financing the dream

Weathering the Market

Make strategic decisions based on housing market fluctuations

By Cameron Carr

FOR TWO YEARS, there were few things as hot as the U.S. housing market. According to the Federal Housing Finance Agency, the U.S. Home Price Index rose 18.7 percent just from the first quarter of 2021 to the first quarter of 2022.

That trajectory changed as the Federal Reserve began to raise interest rates. As rates continue to shift and the market reacts, the value of homes and the conditions for buyers and sellers have been impacted.

If someone is ready to buy a home, the high prices that have become familiar since the beginning of the COVID-19 pandemic make that unfeasible. In a hot market, though, patience is a virtue.

“During challenging environments, long-term investors are urged to use patience and discipline to take advantage of down markets,” says Ryan C. Bibler, Managing Director - Investments for Bibler Finney Panfil Private Wealth Management Group of Wells Fargo Advisors. “We think the same advice is suitable when it comes to home-buying, which is usually a long-term investment.”

At the same time, the Bibler, Finney and Panfil team cautions that, while interest rates continue to rise, waiting for prices to drop can result in paying more in the long run or changing what homes are within a buyer’s price range.

For a buyer, identifying financial circumstances, along with needs and wants for a home, is important to finding a prudent balance while navigating the housing market.

“Start with a plan,” says Joseph P. Panfil, Managing Director - Investments for Bibler Finney Panfil Private Wealth Management Group of Wells Fargo Advisors. “Evaluate your liquid savings available for a down payment and a monthly mortgage payment that fits within your budget. Then work with your Mortgage Consultant to figure out a price range you can comfortably afford.”

A similar logic applies for those considering selling. As the market cools, the financial appeal of selling a home generally wanes. While home values are up, it can be a fruitful time for homeowners, though.

A downturn in the housing market also changes the economic outlook, warranting a second look at making large or risky financial moves.

The housing market accounts for more than $3 trillion in spending, or nearly 18 percent of total GDP in the U.S., according to data from the Bureau of Economic Development. Naturally, a slowdown in the housing market can contribute to a slowdown in the overall economy. Decreased spending coupled with higher interest rates can decrease the attraction to making precarious moves.

Though fluctuating interest rates and uncertain impacts on the economy can appear intimidating, Vincent W. Finney, Managing Director - Investments for Bibler Finney Panfil Private Wealth Management Group of Wells Fargo Advisors, says that there are investing strategies to consider.

“If you’re comfortable with the risk, we believe equities may give you the best long-term opportunity to outpace the inflation we’re currently seeing in the economy,” Finney says.

As a general guide, the Bibler Finney Panfil Private Wealth Management Group of Wells Fargo Advisors recommends looking for companies paying and growing their dividends. That may allow investment income to outpace inflation – though past performances can’t guarantee future results or dividends.

“The right companies within this category may be some of the healthiest in our economy and have generally weathered difficult markets better than many others,” Finney says. “These companies are considered to be one of the important components of portfolios late in the business cycle, which some think we’re in currently.” CS

Cameron Carr is an editor at CityScene Media Group. Feedback welcome at ccarr@cityscenemediagroup.com.

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company.