An Economic Perspective: Housing on the Mend with Little Sign of Concern

 Housing, as an industry, during the last down cycle beginning in 2007 went through the mother of all housing bear markets. We all know the problems that relaxed lending standards and cheap money caused. Many are wondering if it will happen again.

New housing permits and housing starts are moving strongly upward again (as shown below). But it took a while to work through the overhead supply that was sitting on the marketplace. In 2007, there were 4.3 million homes on the market in the US.  That number has dropped to 2.3 million homes over the last 6 years.

The US economy requires about 1.4 million new units a year for:

  1. New home owners (demographics)
  2. Demolitions (replacement of old homes) 

But only about 900,000 new homes are being built annually.  We are continuing to cut through that supply in the market place.  At this rate there will not be a home left to purchase in America in about 5 years.

So, I would say that we are already at what historically looks like a tight supply market (which usually impact prices). As shown on the “Home Prices” chart below, we are seeing that as prices go up all across the country.  Over the last 12 months prices have increased some 20% nationally according to the Case-Shiller index.

Furthermore take into consideration the still encouraging “affordability index” which indicates that it’s still cheaper to buy than rent (as shown above). We believe All signs indicate we have a bull market in housing underway without the same ominous signs we saw at the end of the last housing bull market.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information contained in this report does not purport to be a complete description of the markets or developments referred to in this material, and is not a complete summary or statement of all available data necessary for making an investment decision, and does not constitute a recommendation.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Past performance may not be indicative of future results.  Be sure to contact a qualified professional regarding your particular situation before making an investment decision.

Financial planning through the generations

 Cross-generational relationship building is part of the Center for Financial Planning’s commitment to address the planning needs of multiple generations of the families we serve. “It’s so important to reach these younger generations and help them get started in the right direction,” partner Matt Chope explained in a recent interview. Matt’s interview for Raymond James’ AudioFile October segment was intended to educate financial planning professionals, but his message is important for clients as well.

Matt discussed how Center planners share the financial planning process with clients’ children and grandchildren. “I find that if I ask the right question, our clients’ want their children and grandchildren to have a better start in financial planning then they did.” According to Matt, that starts with having the kids and/or grandkids sit down with a financial planner when they are in their 20s or 30s.  “We believe financial planning has the power that can change lives and making good financial decisions is just as important in your 20s as it is later on in life.” 

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Is Too Much Success a Penalty at Tax Time?

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Many investors have been so successful they may face a potentially hefty tax bill for 2013.  This bull market we are experiencing in the U.S. has had such strong legs for a long period of time many investors have few, if any, capital losses to harvest to help offset the gains they have accumulated in their equity investments. In some ways this is a great problem to have. 

Tax Increases

This year there were a couple of noteworthy tax increases to keep in mind.  The maximum tax rate on capital gains has increased from 15% to 20%.  Taxpayers with taxable income north of $400,000 ($450,000 for couples) will be affected by this increase.  There is also the new Medicare investment income “surtax” affecting taxpayers with modified adjusted gross income over $200,000 ($250,000 for couples).  This tax is an additional 3.8% on investment income (interest, capital gains, dividends etc.).

Look for Bond Losses

Some taxpayers may still have tax losses from 2008-2009 to help offset gains, but for many these have run out during the successful run the markets have enjoyed for the past 4 ½ years.  One place to look for some losses this year may be in the bond portion of your portfolio (if applicable).  There may be an opportunity to swap to a similar investment for a short period of time, at least 31 days, to harvest those losses to help offset other gains you may have. 

Harvesting Losses

Make sure you are reviewing your portfolio throughout the year for tax losses to harvest.  Bond losses were at their peak during late summer and into the fall, but if you wait until December to harvest those losses, they could be much diminished from what they were.  The end of the year is rarely the best time of the year to harvest tax losses.  Personal circumstances vary widely so it is critical to work with your tax professional and financial advisor today to prepare for the risk of higher taxes in your future.

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  You should discuss any tax or legal matters with the appropriate professional.

Opportunity to Participate in Research

 Do you have an interest in academic research?  Is participating in a research study on your bucket list?  If you answered “yes” to either of these questions, we have an opportunity for you.

The Center for Financial Planning is partnering with Dr. Peter Lichtenberg, a national expert on older adults and Director of the Wayne State University Institute of Gerontology. Dr. Lichtenberg has created a new rating scale for financial and other professionals to measure financial capacity in making financial decisions, and he is conducting a study to test his rating scale.  There are two parts to the study; a brief interview and a 60-90 minute session with Dr. Lichtenberg. Participants will receive $40 for their time.

To be eligible to participate, you must be:

  • Age 60 or older
  • Currently contemplating or have made a major financial decision in the last 6 months (i.e. a major purchase, large investment or change in estate plan or beneficiaries).      

Help us to understand financial decisions older adults make so we can help prevent financial exploitation in others!  Contact Sandy Adams at The Center if you have questions or are interested in participating in this unique research opportunity.

The Center has partnered with the IOG for many years to provide both financial and volunteer support, with Sandy Adams serving on the IOG’s Board of Visitor’s for the last two years.  For more information about the WSU Institute of Gerontology’s ongoing research, education and outreach efforts, go to www.iog.wayne.edu.

Raymond James is not affiliated with, and does not endorse, the services offered by Dr. Peter Lichtenberg or Wayne State University Institute of Gerontology.

"I'm Going to Sleep Until I Wake Up"

 

We’re saying “See you soon!” (never goodbye) to our Bookkeeper/Office Manager Betsey Schrock. She joined our team in 2005 and now, as she prepares to leave before Thanksgiving, she takes a look back at how it all started.

At the age of 55, I was 30 years into ownership of a mental health clinic and my sons were about to leave home for college. I wanted to put them first and find a job with less responsibility, fewer hours, and more flexibility.

As any good client of the Center does, I consulted with my Planner regarding possible options to consider.  My husband and I had been clients of the Center for 12 years already, but I never expected to be offered a job as a part-time receptionist. I jumped at the suggestion!  It was like, I already know the people, I know the “corporate culture,” and the job would meet my needs.  How lucky could I be?

What started out as my part-time, short-term job, turned into a 10-year, second chapter in my career. Over the years, I picked up additional duties, such as accounts payable, receiving and processing client Annual fees, preparing financial statements, and other duties normally performed by an office manager.  I loved every minute of it.

So, I’m retiring (for real this time) just before Thanksgiving. And on my first day of retirement, I’m going to sleep until I wake up—no alarm will be set.  Then I will go to my local YMCA to workout.  But I won’t be on a clock--I will be able to spend a few more minutes with my work-out friends, catching up on family, redecorating, travel plans or whatever else is going on.  And, of course, I will finally get to all those ‘projects’ around the house that have been piling up over the years.

Speaking of travel plans, I will be doing some of that, too.  My husband Larry and I purchased a used Class A motor home this past summer, in anticipation of my retirement.  Larry still works as an Auto Show Manager for Ford Motor Company, but that is very part-time.  We made several trips this past summer but hope to spend even more time exploring the continental US, beginning next spring.

I will definitely miss the challenges I encountered with my work, though I hope to find something in the non-profit world to fill that void.  I will also miss the people; the true team effort that is in place at The Center. I will miss seeing our value of a “Balanced Lifestyle” at work—where there truly is an emphasis on a healthy workplace and a healthy life outside the workplace.

For those of you who are fellow clients of The Center, I hope to see you in the reception area, the halls of The Center, or at an upcoming client event—where we can compare notes about life and how wonderful it is!

Oil Trends Could Free U.S.

 Have you noticed the price at the pump lately? The cost of gas has gone down and we very well could be at an energy cost plateau for some time.  This stability in energy prices removes one of the many potential shocks that can combat the economic system.

According to the Energy Information Administration, the United States will consume total of 7 billion barrels a year (22 Million barrels a day) -- about 22% of total world petroleum consumption -- in 2013. An analyst that I spoke with recently, who has spent his entire career of over 40 years in the energy space, believes that America could be energy independent by 2020 and prices could remain fairly stable until 2040.  But there are so many moving parts it’s really too difficult to tell exactly.   

On the supply side of the equation, at current market prices the US (in blue below) has just become the second largest global producer surpassing Russia (tracked in brown) for total liquid fuel production in the world.

Consider some other positive outcomes:

  1. Chemical plants are being built in the US again for the first time in 25 years because of oil shale.  They are building them with cheap financing, cheap energy and cheap labor right near the shale. US Chemical companies are the low cost producers in the world now. 
  2. The International Energy Agency said recently that the US is on track to becoming the leading global producer within the next decade.  
  3. Demand has waned as well due to higher prices and efficiencies as people grow more conscientious.
  4. The best outcome of all would be if the US becomes less dependent on OPEC and their “Oil Weapon” which has been dangled ominously over us for 3 decades.  We very well could be in greater control of our supply shocks for a decade or two, maybe much longer if we use this time to develop alternative energy sources that could sustain us after the shale runs out.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information contained in this report does not purport to be a complete description of the markets or developments referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of Raymond James.  Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors.

Curtain Call

 The Center's Team enjoys sharing their knowledge with the press to help stories come to life, share facts and bring important topics to the forefront.  We are also honored when we are recognized by media and publications for our work and service to our profession. Here's what's new:

Center Recognized as one of Michigan's Healthiest Employers

The Center was recognized as one of Michigan’s Healthiest Employers for the second consecutive year.  Honorees were chosen from employers across Michigan whose policies and programs promote a healthy workforce. The Center took honors in the Metro Detroit Region competing with companies whose workforce size is between 5 and 99 employees.

The project was sponsored by Priority Health; data was collected by Indianapolis-based Healthiest Employer LLC. Crain's Detroit Business and MiBiz produced this promotional supplement as media sponsors of the project.

Energy's Shock Absorbers to the Economy

 Know much about the natural gas trapped in shale? You don’t need to, but the abundance of this natural resource may be one of the things our economy needs. The US economy could very well have shock absorbers for a while.  These colored areas on the map below are energy resources that could lead to our energy independence for decades to come.

None of us at The Center are environmentalist, geologist or oil experts; we are also are not economists.  But we’ve been doing our homework on shale as we try to understand what is going on in the economy. With oil prices at much higher levels than most of history, shale gas can allow for a less conventional technology to be used to recover energy. 

Horizontal drilling and hydrofracking technology breaks open shale rock by pumping high-pressure fluids into the ground, making shale gas abundantly accessible. According to some experts, the United States alone has over a 100-year supply of this unconventional energy source.

Remember all of the buzz about running out of natural resources on the planet? Just a decade ago we were consumed by the fact that we would be out of energy to move us around the planet and heat our homes in the not too distant future.  But when you move the dial in price up a few notches all kinds of things came on line meeting demand with new supply.     

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information contained in this report does not purport to be a complete description of the markets or developments referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Investing in the energy sector involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors.

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