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What is Shelter Inflation? Shelter Inflation refers to the rising cost of housing. While some outlets only focus on the cost of home rentals, it also applies to today’s home buyers, especially since January of this year.

Individuals that are paying monthly rent for their primary residence are all too familiar with the long-term uncertainty of their future rent payments. Most tenants take advantage of agreeing to a year-long lease, but inevitably when the year is up, the current rent amount is replaced by a higher one.

It’s not that the landlords are greedy. Afterall, they also must follow increasing and ever-changing rules by the local governmental agencies that issue rental certificates. When there is a new regulation that, for example requires a multi-family rental property to have independent separate heating and air conditioning units instead of a common main unit that services the entire building, these costs are ultimately passed on to the tenants.

Rising Mortgage Interest Rates

It’s been falsely predicted for the past couple of years that mortgage interest rates were going to rise, that is until January of 2022.

A typical 30-year fixed rate principal and interest mortgage payment of $1,200 on January 1, 2022 would have funded a $276,777 monthly mortgage. Fast forward to the first week of May, a mere 18 weeks later, and that same $1,200 payment only affords a buyer to fund $216,824. That’s almost a $60,000 drop in purchase power all due to a rise in mortgage interest rates from 3.22% to 5.27%.

Rising Home Prices

If the cost of borrowing money was on the rise, you would think that the price of homes would begin to fall as affordability came into question. But that hasn’t happened yet (emphasis on the word “yet”). As someone that watches the real estate market daily, I am constantly amazed that the pricing of homes on the market continue to hover right at record highs. By the end of April, the median list price topped out at $364,970. Breaking this number down, existing resale home prices hit $274,950 and existing condo/townhomes prices peaked in March at $229,950.

New construction homes median list prices recently topped $406,000 and new condo/townhomes are floating at the $325,000 list price point. The rise of new construction pricing is more concerning to me because builders must base their predictions on future sales. Builders can add inventory as demand increases, but once they submit zoning plans and pull permits, they are fairly committed to a size and style home. And if the ability to borrow money puts too many homebuyers out of reach for new homes, it will only fuel the existing home base more. So, we may end up with an increase in new home inventory and a drop in existing homes as this market shift continues into the middle and end of the year.

A Slow Rise Of Home Inventory Is Beginning To Appear

The third piece of the big puzzle is for-sale inventory. I previously mentioned that new construction can somewhat control their inventory by opening new lots for construction as needed. But the resale side of the business that accounts for 88% of all sales is more market driven. If the move-up segment of homeowners began to feel confident that they would be able to find their next home, this listing shortage would correct itself. A weekly conversation with current homeowners goes like this, “I’d put my home on the market in a heartbeat if I knew I had somewhere else to move”.

I doubt that we will suddenly see a large influx of homes entering the market. Instead, we will see what the graphic above is showing. A slow, but steady buildup of inventory. We have experienced a steady drop of for-sale homes since fall of 2019, even before Covid-19 was a thing.

I will predict that when we are beyond blaming Covid for this latest market, we may be able to see that the market was trending this direction anyway and that Covid was simply an event that caused the real estate market to pick up speed for a couple of years.

For the latest information about the Central Iowa real estate market, be sure and check out DesMoinesMarketValues.com. Here you will have access to a short weekly market update video as well as access to hundreds of local real estate charts and graphs focused on the Des Moines and Central Iowa real estate market.

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The social distancing and stay-at-home orders necessitated by the coronavirus have led many of us to feel isolated. Still, we’ve fought back through social media, “virtual” gatherings and walks in the neighborhood, where we could greet friends and neighbors (from 6 feet away). But when you’re dealing with the financial effects of the virus and you’re investing alone, you could encounter some problems that may prove costly.

Of course, with so much investment-related information available online, on television and in any number of periodicals, it’s not surprising that some people feel they can invest without any assistance. But the volatility of the financial markets over the past few months has also pointed to the dangers of going solo in the investment world. And you might find that a professional financial advisor can help you in several ways, including the following:

  • Taking emotions out of investing. During this period of market turbulence, many self-guided investors are letting their emotions drive their investment decisions. As a result, they sell investments when their price is down, “locking in” their losses. Furthermore, if they then stay out of the financial markets, they will miss out on the eventual recovery–and some of the biggest gains in market rallies usually occur right at the beginning. But if you work with a financial advisor who has helped you develop a personalized investment strategy based on your goals, risk tolerance and time horizon, you will be far less likely to react to extreme market conditions by making ill-advised decisions.
  • Maintaining perspective. When you’re putting away money for the future and you suddenly have a lot less of it, you might start to wonder if that future is somehow in jeopardy. But if you’ve been working with a financial advisor and following your investment strategy, you’ll know that you don’t have to immediately cash out those investments that have lost value, and you may not need to liquidate them for decades if they were designed for a long-term goal, such as retirement. By the time you do need to sell them, their value may well have appreciated significantly. And if you’ve got a well-constructed portfolio, you’ll also own shorter-term, less volatile investments to help meet your current cash flow needs.
  • Understanding history of investing. The recent market instability is unique in the sense that its cause—a worldwide pandemic—is so highly unusual, and it hopefully will be a once-in-a-lifetime experience. Typically, prolonged market downturns are triggered by explainable financial or economic factors, such as the bursting of the “dot-com” bubble in 2000. However, market drops of 20 percent or more—generally referred to as bear markets—are not at all unusual and have happened every few years over the past several decades. Financial advisors are well aware of this history and share it with their clients. And for many people, the knowledge that “we’ve been here before” is reassuring and makes it easier for them to continue following their investment strategies.

The road to your financial goals is a long one, with many twists and turns. So you might like to have some experienced company along the way.

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With three months of 2022 in the books, many of the real estate stats are looking different from previous years. From record low inventory of homes for sale to record high list prices, the concept of Supply and Demand has never been better defined. And this year is just getting started!

How Long Will This Market Last?

If you are a follower of my weekly or monthly market reporting, you will know that I have talked about the cycle of real estate and how, just like the cycle of nature, there are periods of highs and lows separated by periods of growth or decline. In my opinion, I believe that the Central Iowa real estate market is reaching its peak. I made that same statement in early 2020 (before March 1st of that year). Then Covid-19 entered the picture and proved to be a market disruptor and stimulator as we all discovered and has continued through 2021 and so far into 2022.

But I am beginning to see signs like what I had noticed in early 2020. And that, along with my observations this month is the topic as we begin the 2nd quarter of 2022.

Homes For Sale

One of the best methods to analyze our market is by looking at historical data in quarterly increments. This evens out the highs and lows and lets us see the trends clearer.

One observation of the market would lead you to assume that since there are so few homes currently for sale, that must mean fewer homeowners are listing their homes. In our current market, this low inventory count is largely due to a substantial homebuyer pool snapping up freshly listed properties within days, if not hours of them hitting the market. The result is an appearance of low inventory but is really from high demand.

The average listing count for the first quarter of 2022 was 1,751. That is 175 fewer homes on the market on average than 2021 but if you look back to 2020, the average count of homes for sale then was just shy of 3,500 homes on the market. That’s a drop of 50% in just 24 months. In fact, the three years prior to 2020 showed consistent growth of inventory, and that is what I based my market peak prediction on in 2020.

The median list price of homes prior to the first quarter of 2021 historically never surpassed $300,000. That changed the second quarter of last year and has continued to climb to an astounding $365,945 as of March 31st of 2022. Much of this rise is from the increase in new construction homes filling a void in our market this past couple of years.

Homes In Sale Pending Status

The buildup of pending sales is another measure of market activity. While buyer demand remains very high, I am beginning to see what could be considered the first crack in the markets shell. After three years of consistent growth, pending sales at the end of this first quarter is 11% lower than last year.

One consistent factor remains in the sale pending world. The median price of a home as it goes under contract has risen for nine quarters straight with the end of the first quarter of 2022 recording an astounding price of $295,000.

Closed Sales

The pace of closed sales for the first quarter has now risen for four consecutive years, however the sale count for 2022 first quarter was just barely ahead of 2021. Quarters 2 and 3 are traditionally when most transactions close in our market which coincides with the spring and summer seasons.

New construction is driving the overall median sale price this year bumping this first quarter of 2022 as the highest median sale price on record so far at $263,500. This is 12½% higher than the same time a year ago and even beat the overall 2021 high median sale price of $262,250 (Q3 2021).

The number of days it takes a home to go from just listed to offer accepted is a number that has constantly moved downward in this covid influenced envirnoment. Looking at all homes for sale, including new construction, homes listed are only spending 6 days on the market right now. Remove the new homes from this count and it’s down to less than 48 hours in many cases. As long as we have massive buyer demand, this is not likely to change through the spring real estate market in our area.

Factors that will certainly change our market moving forward in 2022 is the fast rise of mortgage interest rates by over 1% from last year’s record low and ongoing economic inflation in the country.

For the latest information about the Central Iowa real estate market, be sure and check out DesMoinesMarketValues.com. Here you will have access to a short weekly market update video as well as access to hundreds of local real estate charts and graphs focused on the Des Moines and Central Iowa real estate market.

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Most people recognize the need for life insurance—but many of them still don’t have it. Why?

People offer a variety of rationales for remaining uninsured. But these reasons may just be myths. Here are a few of them:

  • I’m single (or married with no children), so I don’t need life insurance.

    Even if you’re single, you may still have financial obligations that could be met by life insurance proceeds if something happened to you. Perhaps you have taken out some loans with a co-signer who would be on the hook for the balance, or maybe you have a business partner who might be in trouble without your resources. And if you’re married but don’t have children, you’d still want to provide support for your spouse, particularly if student loans or a mortgage is involved.

  • Life insurance is too expensive.

    Different types of insurance carry different costs. If you purchase permanent insurance, such as whole life or universal life, your premiums are paying for a death benefit and a savings component. Consequently, this type of policy is more expensive than term insurance, which just provides a death benefit for a certain number of years. Term insurance is usually quite affordable, and, generally speaking, the younger you are, the less expensive the policy—and, of course, you can shop around for the best rates for you.

  • I get enough life insurance through my employer.

    Many employers do offer life insurance as an employee benefit, but there are two possible issues with this coverage. First, it may be for a minimal amount and not enough for your needs, especially if you have several dependents. And second, an employer’s life insurance policy is not necessarily portable—if you leave your job, you might lose your coverage.

  • I have a pre-existing condition, so I’m sure I couldn’t get life insurance.

    Certain pre-existing conditions do not automatically disqualify you from getting life insurance, although you might end up paying higher premiums than someone without any health issues. In any case, it’s a good idea to look at what various companies might offer, as insurers use somewhat different underwriting processes and may view pre-existing conditions differently for you.

  • Insurers don’t want to pay out the proceeds.

    Actually, there’s a fairly straightforward process for paying out death benefits. Your beneficiaries must file a claim and submit the death certificate—and that’s about it. An insurer must have a strong reason to deny a claim, and, in fact, the company is typically motivated to pay as soon as possible to avoid incurring interest charges for delayed payments.

Don’t let any of these myths deter you from obtaining life insurance. Then, when you’re ready to act, you’ll need to ask some questions: How much coverage do I need? Should I get term or permanent insurance? How should I designate my beneficiaries? You may want to work with a financial professional to determine the type and amount of insurance you need.

Once you’ve gotten your coverage in place, you’ll know that you’ve done what you could to help protect your loved ones—and that’s no myth.

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