%, respectively. In particular, Miami has become an incredibly popular destination lately as many companies have moved their headquarters to the 305. This includes ten unicorn startups (valued over $1 billion).
What To Expect
After a long bull run in real estate prices, a slight year-over-year price drop is likely not a major cause for concern. A sharp drop in prices, on the other hand, could be interpreted as the beginning of a major correction, particularly in the wake of recent regional banking turmoil.
However, real estate experts don't anticipate a sustained drop in value for homes – at least not to the crisis-level extent seen in 2008. This is mainly due to real estate supply constraints, which will help keep values propped up.
On top of that, many homeowners have plenty of equity in their homes, which should prevent the large flurries of foreclosures witnessed during the Great Recession.
First Time (Buyer)?
While every generation has faced housing challenges in some capacity, the increased prices and limited availability of homes have caused Gen Z to navigate possibly the toughest housing crisis to date. (Even with the slight dip in prices out west.)
While previous generations rave about the benefits of owning a home, those opportunities are no longer easily accessible for today's generation. Not sure whether you should buy or rent a home? Here’s a look at the cases for and against buying so you can make a more informed decision.
🛒 High Inflation Is Making It Easier to Overspend
Inflation has been hovering at record highs for the better part of the past year. While down from a high of 9.1% last June, the inflation rate still sits around 6% – triple the Federal Reserve’s target.
For consumers, this means that the cost of goods is getting much more expensive with each passing month. And if you’re not careful, this can make it very easy to overspend. For example, think about repeat purchases – like groceries. Even if you buy the same thing every month, you’ve likely noticed an increase in your grocery bill over the past year.
On top of that, roughly 39% of Americans identify as emotional spenders, meaning that they spend money to help cope with feelings of anxiety or depression. There's also the one in six Americans who admit to drunk shopping – racking up roughly $14 billion in purchases last year. (Just add it to your cart and sleep it off!)
Leaning on Credit
To compensate for the increased prices, more and more households are leaning on credit cards. In the final quarter of 2022, the average credit card balance sat at $9,990 – up 9% from the same period in 2021.
While credit cards can provide immediate spending flexibility, they can also be dangerous to rely on, since they carry such high interest rates. And this is more true now than ever, as the end to the Fed’s campaign of raising rates doesn’t appear to be in sight.
So, instead of putting more expenses on a credit card, it’s crucial to budget diligently and make sure you’re spending within your means.
3 Budgeting Tips
Here are three ways to buttress your budget against inflation.
First, experts recommend creating a rainy day fund to account for unexpected expenses. This way, when you’re hit with the inevitable “surprise” bills, like car maintenance, they won’t cripple your budget. (You can use Allio's goal portfolio to set up your own rainy day fund!)
Financial pros also recommend increasing your budget by between 3-6% each year to account for inflation. So, if your average grocery bill is $100, plan for it to cost $106 by next year.
Finally, consider waiting at least a week before making any non-essential purchasing decisions. Usually, you want something the most when you first see it in the store or online. But, if you hold off a week before making the purchase, you’ll either know for certain that you need it – or, perhaps, forget about it completely.
Want more budgeting tips? Check out our top 5 effective ways to save money.
💵 Don’t Have $1 Million in Your Retirement Nest Egg? Maybe Don't Sweat It?
Saving for Retirement
Many people view $1 million as the minimum amount needed to enjoy a comfortable retirement. But, in reality, becoming a millionaire is a lofty achievement that only 0.06% of the population will ever reach.
The typical retiree’s net worth, counting all assets and retirement accounts, is estimated at $413,814 for ages 55 to 64. But just because this falls short of the conventional wisdom, it doesn’t mean that you can’t still live comfortably on it.
To give you a better idea of what retirement looks like for non-millionaires, here are three interviews conducted by the Wall Street Journal.
Chatting With Retirees
Janet Gottlieb Sailian has savings and investments of $240,000 and an annual spend of $38,000. Janet’s retirement has seen plenty of speedbumps so far – the pandemic, high inflation, and even Hurricane Ian destroying part of her Florida home. Her monthly income consists of $1,400 from Social Security and Canada’s equivalent, as well as $1,400 from her retirement accounts. She also freelances on the side for a university. She uses this money to travel back and forth between Florida and Toronto.
Chris Ravenna has savings and investments of $800,000 and an annual spend of just $20,000. Chris had worked at the same factory since age 17 and recently retired at age 60. His retirement hobbies include maintenance and restoration around his Bloomington, Indiana home, which he bought for $33,000 about 40 years ago.
Jordan Moddell has savings and investments of $158,000, plus around $600,000 in rental properties. His rental properties generate approximately $80,000 in income. He has incorporated these properties into his retirement dream of being a landlord to low-income tenants. While he’s not connecting with his tenants, Jordan travels, having visited a total of 104 countries so far.
These three stories show how $1 million is far from a requirement to retire. Once you’re officially clocked out from the workforce, it’s just a matter of finding a situation that works best for you.
One throughline to these interviews is the need for retirees to stay busy, whether opting to freelance or work part-time, buying and maintaining real estate, or simply undertaking improvement projects around the house. They also all live quite modestly to stretch their retirement savings.
Want to see if you're on track for retirement? Head over to Allio's Retirement Calculator to see how much you'll need to put away.
The customer experience offered by large tech companies has declined in recent years. This is likely the result of publicly-traded companies trying to impress Wall Street, rather than their users.
Dunkin’ Donuts and Coca-Cola are teaming up to compete with Starbucks. This unlikely duo has announced a new canned Dunkin’ Iced Coffee product, which comes in three flavors.
Volkswagen announced a new electric vehicle priced around $26,000. This low-cost EV, called the ID. 2all, poses an instant threat to market leader Tesla. It is expected to be available starting in 2025.
Chipotle has agreed to pay $240,000 to former employees after closing a franchise in Augusta, Maine that attempted to unionize. The burrito giant settled out of court, but denied any wrongdoing.
Uber Eats is cracking down on “ghost” menus, a scheme in which restaurants list the same menu online multiple times, disguised as different brands. The delivery giant plans to remove around 5,000 brands.
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