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Communications is key to success of relationships and plays a vital role in almost every aspect of living—including your finances. So you’ll want to clearly communicate your financial goals to your loved ones—and you’ll want to hear theirs, too.

Let’s look at some of the communications you might have with family members:

  • Your spouse

    You and your spouse may have different thoughts about a range of financial topics—how much to save, how much to spend, the level of debt with which you’re comfortable and so on. Try to reach some type of consensus on these issues.

    However, in regard to investing, you don’t necessarily have to act in unison all the time. You each may have different investment styles—one of you may be more aggressive, willing to take on more risk in exchange for potentially higher returns, while the other would rather invest with an eye toward mitigating risk, even it means accepting a lower return.

    Of course, there’s nothing stopping each of you from pursuing your individual investment strategies in your own accounts—IRA, 401(k) and so on. Still, if you are going to work toward common goals—especially toward a shared vision of your retirement lifestyle—you each may want to compromise in your investment choices. And this accommodation is even more necessary in your joint accounts.

  • Your parents

    If you may someday be involved with your parents’ financial plans—which is highly likely —you should know in advance what to expect. This may not be the easiest conversation to have, but it’s an important one. So, for example, ask your parents if they have a durable power of attorney, which allows them to designate someone to manage their financial affairs if they become physically or mentally incapacitated. You might also inquire if they have protected themselves against the potentially enormous costs of long-term care, such as an extended nursing home stay. If not, you might suggest that they contact a financial advisor, who can offer solutions.

    Once you begin communicating about these issues, you may well want to go further into your parents’ estate plans to determine what other arrangements, if any, they have made. If it seems that their plans are not fully developed, you may want to encourage them to contact an attorney specializing in estate planning.

  • Your grown children

    Just as you talk to your parents about their estate plans, you’ll want to discuss the same topic with your own grown children. Let them know who you have named as a durable power of attorney, what’s in your last will and testament and whether you’ve established a living trust. If you’re already working with a financial advisor and an estate planning professional, make sure your children know how to contact these individuals.

    Of course, you don’t have to confine your communications to estate plans—if you want to help your children financially, such as loaning them money for a down payment on a home, let them know.

By talking with your loved ones about key financial matters, everyone benefits. So, keep those lines of communication open.

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What a difference a year can make. As we move into October and the final three months of 2022, it would have been difficult to predict how this year has progressed. Between an economic recession (admitted to or not by the federal government) a meteoric rise in mortgage interest rates and a major downturn in the stock market, the real estate economy is doing its best to move forward.

This month I will identify six key differences in the 2022 real estate market compared to the same period in 2021. At times I will be writing about the overall market and other times, I will highlight one of the four sub-segments of our market—Existing Homes, Existing Condo/Townhomes, New Homes and New Condo/Townhomes.

  1. Mortgage Interest Rates

    I will start with the fast rise of mortgage interest rates. A quick look at cash sale transactions for the first 8 months of 2022 compared to the same period in 2021 tells the tale. As mortgage rates climbed each month, this resulted in some homebuyers avoiding the high rates by paying cash instead. Cash sales in August alone were 4% higher than August of 2021.

  2. For Sale Inventory

    Looking at the number of homes for sale, 2022 is turning out to be a good year. After sinking to a new record low count of homes on the market at 1,630 in March, the listings rebounded and have continued to rise throughout the year. Overall home inventory is up around 20% from last year rising to levels we haven’t seen since September of 2020. The additional homes for sale have been welcomed by eager homebuyers still out searching.

    The category leader of higher listing counts is brand-new single-family homes. Builders seeing a lot of activity in 2020 and 2021 worked hard to open new developments and add homes to the market. With over 1,000 new homes to choose from, that represents a 39% increase over last year. Because of the higher price point of new homes, the fast rise of mortgage rates is slowing sales in this category and many builders are reacting with buyer and REALTOR® incentives to spur sales with the slowest time of year approaching. The only category where listing counts are not above last year is the existing condo/townhomes. This segment of our market is also the most popular with virtually any newly listed existing condo/townhome being snapped up within a day in most cases.

  3. Pending Sales Activity

    As For Sale inventory rises, the number of homes in sale pending status have taken the opposite path this year. The spring market experienced a familiar buildup of homes under contract in the first five months of the year, however without the ferocity of 2020 and 2021. With fewer homes in the closing pipeline, many mortgage companies and escrow companies are also processing and closing sales in less time than last year. The number of homes in pending status are down overall by 31% from a year ago, yet closed sales are only behind by 4%.

  4. Home Prices

    You can’t talk about the list price of homes for sale without referencing closed sale prices. On average, the overall asking price of a home for sale in 2022 has been around 16% higher than 2021. While that percentage seems high, the median sale price right now is up by just under 1% from last year. This indicates that home values are leveling off, but not falling.

    The sale price by category tells a better story. Existing home sale prices are only up by about 2% from last year even with the asking price over 27% higher. The median sale price of a new home this year is up by almost 20% and asking prices of the same homes are also up over 13%. This is a classic example of home sellers not quite willing to accept that prices have stopped rising by double digits.

  5. The Pace of Market

    Currently, we have a 2½ month’s supply of homes to sell. In today’s market, anything less than 3 months is considered a Seller’s Market. When the number is between 3 and 5 months, it is a Balanced Market, giving equal favor to buyers and sellers. Anything above 5 months of inventory becomes a Buyer’s Market.

    When you break down the Months of Inventory by existing and new construction homes and you see two totally different types of market. Existing homes are solidly in a Seller’s Market state with between 1 and 1½ Months of Inventory while new construction is deep into a Buyer’s Market with upwards of 8 Months of Inventory.

  6. Closed Sale Units

    The last area to talk about is the number of homes sold year-to-date. In recent years, the Central Iowa market saw closed sales climb as mortgage interest rates fell to what felt like weekly historic lows. 2020 and 2021 were exceptional years for real estate sales with 2020 closing 16,000 sales and 2021 ending the year at 17,000. The pace for 2021 shows the Central Iowa market acting more like 2020 with a projected targe of 16,000 closed sales by year end.

In closing, one thing is for certain. The real estate industry has been strong through the Covid years. I’m not saying it was easy for buyers or sellers. Frantic would be a better word. The desire to own a home continues to be strong, even with higher mortgage rates. Over the years, owning real estate has proven to be a safe long-term investment. People will continue to buy and sell homes in any kind of market and there are opportunities at every turn.

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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Like everyone, you’d like to enjoy a long, healthy, independent life. But the future is unknowable, so it’s a good idea to prepare for a variety of outcomes—including the possible need for long-term care.

Consider the following:

  • Someone turning age 65 today has almost a 70% chance of eventually needing some type of long-term care service, according to the U.S. Department of Health and Human Services.
  • The median annual cost for a private room in a nursing home is about $105,000, and it’s almost $55,000 for home health aide services, according to the insurance company Genworth.

    Medicare also may cover very few of these costs. Consequently, it’s a good idea to include potential long-term care costs in your planning. While everyone’s situation is different, you may want to budget for two to three years’ worth of long-term care expenses.

How can you prepare?

But how can you prepare for these costs? Essentially, you’ve got three options:

  1. Self-insure. If you would like to cover the costs of long-term care out of your own pocket, you’ll need to consider a few issues: How will these potential costs affect your family? How might your other goals be affected, or even altered, by your decision to self-insure? Will you have to adjust your investment mix or designate certain investments to help achieve your self-funding objectives? None of these questions should dissuade you from trying to self-fund for long-term care, but they can help you clarify the significance of this choice within your overall financial strategy.
  2. Transfer the risk to an insurance company. You could purchase either long-term care insurance or a life insurance policy that provides long-term care benefits in addition to a death benefit. Before obtaining either type of policy, though, you’ll want to know exactly what the policies cover and when they kick in. Also, be aware that the younger you are when you buy a policy, the lower the premiums. On the other hand, if you buy a straight long-term care policy when you’re young, you could end up paying premiums for many years for coverage you may never need. A financial advisor can help you evaluate all your insurance options and recommend which one, if any, is appropriate for your situation.
  3. Combine self-insurance with an insurance policy. You could plan to self-insure for long-term care for a limited time—perhaps one year’s worth of anticipated costs—and then buy enough insurance for additional expenses. This technique could involve some juggling on your part, in terms of where to direct your money, but it might prove to be a workable compromise between self-insurance and putting all your long-term care resources into an insurance policy.

Which of these methods is right for you? There’s no one “right” answer for everyone. But whichever route you choose, you’ll be helping to protect yourself—and possibly your grown children or other family members—from the potentially huge costs of long-term care. And that protection can help brighten your outlook throughout your retirement.

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Back in March, I briefly described the cycle of real estate in an article discussing whether we were in a real estate bubble or not. Now as we head into September, six months later, this measure of market reactions is confirmation that owning and investing in real estate has long-term advantages over general economics including times of inflation and recession.

There are four stages in a typical real estate cycle. Expansion, Peak, Slowdown and Recovery. The most common period for these stages to complete is 10 years. Each stage of the cycle has its own opportunities for buyers and sellers.

Expansion Stage

This stage normally occurs as homeowners begin to feel confident about their ability to sell and find their next home easiest. The buyer pool is not as competitive and days on the market tend to be quickening. There is still time to view homes and make an informed buying decision without feeling rushed. Home prices tend to be on the rise during this stage.

Peak Stage

This is where most buyers and sellers feel the market at its fastest pace. Home values are at their highest point and days on the market are extremely low. Properly priced homes sell almost immediately, and it may be a challenge for a move-up/move-down seller to find their home of choice without having to negotiate for delayed possession or prepare to move into short term temporary housing and storage. Buyer and Seller anxiety levels are highest at this stage.

Slowdown Stage

The number of homes for sale begins to build as homebuyers back away from the buying market. Outside influences can also affect this stage such as rising mortgage interest rates. With longer time on the market for home sellers, price reductions and an overall dip on pricing is common. The benefit in this market is that home buyers have more time to shop and the ability to pay less for their home purchase.

Recovery Stage

This stage tends to be the slower in terms of market activity. Homes for sale are on the market longer and home prices become more affordable during this time. The recovery stage is normally short lived and influenced by seasonal activity, such as winter months and the most likely time to see this stage is November to late January when holidays and weather are most impactful.

How This Cycle Looks Over Time

Now that you have a good understanding of the different cycles of the real estate market, let’s apply this to the last real estate cycle and to the one we are currently in.

As I mentioned earlier, the typical real estate cycle is approximately 10 years from start to finish. That is not a hard and fast rule. The example above shows the last real estate cycle that started around the year 2000 ending in 2010. It just happened to be a ten-year cycle.

The Expansion Stage ramped up from 2000 to around 2006 when many banks and mortgage lenders were making loans based on limited, or no documentation of the buyer’s income coupled with risky adjustable-rate mortgages and interest only loans where homeowner equity never had a chance to grow.

2006 was the peak of this real estate cycle. The slowdown stage was a market recession which become known as the subprime mortgage crisis. The result was home foreclosures as adjustable-rate mortgages caused owner’s home payments to skyrocket beyond their means to pay and short sales and bank repossessions became a common occurrence, especially in markets around the country that experienced fast and reckless building and development. Fortunately, Iowa didn’t experience near the swing in home values of other states, but we did have our share of foreclosures. 2010 marked the recovery period which coincidentally ended this cycle at ten years.

Everything was on track for a normal ten-year cycle again with the expansion period moving right along through 2015. By 2019, just before Covid-19 appeared the following year, the signs were showing that we were arriving at the peak of the cycle. Home inventory levels were showing hints of leveling off and buyer demand was strong, but not overly so. All indications were that this cycle was going to be longer than the typical ten-year period.

Then, in March of 2020, Covid-19 hit. The result of this pandemic caused the real estate market to effectively skip the slowdown and recovery phases and start back upward in an expansion period again.

Fast forward to this third quarter of 2022 and the real estate market is finally showing signs of peaking, even with home inventory levels rising. Buyer demand and maximum pricing is continuing, but we are beginning to see signs of longer days on the market. The upper price points along with new construction properties are seeing the months of inventory rise quickly, resulting in many builders beginning to offer buyer concessions and even incentives to real estate agents to bring homebuyers to the table for them.

How long will this cycle last? When will we officially see and feel the slowdown phase? How long will recovery take? These are all questions that will be answered by the real estate market itself. A struggling national economy and the fast rise of mortgage interest rates this year have all affected the market.

In the short run, we will see home values dip slightly, but not by much. An increase in the number of homes for sale will be welcomed by a likely continuous supply of homebuyers as we move into 2023. And lastly, I do not foresee a real estate market crash anytime soon. The lending methods put in place after 2008 have kept us away from homeowners with risky mortgage loans and home equity continues to grow in the Central Iowa real estate market.

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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