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Will a Looming Appraiser Shortage Impact You?

The current shortage of real estate appraisers in many parts of the U.S. means real estate deals may take longer to close.

According to the Appraisal Institute, the number of expert property evaluators has fallen by 20% since 2007.  And its predicted there will be another 3% decline over the next 10 years. This may lead to less accurate appraisals by appraisers that need to cover unfamiliar states or localities.

 

What you should do:

  1. Ask about an appraiser’s experience in your area.
  2. Never agree to an automated appraisal without an expert actually looking at the property. Software programs generate property values on comparable properties rather than by eyes-on evaluation.
  3. Ask your lender if there is a delay in your area. Is a 30-, 45-, or 60-day interest rate lock in sufficient and how much will it cost to get an extension if needed?
  4. If selling a home, ask your real estate agent how a delay will affect the purchase of a new home that is contingent on the sale of your old home first.

Before You Become Widowed – Will You Struggle Financially?

Do you think about what will happen if your spouse passes away and you become widowed? Do you think about what will happen to your spouse if you pass away? Ask each other the question, what would I struggle with financially if I were to become widowed?

The financial impact of becoming widowed can be as overwhelming as the emotional impact. Frequently, there is a decline in standard of living for the surviving spouse. Household income can decline because of changes in Social Security benefits and the potential loss of the deceased spouse’s retirement income.

On the other side of that equation is recognizing that the cost of living as an individual won’t decline nearly as much; things like mortgage payments and monthly living expenses will remain the same.

Asking each other the big question, identifies where you might need help. It is also helpful for each partner to make an “After I’m gone” file. This file should include important financial documents, like retirement account plans and banking information, as well as any insurance documents, wills, powers of attorney, etc. And be sure passwords to those accounts are included. Collecting documents and trying to understand what you’re looking at while mourning is extremely challenging. Preparing the information and having hard conversations before  needing the information will help.

If your partner handles the finances, ask them to walk you through everything. You will want to:

  1. Make sure you have a complete understanding of your partner’s workplace retirement/pension plan. If you or your spouse do not have a retirement account large enough to live on, do not waive the survivor’s annuity. Once the one holding the pension dies, the pension benefit payments will stop.
  2. Know who to contact if you are entitled to other employer plans like life insurance and death benefits. Since different rules apply to state, local and federal government pension plan payouts be sure to contact their HR department and find out as much information about their plan as you can. You want to know whether rules require lump sum payouts or whether they can be rolled over to an IRA.
  3. Know your Social Security benefit options. Social Security will not pay you two benefits. If you are over age 60 and have been married at least 9 months, you can receive between 71 and 100 percent of your spouse’s Social Security benefit as a widow/er. However, if you are collecting a benefit based on your own earnings, you may receive no additional benefit. Social Security will pay the highest one for which you are eligible. (Tip: consider delaying when you and/or your spouse file for benefits. This will result in a larger survivor’s benefit).

 

There are two great resources for older adults that are especially helpful for widows and widowers who are having difficulty with their finances or other challenging aspects of widowhood:

  • Resources

  • The Eldercare Locator is a nationwide service from the Department of Health and Human Services that connects older adults with a variety of local, trusted services in their community. Call 1-800-677-1116 or visit gov.
  • Benefits Check Up is a free service of the National Council on Aging that allows you to quickly find benefit programs that could help pay for medications, health care, food, utilities and more. Visit https://www.benefitscheckup.org.

Perspective on Today’s Market Events

It looks like the U.S. stock market will finally get something that happens, on average, about once a year: a 10+% percent drop—the definition of a market correction.  The last time this happened was a whopper—the Great Recession drop that caused U.S. stocks to drop more than 50%–so most people today probably think corrections are catastrophic.  They aren’t.  More typically, they last anywhere from 20 trading days (the 1997 correction, down 10.8%) to 104 days (the 2002-2003 correction, down 14.7%).  Corrections are unnerving, but they’re a healthy part of the economy—for a couple of reasons.

Reason #1: Because corrections happen so frequently and are so unnerving to the average investor, they “force” the stock market to be more generous than alternative investments.  People buy stocks at earnings multiples which are designed to generate average future returns considerably higher than, say, cash or municipal bonds—and investors require that “risk premium” (which is what economists call it) to get on that ride.  If you’re going to take more risk, you should expect at least the opportunity to get considerably more reward.

Reason #2: The stock market roller coaster is too unsettling for some investors, who sell when they experience a market lurch.  This gives long-term investors a valuable—and frequent—opportunity to buy stocks on sale.  That, in turn, lowers the average cost of the stocks in your portfolio, which can be a boost to your long-term returns.

The current market downturn relates directly to the first reason, where you can see that bonds and stocks are always competing with each other.  Monday’s 4.1% decline in the S&P 500 coincided with an equally-remarkable rise in the yields on U.S. Treasury bonds.  Treasuries with a 10-year maturity are now providing yields of 2.85%–hardly generous, but well above the record lows that investors were getting just 18 months ago.  People who believe they can get a decent, relatively risk-free return from bond investments are tempted to abandon the bumpy ride provided by stocks for a smoother course that involves clipping coupons.  Bond rates go up and the very delicate supply/demand balance shifts, at least temporarily, in their direction, and you have the recipe for a stock market correction.

This provides us all with the opportunity to do an interesting exercise.  It’s possible that the markets will drop further—perhaps even, as we saw during the Great Recession, much further.  Or, as is more often the case, they may rebound after giving us a correction that stops short of a 20% downturn.  The rebound could happen as early as tomorrow or some weeks or months from now as the correction plays out.

Once it’s over, no matter how long or hard the fall, you will hear people say that they predicted the extent of the drop.  So now is a good time to ask yourself: do I know what’s going to happen tomorrow?  Or next week?  Or next month?  Is this a good time to buy or sell?  Does anybody seem to have a handle on what’s going to happen in the future?

Record your prediction, and any predictions you happen to run across, and pull them out a month or two from now.

Chances are, you’re like the rest of us.  Whatever happens will come as a surprise, and then look blindingly obvious in hindsight.  All we know is what has happened in the past.  Today’s market drop is nothing more than a data point on a chart that doesn’t, alas, extend into the future.

Sources:

https://www.fool.com/knowledge-center/6-things-you-should-know-about-a-stock-market-corr.aspx

https://www.yardeni.com/pub/sp500corrbear.pdf

https://finance.yahoo.com/news/stocks-getting-smashed-143950261.html

 

4th Quarter Market Update and Commentary

Here we are one month into 2018 and the market is still bullish, despite a pull back today. First, let’s look back at the 4th quarter and 2017 the year.

Market shatters records

2017 shattered many records, but not the ones most folks think of.  The records left shattered in many pieces in 2017 were all risk-related.  Specifically, 2017 was the year that risk forgot.  Metaphorically, this was the year in which a blindfolded driver could drive across town. . .and not hit anyone or anything along the way.

Here is just a few of the shattered risk-related record for the Dow and S&P.

-Dow Industrials greatest number of days in history without a 1% move (72).

-Dow Industrials closed at new all-time highs a record 71 times in 2017.

-S&P 500 Total return Index gained in every month of 2017 and ended the year with record 14 consecutive up months.

-S&P 500 ended the year with record 289 consecutive days without a 3% pullback.

We could go on and on, but you get the idea.

The 4th quarter of 2017 continued the strong run by the equity markets.  The S&P 500 gained 6.64%, the NASDAQ gained 6.27%, International Developed Markets were at 4.23% and Emerging Market Stocks were especially strong at 7.44%.

For the full year, the S&P 500 returned 19.42%, the NASDAQ gained 28.24%, International Developed Markets returned 24.21% and Emerging Market Stocks were at 37.28%.

On the Fixed Income side, the Fed raised interest rates once again by .25%, elevating the U.S. Federal Funds rate range to 1.25%-1.50%.  The Fed has also forecasted another three rate hikes in 2018 and two hikes in 2019.

In summary, this Bull market is long in the tooth and if we look at the Cyclically Adjusted Price to Earnings (CAPE) ratio at 32.46 then this market is overvalued.  With that said, at least in the short run this market is also charging down the tracks with no sign of stopping.

So, what do you do?

  1. Focus on your own personal objectives. It is always wise to create realistic time horizons and return expectations for your own personal situation and to adjust your portfolio accordingly.
  2. Remember to compare your portfolio with portfolios of the same asset blend. Although stocks are up your portfolio is diversified and usually holds a percentage in bonds.
  3. Review your portfolio and discuss any concerns with us. Markets are strong, and times are good which makes THIS the time to review your portfolio and align with your specific goals.

 

World Stock Market Performance

see link above for graph

 

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