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Investment banks and asset managers unveiled lofty ambitions to bolster diversity after the Black Lives Matter movement’s surge three years ago.
But the experience for many ethnic minorities working in the City is getting worse, according to a wide-ranging survey of 800 senior staff in finance.
Investment banks saw the biggest drop of any sector in the 2023 Racial Equality Index, compiled by non-profit Reboot, scoring 65 out of a possible 100, down from 67 the previous year.
Meanwhile, asset managers’ score declined for the second consecutive year to 63, the worst of any sector in the City, lagging hedge funds, insurance and wealth management. The score across financial services this year was 65, down two points from 2022.
Reboot’s research found that 40% believed chief executives were not committed enough to tackling racial discrimination in the workplace. Nearly half of these respondents said bosses did not understand the impact of racism, and 43% said they believed CEOs feared backlash both within their organisation and externally.
READ There are 1,500 senior dealmakers in Europe — just 20 are Black
Exclusive research by Financial News earlier in 2023 found that in a sample of more than 1,500 senior dealmakers in the world’s largest investment banks, just 20 are Black.
Banks have pledged to increase the proportion of Black employees in their ranks. Goldman Sachs wants 7% of its UK vice-presidents to be Black by 2025, while Citigroup aims to increase its proportion of Black employees in the country to 3% by the same year.
In asset management, just 2% of the UK industry is Black, according to research by the Investment Association.
“This year’s results show a lot more still needs to be done and structural change is key to moving the needle,” said Noreen Biddle Shah, founder of Reboot. “In its recent consultation, the Financial Conduct Authority demonstrated a sophisticated understanding of the nuances surrounding progressing diversity, equity and inclusion. It pinpointed the need for better data and acknowledged that for ethnicity, it should be broken down with sufficient granularity.”
“Real lasting change within organisations can only happen if there is continuous, proactive commitment from CEOs and senior leaders to actively address and confront racism,” added Baroness Helena Morrissey, chair of the Diversity Project UK and a Reboot advisory board member. “This obviously cannot take place overnight, but it is important that senior leaders do not drop the ball amid other socio-economic issues.”
While financial services organisations have pledged their support behind initiatives like 10,000 Black Interns, a project to bolster racial diversity at the entry level, there is still a lack of transparency about race in the City.
Reboot has called for more firms to sign up to ethnicity pay gap reporting to increase transparency and representation of ethnic minorities in the sector. Its survey showed that 63% of financial services employees would be prepared to provide personal information in order to create an ethnicity pay gap report, while 33% said they would be unwilling to do so.
To contact the author of this story with feedback or news, email Paul Clarke
The end of the year is a time to enjoy holiday parties, make New Year’s resolutions, and ensure your portfolio is ready for 2024 and beyond.
First, you should take care of basic housekeeping: fund your IRA, pay off any high-interest debt, and look into tax-loss harvesting within your taxable accounts. Also consider increasing your 401(k) contributions. The Internal Revenue Service raised the limit for 401(k) and other retirement plans to $23,000 for 2024, up from $22,500 for 2023.
A pro move: Consider converting a traditional IRA to a Roth IRA, which means paying taxes today, but your investments will grow tax-free in the Roth account. A Roth conversion makes sense for investors who anticipate being in a higher tax bracket in the future, or who intend to leave a Roth IRA as an inheritance to their children who will be in a higher tax bracket.
Potential tax changes are on the horizon and that may make this an ideal time to do a Roth conversion, says Jonathan Shenkman, president and chief investment officer of ParkBridge Wealth Management. The Trump-era tax cuts, for example, are due to expire in 2025. And Congress will probably have to tackle the ballooning federal budget deficits with tax increases, spending cuts, or a mixture of the two. “If you’re the kind of person who likes to plan ahead, then this is a good opportunity,” says Shenkman.
After that, investors should dig into their portfolios with an eye on the long term so that they are poised to take advantage of the return of more conventional market dynamics. The Federal Reserve is just about finished raising interest rates, the economy is projected to grow moderately, bonds are offering income, and stocks are rising and falling based on profits. “We’re back to normal,” says Lisa Shalett, chief investment officer for
Morgan Stanley Wealth Management
.
Investors need to “wrap their brain around this idea.”
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The recent market dynamics mark a significant shift from the period from the 2008-09 financial crisis through 2021, which was characterized by rock-bottom interest rates and paltry yields on bonds. Investors did well with the FAANG stocks (
Facebook
,
now
[ticker: META];
[AAPL];
[AMZN];
[NFLX]; and
Alphabet
,
formerly Google [GOOGL]), as did those who favored U.S. equities over international stocks. But yesterday’s playbook may not work as well going forward.
In some ways, we’ve reverted to historical form. Mortgage rates, for instance, are near 8%. That may sound crazy high to millennial home buyers, but it isn’t unheard of for baby boomers and Gen Xers. Higher interest rates also mean investors can actually get a respectable yield on the cash portion of their portfolios. “You can earn about 5% in a money-market fund,” says Kara Murphy, chief investment officer of Kestra Investment Management. “We haven’t seen that since 2007.”
For investors, year end is an opportune moment to take a close look at their portfolio and financial goals. That means making sure you have the right asset allocation for your goals. Even if you do, you probably still need to rebalance to make sure you aren’t overweight cash, light on bonds, and heavy on stocks (a lot of people are). A 60/40 stock/bond mix makes sense, but investors should also consider how they deploy cash now—to make sure it is generating some yield—and maybe consider adding alternative investments, like venture capital or private credit. And keep a cautious eye on the pricey Magnificent Seven tech stocks: Alphabet, Amazon, Apple, Meta,
(MSFT),
(NVDA), and
(TSLA). They are so 2023.
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Here’s wisdom from the pros on setting up each part of your portfolio for the new year.
Stocks
While rebalancing usually means adjusting your allocations of stocks, bonds, and cash, this year you also may need to rebalance within your stock portfolio. Given that just a handful of stocks have provided much of the market’s overall returns this year, you may be way overweight the Magnificent Seven: Those stocks have outperformed the rest of the S&P 500 significantly. Their return from Jan. 1 to Oct. 31 was 53.2%, compared with 1.2% for the other 493 stocks in the bellwether index, according to asset manager
Tim Murray, capital markets strategist in T. Rowe’s multi-asset division, said the Magnificent Seven have almost become their own asset class. “It’s been such a top-heavy market,” Murray said at a Nov. 14 presentation. “That is distorting valuation and allocation.”
Top-heavy markets have occurred before, and the stock performance of the Magnificent Seven may be justified. But investors should check across their holdings to see how much exposure they have to these seven stocks in particular, and to growth and tech stocks more broadly. “Revisiting concentrated positions is really valuable right now,” says Evan Bloomberg, a private wealth advisor at
UBS
.
“If a client has more than 10% of their net worth in any asset, we want to check that against their plan and make sure they are protected.”
Morgan Stanley’s Shalett recommends positioning portfolios to be slightly underweight equities. “We are not excited about owning the S&P 500 at a market weight,” says Shalett. “It is dominated today by seven stocks that are correlated with each other, and they are all superexpensive as a starting point.”
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Instead, she sees opportunity in areas that are more interest-rate sensitive and could therefore benefit if rates stabilize or fall. She finds potential value in healthcare, energy, industrials, and small-caps—sectors that have underperformed the broader market and may be poised to catch up in 2024 if the economy continues to run not too hot and not too cold.
“As value investors, we’re betting on mean reversion,” Shalett says. “If this Goldilocks story is real, then you’re going to have a catch-up trade. You’re going to see the things that have underperformed, and that are most sensitive to interest rates, come back.”
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Investors should also review their allocation to international stocks, which have lagged behind U.S. stocks in recent years. That could change. Asset manager Vanguard estimates that 10-year annualized nominal returns will be lower for U.S. stocks than for non-U.S. developed markets equities; Vanguard projects 4.2% to 6.2% for U.S. stocks compared with 7% to 9% for non-U.S. developed markets equities.
Other wealth managers are slightly underweight international stocks, citing, for example, weaknesses or risks in Europe. But they aren’t forgoing international equities. Sequoia Sentinel Family Office, a unit of Sequoia Financial Group, currently recommends international equities for 30% of equity exposure. That’s less than the firm’s 35% long-term strategic target but it’s still a healthy allocation, says Michael Orfe, advisor group lead at Sequoia Sentinel Family Office. “There are periods of time when international can outperform U.S.,” Orfe says.
Cash
Investors have increased their cash holdings over the past year—and with good reason. Interest rates are higher than they’ve been in decades, and money-market funds are currently yielding around 5%. Investors would be wise to make sure that the cash part of their portfolio is generating some income in this environment. “If you’re not being proactive on this, then you’re leaving money on the table,” says ParkBridge’s Shenkman.
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Some investors may also be overweight cash and should move back into longer-term bonds. If longer-term interest rates continue to fall, there are gains to be made. And yields on cash could fall if the Federal Reserve cuts rates.
Bonds
For these reasons and more, investors should re-evaluate the fixed-income portion of their portfolios.
Some financial advisors have been recommending clients buy longer-dated Treasuries now to lock in today’s higher yields.
“The clock is ticking between here and a Fed pause,” says Bloomberg, the UBS advisor. Yields, which dropped in the past month, will continue to fall if the Fed gets more dovish. “That means there is reinvestment risk. By the time the Fed does pause, there is a risk for it being too late to transition from cash to bonds.”
Fixed income has taken a beating since the Fed started hiking rates. Kestra’s Murphy says the Federal Reserve’s rapid rate increases meant the “bond market had to take these hits in a very concentrated way.” But yields on bonds are now attractive in a way they haven’t been in years.
Owners of long-term bonds may also benefit should rates continue to fall (as they have this month) and the economy slow down; in that scenario, their bonds could appreciate in value, and investors could then sell them at a profit. Consider this: The $49.2 billion
iShares 20+ Year Treasury Bond
ETF (ticker: TLT) is up about 9% since mid-October.
Some investors may choose to buy longer-dated bonds and simply hold them to maturity, collecting the coupon without having to worry about fluctuations in the underlying price of the bond.
Morgan Stanley’s Shalett notes how fixed income compares favorably with stocks, particularly given valuations. “I’d just as soon take 5.5% in investment-grade paper as buy a company stock at these levels,” she says.
Retirees or investors nearing retirement in particular may benefit from the higher yield environment because they can generate attractive income from safe investments. That wasn’t possible before the Fed started hiking rates in 2022. And in the previous decade, some investors seeking higher yields might have bought riskier investments such as junk bonds or leveraged loans. As part of rebalancing within the bond portion of their portfolios, investors should make sure they aren’t overallocated to riskier fixed-income investments.
“With rates going up, a lot of these weaker companies that took on more risk over the past 10 to 15 years, they could default,” says Shenkman. “That’s another reason to move up in credit quality; you want to limit your exposure to these riskier assets.”
Shenkman says retirees shouldn’t forsake stocks for fixed income. That’s because they face longevity risk, or the risk that they will live a very long time and inflation will erode their buying power. “If you want to outpace inflation, you need a meaningful amount of equity exposure,” he says.
Alts
For high-net-worth and ultrahigh-net-worth investors, it’s also important to consider an allocation to alternative investments—but it isn’t a must-have. More investors have bought into alts, particularly high-yielding funds that invest in private credit and real estate. Alternative-asset manager
said in a recent paper that incorporating private credit, private infrastructure, and private real estate can increase the income potential of a portfolio. The firm’s hypothetical portfolio consisted of 40% bonds, 30% stocks, and 30% alts (which consisted of 15% of private credit and 7.5% each of private real estate and private infrastructure).
Sequoia Financial’s Orfe says they’ve been suggesting that clients invest in private credit, or portfolios of direct loans to midsize companies. Private credit is growing as an asset class because some banks have scaled back lending and others are focusing more on larger borrowers.
Of course, alts aren’t for everyone. For starters, some alternative funds lock up your money for extended periods of time or have limits on how fast you can exit. Fees and investment minimums can be high. So, alts are worth a look, but many investors may do just as well with a traditional mix of stocks and bonds.
Whatever your long-term goals, the key is to make sure you have asset-allocation targets to help you meet them and then make sure each quarter that your actual investments align with those targets. It can be easier said than done. This year in particular, investors should avoid making outsize bets based on past market conditions. Instead, align your investments for the more normal market environment that lies ahead.
No allocation can be the right one if it doesn’t help you achieve your financial dreams. “A portfolio is much more powerful when it is tied to a financial plan,” says Kestra’s Murphy.
Write to Andrew Welsch at andrew.welsch@barrons.com
Long past its painful peak, inflation in the United States may be heading steadily back toward its pre-pandemic levels, without the need for further interest rate hikes by the Federal Reserve.
Such a scenario became more likely, if hardly guaranteed, after Nov. 14’s surprisingly tame report on consumer prices for October. The Labor Department’s data showed a broad-based easing of inflation across most goods and services. The price of gas? Down. Appliances? Down. Autos? Down. Same for airfares, hotel rooms and doctors’ fees.
Overall inflation didn’t rise from September to October, the first time that consumer prices collectively haven’t budged from one month to another in more than a year. Compared with a year earlier, prices rose 3.2% in October, the smallest such rise since June, though still above the Fed’s 2% inflation target.
Excluding volatile food and energy prices, so-called core inflation was just 0.2% last month, slightly below the pace of the previous two months. Measured year over year, core prices rose 4% in October, down from 4.1% in September, the smallest rise in two years.
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“The inflation fever has broken,” said Bill Adams, chief economist at Comerica Bank. “Rising petroleum production is holding down gas prices, house prices are rising more slowly after mortgage rates surged in 2023 and rents are also rising more gradually” as more apartment buildings are completed.
October’s milder-than-expected price figures make it much less likely that the Fed will impose another rate hike. Many economists now say that the Fed’s most likely next move will be to cut rates, likely sometime next year, though that would depend on whether inflation continues to cool.
What’s driving inflation lower?
A major factor has been a big improvement in the supply of many things — workers, housing and components for manufactured goods.
Millions of Americans have come off the sidelines in the past year and flooded back into the workforce, seeking and (mostly) finding jobs. Immigration has increased, too, and with it more people looking for work. With more hires available, businesses haven’t had to raise wages as much to fill jobs, thereby easing the pressure on those businesses to raise their prices.
At the same time, the largest number of new apartment buildings nationwide in decades are being completed, a trend that is helping slow rent increases. Rental costs, after a spike in September, rose at a much more gradual pace last month.
Rents and other housing costs are likely to keep coming down, economists say, as the cost of new leases continues to fall, according to real-time data providers such as Zillow. Those lower prices show up in the government’s data with a lag.
And the supply chains that were badly snarled during the pandemic have pretty much unwound. An ample availability of products, parts and components help keep a lid on their prices. Automakers, for example, are having a much easier time finding semiconductors.
Partly as a result, new car prices declined last month, defying fears that the now-settled autoworkers’ strike would reduce dealers’ inventories and send prices higher. Used car prices, too, are down. They fell for a fifth straight month in October and have tumbled 7% from a year ago.
“We’re finally undoing that and getting the benefits,” Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said Tuesday in remarks at the Detroit Economic Club.
Separately, consumers are widely expected to pull back on spending after a blowout summer, with credit card debts — and delinquencies — rising and average savings falling. Cooler demand should force businesses to compete more on price.
Gas costs have kept falling this month, with the national average price at the pump averaging $3.35 Tuesday, down 42 cents from a year earlier. Those prices declines could push overall inflation, measured year-over-year, below 3% by December.
Aren’t things still pretty expensive?
Yes, inflation is still painfully apparent in many areas. They include auto and health insurance and some groceries, like beef and bread.
The average cost of auto insurance, which jumped 1.9% just from September to October, has soared nearly 20% from a year earlier. As new and used vehicles have grown more expensive, so has the cost of insuring them. And health insurance prices rose 1.1% last month, though that was largely due to a change in the government’s methodology.
But even as overall price increases slow, it doesn’t mean inflation is reversing or that most prices are falling back to pre-pandemic levels. The consumer price index, the most widely followed measure of inflation, remains about 20% higher than it was before the pandemic.
Milk prices, which have ticked down compared with the past year, are still 23% higher than they were pre-pandemic. Ground beef prices are 31% higher. Gas prices, despite a steep decline from a year ago, are still 46% higher than before the pandemic.
Many economists say a key reason why so many Americans hold a gloomy view of the economy despite very low unemployment and steady hiring is that these prices — on items that they buy regularly — remain much higher than they were three years ago.
Are paychecks keeping up?
Barring a deep and painful recession, prices aren’t going to fall to their pre-pandemic levels. Instead, economists say, Americans’ wages need to rise to help pay for the higher costs.
Wages and salaries trailed inflation in 2021 and 2022, exacerbating the pain of higher prices. Yet this year, as inflation has cooled, average pay has pulled ahead of inflation. By most measures, average paychecks, adjusted for inflation, are back to where they were before the pandemic.
Yet that essentially means that Americans, on average, have had scant real pay increases compared with three years ago. And while average pay may be back to pre-pandemic levels, many people have received below-average pay raises and are still behind inflation.
How might the Federal Reserve respond?
The Fed will likely welcome last Tuesday’s report as evidence of further progress toward getting inflation back to its target of 2%. Fed officials, led by Chair Jerome Powell, are considering whether their benchmark rate is high enough to quell inflation or if they need to impose another increase in coming months.
Powell said recently that Fed officials were “not confident” that rates were sufficiently high to tame inflation. The Fed has raised its benchmark interest rate 11 times in the past year and a half, to about 5.4%, the highest level in 22 years.
But the central bank has raised its key rate just once since May. Since its last meeting on Nov. 1, a government report showed that hiring cooled in October compared with September, and wage growth slowed, thereby easing pressure on companies to raise prices in the coming months.
Adams, the Comerica economist, said he thinks the Fed’s most likely next move will be to cut rates, likely by mid-2024.
The Fed’s rate hikes have increased the costs of mortgages, auto loans, credit cards and many forms of business borrowing, part of a concerted drive to slow growth and cool inflation pressures. The central bank is trying to achieve a “soft landing” — raising borrowing costs just enough to curb inflation without tipping the economy into a deep recession.
Said Eric Winograd, chief economist at AB Global, an asset management firm: “They look like they are on course to generate a soft landing. There’s no guarantee that they will actually manage to accomplish it. But right now, that’s the story that the data are telling.”
More than 80% of home shoppers consider climate risks when looking for a new home. As potential homebuyers navigate the complexities of the current real estate market, they find themselves at the crossroads of economic challenges and climate anxieties.
The United States housing market has witnessed a series of ebbs and flows in recent years. According to a recent Gallup poll, the current scenario paints a rather bleak picture, with a mere 21% of Americans believing it’s a good time to buy a house – the lowest since Gallup began its surveys in 1978.
This historically low perception is not just a result of the current challenges the real estate market faces, such as record low inventory and rising mortgage rates, but is also deeply intertwined with growing concerns about climate change.
Recent research by Zillow shows a staggering 83% of prospective home buyers, mostly millennials and Gen Z shoppers, are now considering climate risks when making their purchasing decisions.
As the world grapples with the realities of climate change, the housing market will need to adapt, innovate, and evolve.
Historical Context Meets Modern Concerns
Historically, the U.S. housing market has experienced prolonged phases of optimism. In 2003, during a time of rising homeownership rates and housing prices, 81% of Americans believed it was an opportune time to purchase a home.
In the past two years, the Federal Reserve has raised interest rates to try to tame inflation, while housing prices have soared and inventory declined, leaving many Americans with fewer affordable options.
While economic factors play a significant role, another emerging element adds to the hesitancy: the increasing threat of climate-related risks.
As of Sept. 11, 2023, 23 verified weather/climate-related disasters have been confirmed this year. These incidents led to the loss of 253 lives and caused substantial economic impacts in the affected regions.
As home buyers consider their options, they’re not just looking at price tags and interest rates but also evaluating their potential homes’ long-term safety and values against environmental threats.
Regional Vulnerabilities
There are clear regional difference regarding climate anxiety among prospective home buyers.
Western states stand out with the highest level of concern. A whopping 90% of potential buyers in the west considered at least one climate risk when looking for a home.
Furthermore, 59% of these buyers believe climate risks are “very” or “extremely impactful” to their decision-making process. This indicates a heightened sense of urgency and concern in the west regarding the effects of climate change on real estate.
On the other hand, Midwestern states show the lowest level of climate anxiety among the regions. While 77% of potential buyers there considered climate risks, which is still significant, it’s the lowest percentage among all regions. Only 42% of Midwestern buyers also view these risks as “very” or “extremely impactful.”
Additionally, 34% feel that climate risks are “not at all” or “not very impactful,” suggesting a more relaxed attitude towards climate-related concerns in the Midwest compared to other regions.
While climate anxiety is a prevalent concern across the U.S., it’s most pronounced in the West and least evident in the Midwest.
The Affordability/Climate Conundrum
For potential buyers, the decision-making process has become multifaceted. High housing prices coupled with rising interest rates already pose a significant challenge.
Add to this the looming threat of climate-related damages, and the decision becomes even more complex.
A house might be affordable today, but will it remain safe and viable in the face of rising sea levels, wildfires, or extreme weather events?
Predicting the Future – A Climate Twist
While the Gallup poll indicates that fewer Americans expect a rise in housing prices, there’s an underlying concern worth noting. The long-term viability of selling a house, especially in areas prone to climate risks, is becoming a significant factor in the expectations of home buyers.
As climate predictions point towards increased severity and frequency of extreme events, potential buyers are factoring in these risks more than ever before.
Real Estate’s Evolving Definition of “Value”
This shift in buyer sentiment could have profound implications for the future real estate market. Areas historically seen as prime real estate, such as California, Florida, and Colorado, might experience a decline in demand if they are perceived as high-risk due to climate threats.
Consequently, property values in these areas could stagnate or even decline. Conversely, regions deemed safe from climate impacts might see a surge in demand, leading to increased property values and a competitive housing market.
Real estate developers and agents must adapt to this new landscape, possibly focusing on building and promoting properties with climate-resilient features. Transparency about a property’s vulnerability to climate risks will become crucial in the buying and selling process.
In essence, the real estate market of the future will not just be driven by location and amenities but also by the evolving perceptions of climate safety.
Despite the challenges, the American spirit remains resilient. Many still view real estate as a valuable long-term investment. However, the criteria for a “good investment” are transforming.
It’s no longer just about economic returns. A property’s resilience to climate risks, environmental footprint, and adaptability to a changing world are crucial factors in determining a home’s value.
The Future Real Estate Market
The U.S. housing market stands at a unique juncture, influenced by economic and environmental factors. For a robust rebound, there’s a need for a more holistic approach that addresses economic challenges and recognizes and mitigates potential buyers’ growing climate anxieties.
As the world grapples with the realities of climate change, the housing market will undoubtedly need to adapt, innovate, and evolve.
Median home sale prices in the United States have nearly doubled in the past decade to $422,000 in July 2023. That’s up from $220,000 in July 2013. Although prices are trending higher nationwide, affordability is significantly different by state.
An analysis of recent data provided by Redfin, a national real estate brokerage firm, shows the Midwest and South have the lowest median house prices in the United States, making these regions the most affordable relative to income.
Because of rising real estate prices, housing on the west and east coasts is the least affordable, along with certain Rocky Mountain states and Hawaii. However, many states across the Midwest and South have housing prices below $350,000, with some counties seeing prices below $150,000.
Housing Prices Increasing
Homes everywhere are increasingly unaffordable relative to income because median sale prices climbed quickly during the COVID-19 pandemic. In March 2020, the national median home price was $304,000, and continued to escalate because of low rates, demand, and availability.
Before the lockdown, low mortgage rates made new and used homes more affordable for many people in America. A $500,000 house with a 20% down payment and a 30-year fixed rate mortgage of 4% has a monthly cost of $2,005. The same home bought with a 7% rate has a $2,794 monthly payment — a $789 difference.
Because rates were below 4% from early 2019 to mid-2022, Americans invested in real estate, causing prices to rise.
At the same time, housing inventory declined. After peaking in 2006, home construction was below average for many years, causing demand to outstrip supply, putting upward pressure on house prices.
Least Expensive States in The Midwest and South
The Midwest and South contain the top five low-housing cost states, which lead the country in affordability.
Iowa The Most Affordable State
Iowa has the lowest median sale price of $239,000 in 2022. The state is primarily rural but has smaller cities like Des Moines, Cedar Rapids, and Iowa City. Additionally, the population is relatively small and growing at only 0.3% annually, keeping demand and, thus, housing prices low. According to the Federal Reserve, the state’s median income was $76,320, making housing relatively cheap for families.
Ohio’s Declining Population Limits Home Price Gains
Ohio is the second most affordable state, with a median sale price of $249,000. The state is more industrialized than Iowa but still has a significant agricultural industry. In addition, Ohio has three large cities: Cincinnati, Cleveland, and Columbus. Based on the state’s median income of $67,520, housing is less affordable than in other Midwestern states. Also, Ohio’s population is declining, suggesting home prices will gain little.
Oklahoma Most Affordable State Outside The Midwest
Oklahoma has the third-lowest median sale price of $256,000. The state is largely rural, with two main cities: Oklahoma City and Tulsa. Oklahoma’s median household income is below Iowa’s and Ohio’s at $63,440. As a result, its residents pay a higher percentage of their income for housing costs. Oklahoma’s population is gaining 1.5% annually, so real estate prices should continue to rise.
Most Expensive States on The West and East Coasts
On the other end of the scale, California was unsurprisingly the most expensive state to buy a home. In fact, the most expensive states are concentrated on the West Coast, Northeast, and a few Rocky Mountain states, attracting people from other parts of the United States, like Utah and Colorado. The three least affordable states are California, Hawaii, and Massachusetts.
High Demand Makes California Expensive
Housing in California is costly. Prices continue to rise because of demand, insufficient construction, and labor costs. In 2022, the median house price was $799,000 — more than three times the price of Iowa. Median household incomes are higher at $85,300, but are generally not enough to account for the sale price differences. After years of growth, California’s population has declined in the past couple of years, but not enough to impact affordability.
Homes in Hawaii Are Expensive
Hawaii is next on the list, with a median home price of $713,000. The state has strict permitting requirements, and as a result, construction cannot meet demand. Therefore, housing prices have risen. Besides expensive housing, Hawaii also has the highest cost of living, making it challenging to make a simple 50/30/20 budget strategy work and purchase a home, too. Household incomes are high, too, at $91,010, but the extraordinary cost of living expenses reduces buying power. One advantage, though, is the state has the lowest property tax rate in the country.
Massachusetts Home Prices Are Rising Fast
Massachusetts is third, with a median house price of $640,000. The state is building more luxury, high-end residences, and not enough affordable housing. Demand is also high because the population grows in most years, drawn by high-paying jobs in healthcare, information technology, and education. In fact, the median household income of $93,550 is among the highest in the country. The combination of forces driving prices higher is unlikely to subside.
The Bottom Line About Real Estate Affordability
Real estate prices have risen faster than incomes. Consequently, already expensive markets are now pricier than ever. Based on median home prices, the Midwest and South lead the country in affordability, especially after considering household incomes.
That said, rising mortgage rates mean it may be prudent to wait until they change direction. High mortgage rates hinder selling and buying.
Arnie Nicola of Pregnancy and Motherhood says, “We had planned to buy a house and the high interest rates pushed up monthly payments and brought down our home value below our expected selling price, so ultimately we decided to just hold.”
The eastern entrance to Larkinville is getting a new look.
Derek Sullivan’s Buffalo Bungalow of Elma is planning to construct six two-story commercial buildings along Seneca and Exchange streets, using a vacant and narrow triangular site near the eastern end of Exchange where it meets Smith Street.
Located at 935-945 Seneca St., with additional land on Exchange, the properties are on the south side of Seneca, north of Exchange. The parcels will be merged for a total of 0.6 acres of undeveloped green space.
The identical Scandinavian-style buildings would be 1,008 square feet each, with a full first floor and a partial mezzanine, for a total of 6,888 square feet. All would have a relatively open interior floor plan for ease of modification. Four buildings would be perpendicular to Seneca with the fronts facing that street, while one would face Exchange and the last would be parallel to the streets, toward the point of the triangle.
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“I think they’re pretty cool,” said James Morrell, chairman of the Buffalo Planning Board, which approved the $2 million project on Monday. “It just brings development to the street, because this was just a desolate wasteland years ago, and turns it into that walkable community.”
The buildings would be targeted toward a mixture of small commercial services, boutique shops and salons, with a coffee shop at the end building, as well as an outdoor seating area and room for a building addition for a kitchen. The project includes 15 parking spaces, with entrances from both Seneca and Exchange.
“Our client has received several inquiries from online entrepreneurs looking for small space in the city to start to realize their brick-and-mortar dreams,” said Greenman-Pederson landscape architect Robert Blood, representing Buffalo Bungalow. “Our client believes this project is in response to that. This is intended to primarily serve the neighborhood as well.”
The $2 million project received seven zoning variances in June. Construction will take about five months.
In other action, the Planning Board:
- Approved a minor subdivision for Christopher Wan’s $10 million project at 147 W. Tupper St., where the contractor plans to demolish several dilapidated and mostly vacant structures and replace them with a four-story brick complex containing 42 new studio, one- and two-bedroom apartments and up to seven retail businesses. The site includes 147, 149, 157, 159, 161 and 167 West Tupper and 42 and 44 Trinity Place, which are being combined.
- Approved a one-year extension for TM Montante Development’s adaptive reuse of the former homeopathic hospital building at the former Millard Fillmore Gates Circle site. Montante has been focusing on helping Belmont Housing Resources for Western New York prepare for its neighboring affordable housing project on the rest of that site, but rising interest rates and other factors have hindered its effort to line up the bank financing for its own project.
- Recommended approval by the Common Council for special-use permits for Sheldon Anderson and Omar R. Price to open cannabis stores at 232-234 Allen St. and 1669-1673 Hertel Ave., respectively.
- Recommended approval of a special-use permit for Nabaa Ibrahim to open a neighborhood bar and restaurant at 995 Exchange St.
Reach Jonathan D. Epstein at (716) 849-4478 or jepstein@buffnews.com.
We all make mistakes in many areas of life. These mistakes are usually fairly harmless — we took a wrong turn while driving, used the wrong ingredients in a recipe and so on. But sometimes, our mistakes can be costly — especially those connected to investing.
Here are some of the most common investment mistakes:
Too much buying and selling
Some people find it exciting to constantly buy and sell investments in the pursuit of big gains. Yet, frequent trading can work against you in a couple of ways. First, it can be expensive — if you’re always buying and selling investments, you could rack up taxes, fees and commissions. Perhaps even more important, though, excessive purchases and sales can make it difficult to follow a unified, cohesive investment strategy. Such a strategy requires, among other things, careful construction and management of an investment portfolio that’s appropriate for your goals, risk tolerance and time horizon. Heavy trading can disrupt this strategy.
Failing to diversify
If you only owned one type of asset, such as growth-oriented stocks, your portfolio could take a hit when the financial markets go through a downturn. But not all investments will respond the same way to the same forces — for example, stocks and bonds can move in different directions at any given time. And that’s why it’s usually a good idea to own a mix of investments, which can include domestic and foreign stocks, bonds, certificates of deposit and government securities. Keep in mind, though, that while diversification can help reduce the impact of market volatility, it can’t guarantee profits or protect against losses in a declining market.
Trying to “time” the market
“Buy low and sell high” might be the original piece of investment advice, but it’s pretty hard to follow — because no one can really predict when an investment will reach “low” or “high” points. Also, trying to “time” the market in this way can lead to bad decisions, such as selling investments whose price has dropped, even if these same investments still have good business fundamentals and strong prospects.
Not understanding what you’re investing in
If you don’t know the nature of investments when you buy them, you could set yourself up for unpleasant surprises. For example, some companies, by the very nature of their business and the type of industry they’re in, may consistently pay dividends to their investors even though their stock prices may only show relatively modest price gains over time. If you bought shares of this stock, thinking it had the potential to achieve quite substantial appreciation, you might end up disappointed.
Making the wrong comparisons
You’re no doubt familiar with some of the most well-known investment benchmarks — the S&P 500, Dow Jones Industrial Average and the Nasdaq Composite. But it might be counterproductive to compare your results against these indexes. If you have a diversified portfolio, you’ll own an array of investments that won’t fit into any single index or benchmark, so you won’t get an apples-to-apples comparison. You’re better off comparing your portfolio’s performance against the only benchmark that really matters — the progress you need to make to help achieve your goals.
Investing will always have its challenges — but you can help make it easier on yourself by staying away from as many mistakes as possible.
Neal Logan is an Edward Jones financial advisor who can be reached at neal.logan@edwardjones.com. This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
Joe Lawson recently joined Community Bank of Oelwein as commercial lender and information technology officer. A banker for 12 years, Joe has a technical degree in computer programming and applications.
“We are excited to have Joe join our Community Bank of Oelwein team,” said Jim Kullmer, president and chief executive officer of Community Bank of Oelwein. “He is an experienced banker who is well-qualified to assist business customers with all aspects of their operation.”
Outside the bank, Lawson is involved with Antioch Christian Church, Elkader Sweet Corn Days, and as an Oelwein Huskies youth blast ball coach. Lawson recently joined the Oelwein Downtown Development Committee and will always donate his time when needed.
Joe’s wife, Ashley, owns an Oelwein business, Financial Visions, an accounting, payroll service, and small business consulting company. They have two children.
Organized in 1998, Community Bank of Oelwein is the only locally owned bank chartered in Oelwein and is celebrating its 25th anniversary. The bank recently received the Best-of-the-Best Award from Community Bankers of Iowa. This award honors the Iowa community bank that showed excellence in giving back to their local community.
Decades ago, Dwight D. Eisenhower quipped, “Plans are nothing, planning is everything”. He was speaking of the ebb and flow of conducting military campaigns. The plans were the overall strategy or goal of the war. He knew he required a strategic plan. However, real events interrupt simple strategy, making tactics necessary. Tactics are applied to the day-to-day surprises, the small pitch battles and hand to hand combat necessary to implement a war strategy. It can get ugly, and you ought to be ready to actively adjust your “plans” to the current situation. Adjusting on the go is tactical planning. Wording this differently, former world heavyweight boxing champion Mike Tyson once said, “Everyone has a plan until they get punched in the mouth.”
Eisenhower’s and Tyson’s maxims might be advantageously applied to commercial real estate financing for the foreseeable future. Many investors that financed commercial real estate properties at less than 5% had callow aspirations and an optimistic strategy. Enjoy low interest rates forever and reap the benefits of relatively easy building of equity with generous cash flow. Now they may be fervently checking the time on their personal Doomsday Clock. It’s a year, or two or three, from midnight, when the balloon notes come calling. It may be time for a new tactic or two.
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Why are commercial real estate loans in such jeopardy as compared to single-family, owner-occupied residential loans? If you recall the subprime lending crisis, you will have a hint. What happened then? The federal government decided that the American dream of owning your own house was more an American right. So, they politicked the lending standards. Suddenly, forget the commonsense idea of a sizable down payment coupled with a good credit history to qualify for a hard-earned loan. Instead of a 10% to 20% down payment, far less was promoted. Instead of a solid credit history, iffy was acceptable. And the interest rates? Below prime rate. In the real world, prime rate is given to blue-chip clients for blue-chip deals. A below-prime rate should be rare, when the risk of loss to the lender is essentially nonexistent. Almost fully leveraged loans, given to people with little credit history, should be at a high interest rate or not done at all, certainly not at a subprime rate.
But that wasn’t the kicker. These loans had adjustable rates at far below the prime lending rate and were often interest-only payments. After a couple of years, the interest rates on those loans would go to a real market rate, not the sub-market rate. The loans would also be amortized, spiking principal and interest payments just above the boiling point. In many cases, the renewal payments more than doubled the original subprime-rate, interest-only payments. Borrowers bailed on their loans and foreclosures were at a record pace. Eventually nearly five million homes were foreclosed upon. Housing inventory precipitously rose. Home values cratered. The Great Recession, caused by government loan regulators’ sloppiness and greedy after-market grifters, began. It was ugly and unnecessary.
Nowadays you will discover most residential loans are at fixed rates with home buyers locked in, safely ensconced with long-term low interest rate loans. In a twist of fate, if you secured a fixed rate loan several years ago, your loan is currently subprime compared to the current rates. Life’s vicissitudes.
This is where recent commercial loans mimic past subprime residential loans. Many, if not most, commercial loans for investors have fixed rates of three to five years. They are then adjusted to current market rates. If you secured a loan at 3.25%, the prime lending rate in March 2020, you should expect a significant increase soon. Right now, the prime rate is at 8.5%. This kind of rate increase can flatten a real estate investment.
There is also a domino effect with higher interest rates. Capitalization rates, a popular but prosaic way to calculate the return of an investment, reflect the cost of money, and have risen. Higher cap rates have an inverse relationship with investment real estate values. In other words, values go down when cap rates go up.
Residential loan paybacks relied strictly on the homeowner’s ability to make the payment. As stated earlier, many did not actually qualify to be borrowing in the first place. When it became difficult or impossible to pay, the borrower had nowhere to turn. Most commercial borrowers have both credit and assets. They may also have a solid tenant under lease that pays enough rent to cover the loan payment.
What tactical move should an investor make when his borrowing rate doubles and his dual strategy for building equity and enjoying cash flow is threatened? He has options. Longer loan amortization, adding cash to the investment to lower the indebtedness, reducing or eliminating cash flow, or selling and getting out of the investment are a few of the choices. The most important point today is not to wait until you have a problem. Anticipate future challenges, plan ahead and determine your tactics in advance.
It remains to be seen how this will all work out for commercial real estate. Commercial investors are generally knowledgeable and sophisticated about financial matters. However, it may come down to who can tactically adjust after taking a punch to the face when their loans come due.
Randy Reid, co-founder of Reid Peevey Commercial Real Estate, has nearly 40 years of property experience in Waco and dozens of Texas cities. He is a member of the Tribune-Herald Board of Contributors.