“That’s Good to Know” – Quick Reads on 3 Financial Topics
It’s been said that some tweets ought to be blogs, some blogs should be white papers, some white papers books, some books white papers, some white papers blogs, and some blogs ought to be tweets. While there is helpful information to know, it doesn’t always warrant, in our case, a full blog. So, occasionally, I going to post this “That’s Good to Know” series with financial data that might be applicable to your situation. Today, I’ll briefly describe three current issues.
Are we in a recession?
Technically no – one hasn’t officially been declared. Is one coming? Most likely, but the government has done a good job pushing it off and may continue to do so with the 2024 election season already starting. But a recession is most likely coming next year with difficult times ahead. Inflation will continue to be a problem even though prices are climbing at a slower rate. We currently have “dis-inflation,” where the pace of price-increase begins to slow, as opposed to “deflation,” where prices go negative. It’s the necessities of life – food, energy, and health care – where these increases are felt the most. This rise in prices may force the Federal Reserve to raise interest rates yet again. If wages catch up to prices, this price level will soon become the “norm.” Last month’s retail sales numbers came in higher than expected,[i] much to the delight of some. But more consumer spending doesn’t mean more buying; it just costs more to get the same amount of goods.
Current Housing Prices
Housing prices must come down. At the time of this article, national average 30-year mortgage rates are just over 8%,[ii] thus becoming unaffordable for the average American for 99% of the nation’s counties[iii] by adding hundreds of dollars per month to a potential house payment. When rates were at 3% just a few years ago, there were a dozen people trying to buy the same house. That’s not the case today. Yes, all real estate is local and house prices in your neighbor may still be strong. But the trendline is pointing down and one can’t think their house is currently worth what it was 2 years ago. Folks are only selling if they must, and buyers are limited. It’s simply an issue of supply and demand. Hence, housing prices must come down.
Roth IRA Conversions
As the year draws to a close, this is a great time to consider converting IRA dollars to your Roth IRA. Doing so helps satisfy the annual Required Minimum Distribution. It also puts future appreciation of assets, that might currently be down in value, in an account in which you and/or your heirs most likely won’t pay any taxes. Additionally, if tax rates increase in the future, you will have paid the conversion taxes at a lower rate now instead of at a higher rate later. (Tax rates will probably increase as the Trump Tax Cuts are set to expire in 2025, unless re-ratified, and with the government always needing more revenue.) By converting those dollars now, you can pay the income tax at your tax rate instead of IRA beneficiaries in a higher tax bracket. And there is no limit to IRA dollars you can convert; you probably just don’t want to creep into the next tax bracket by doing so. Rather than withholding the necessary taxes from the conversion, it’s best to take them out of a non-retirement account (e.g., your checking account) instead of making it part of the conversion as it then maximizes the conversion. Check with your advisor or accountant if this would be a wise strategy for you.
There are currently plenty of economic headwinds for the average American: inflation, unemployment, rising mortgage and/or interest rates, credit card debt topping a trillion dollars with interest rates at 25-30%, and loan defaults just to name some. It’s a good time to assess your own financial situation to see how you’ll weather any upcoming “storms.” But there are also hidden opportunities with the economic reports. Getting good information is crucial and working with competent advisors that serve you well is also necessary. It is our desire to help you make good decisions so that you can have clarity, security, and confidence in your financial future.
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[i] https://www.foxbusiness.com/economy/retail-sales-september-2023
[ii] https://www.bankrate.com/mortgages/30-year-mortgage-rates/
[iii] https://www.attomdata.com/news/market-trends/home-sales-prices/attom-q3-2023-u-s-home-affordability-report/
