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How to Successfully Navigate the Housing Market with Financial Advisers

This January marks Inman’s fifth annual Agent Appreciation Month, which culminates at Inman Connect New York in a celebration of agents at the end of January. Plus, we’re rolling out the coveted Inman Power Player...

How to work with financial advisers to help clients navigate the market This January marks Inman’s fifth annual Agent Appreciation Month, which culminates at Inman Connect New York in a celebration of agents at the end of January. Plus, we’re rolling out the coveted Inman Power Player Awards, as well as the New York Power Brokers and MLS Innovators awards.

The soaring home prices and skyrocketing mortgage rates have created unprecedented challenges in today's housing market. Despite these obstacles, many individuals still believe in the long-term value of owning a home and recognize its potential to secure their financial future.

In this article, we will explore the significant affordability issues in today's housing market and discuss how financial advisers and real estate agents can work together to help individuals navigate these challenges successfully.

The Affordability Crisis

Zillow's recent analysis reveals the severity of the housing affordability crisis. Their Breakeven Horizon gauge provides insight into when it becomes financially advantageous to buy instead of renting. Shockingly, new homebuyers may need to spend approximately 13.5 years in their homes before breaking even on their investments. Traditionally, this breakeven point would be reached within four to six years.

This prolonged timeline not only impacts homeowners' abilities to build equity but also hampers their decision-making processes. For example, it may hinder job relocations or retirement plans if individuals are hesitant to sell due to potential losses.

Factors Affecting the Breakeven Duration

Several factors influence the time it takes for homeowners to break even on their properties. Mortgage rates, down payment amounts, closing costs, insurance, property taxes, and the annual appreciation rate all play a role in determining the breakeven period. Additionally, the location of the property has a significant impact. High-value metro areas experience shorter breakeven periods, while "affordable" markets with slower growth rates may require over 20 years to reach the breakeven point.

The Role of Financial Advisers

In such a challenging housing market, the expertise of financial advisers becomes invaluable. Here's how they can help:

  1. Financial Planning: Financial advisers can assess an individual's financial situation and long-term goals to determine whether homeownership is viable. They can help clients set realistic expectations and develop a comprehensive financial plan.

  2. Mortgage Strategy: Advisers can guide clients in selecting the right mortgage options and help them navigate the complexities of interest rates, down payments, and closing costs.

  3. Investment Diversification: Sometimes, it may be more financially sound to continue renting and invest the savings in other assets for future growth. Financial advisers can provide insights into diversifying investments to build wealth and achieve financial goals.

  4. Tax Efficiency: Advisers can assist homeowners in optimizing their tax strategies, ensuring they make the most of available deductions and credits.

  5. Property Selection: Financial advisers can help clients identify properties in areas with more favorable growth rates, reducing the time needed to reach the breakeven point. They can also illustrate the long-term impact of choosing a more or less expensive home.

Expanding Services for Real Estate Agents

Real estate agents can also seize an opportunity amid the challenges of the current housing market by expanding their services. With their deep housing market knowledge, they can consider becoming Investment Advisor Representatives. By offering investment advisory services, they can help clients find the right properties and devise comprehensive investment strategies. This expansion allows real estate agents to provide clients with a holistic approach to wealth building, adapting to the market's changing demands, and strengthening client relationships.

Editor's note: Always check with your supervising broker and local regulatory boards to determine any potential conflicts of interest or regulatory considerations when gaining or exercising a dual license.

Achieving Long-Term Financial Stability

In these uncertain times, the partnership between prospective homeowners, financial advisers, and real estate agents is essential in achieving long-term financial stability and success in the real estate market. Together, they can help individuals make informed decisions, whether it's buying a home, pursuing alternative investments, or building a real estate portfolio. By offering comprehensive services and expert guidance, they play a vital role in helping clients navigate the challenges of the current housing market and work towards their financial goals.

Michael Conticelli, CFS, CDFA, is an Investment Advisor Representative (IAR) and Advisor Development with Interactive Financial Advisors, Inc., an SEC Registered Investment Advisor. Connect with Michael on Linkedin.