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Another way of looking at inflation

Last week I wrote about being a survivor of inflation in the 80s.  I did survive but did not get through it unscathed. I found this tidbit on the National Association of Realtor’s website:

“Inflation accelerated to 8.5% in March,1 the strongest pace in 40 years.2 With inflation running this high, the average consumer is spending $500 more compared to one year ago, or $6,132 annually.3 The higher spending on other consumer items means that the consumer will have less income to spend on a mortgage payment and will be looking for a home that is about $40,000 cheaper.”

I think this was written a day or so before 30-year mortgage rates went up to 5% which caused about $400 increase in monthly mortgage payment for a median-priced home. That means buyers should reduce their spending by another $4,800.

Minnesota Property Tax refund

The deadline for filing for a property tax refund is August 15th, 2022. I want to get that out of the way so no one gets too stressed out over it.

The refund is partial and it is mostly based on income. If your income is too high you won’t qualify The process isn’t intuitive and I think there are people who don’t realize there is a refund for homeowners and renters but it has to be applied for.

Go to the Minnesota Department of revenue for forms and instructions. There are other programs too, but you need to first file a state income tax return. There are forms on the site and online filing. Just don’t forget to do it because if you do you won’t get a refund.

One strategy is to fill out the paperwork after your income taxes are done and mail it in. Property tax statements are available on your county website.

Buying the wrong house

I keep reading these articles about how buying a house is a bad investment or that buying a house is a mistake.

In general buying, a house isn’t a mistake. We all need a place to live and when we own we can build equity. It is even possible to own a house long enough to pay off the mortgage. Mortgages generally don’t increase over time and are a hedge against inflation. Homeowners can count on taxes and insurance costs going up every year.

Buying a house isn’t a mistake but buying the wrong one is. Usually, the wrong house is a house that is too expensive and is in a neighborhood where everything is expensive. Too expensive is relative to income.

I have known people who have spent most of their income on that perfect house. As a result, they haven’t been able to afford home repairs or furniture. We call it being house poor.

Being house poor can have a huge negative impact on a family. Ideally, we shouldn’t spend more than 30% of our income on housing. Less than 30% is even better. Take other payments into consideration like student loans, credit cards, and car payments before making any decisions. Sometimes it makes sense to pay off some debt before buying a house.

Renting can be a great option for people who don’t want to be tied down. People who rent and who have extra money can invest it in all sorts of things especially if they can spend less than 30% of their income on housing.

February 2022 home sales for Minnesota

The numbers for February are in for home sales in Minnesota. According to Minnesota Realtors:

“Shrinking inventory and increasing prices pushed closed sales down 12.9% over the previous February. New listings were down 8.5% compared to last year, with just 5,801 homes added to the market.

Despite this, consumer demand remained high, with the median sales price rising 7.8% to $304,500, and the average price hitting $353,409, up 10.3% over last year.

Sellers were receiving 99.7% of their asking price as the statewide supply of homes plummeted 21% to just 6,606 units.

As inflation nudged interest rates up to 4.45% for a 30-year fixed-rate mortgage, the affordability index—which measures whether an average family earns enough to qualify for a loan on a typical home—sank 11.6% over last year.”

To summarize the number of homes for sale is very low because fewer people are selling their houses which continues to drive up prices because the demand for housing is very high. At the same time, higher interest rates and inflation helped to make homes less affordable.

Infographic MN home sales
Minnesota home sales for February 2022 from MN Realtors

Realtors did not resign

We keep reading about the great resignation. People quit their jobs in record numbers during the pandemic. Some folks retired early and others are taking some time off. Some got new jobs and others started businesses. Some became real estate agents.

There was no great resignation among real estate salespeople. Retirement isn’t really a thing for real estate agents who have the option of taking time off or working fewer hours as they get older.

Nationwide there are more Realtors than there are homes for sale. That is likely true statewide here in Minnesota but I don’t have a total for how many houses are on the market. Not all real estate agents are Realtors and not all Realtors sell houses.

When I look back through the data we had the highest number of Realtors in Minnesota in 2006, at 25,429. We also had the highest number of home sales that year as far as I can tell. Currently, there are about 22,331 Realtors in Minnesota.

Graph of how many realtors in Minnesota
Minnesota Realtors

People are attracted to real estate sales during times when there are fewer jobs. From what I can see there are plenty of jobs right now. It isn’t hard to get a real estate license and right now homes are selling quickly. The biggest challenge right now is finding people who want to sell a house.

The data used to make the chart came from a report from the National Association of Realtors. National membership peaked last year at 1,568,556 and is 1,522,801 as last reported at the end of February 2022, which is almost twice as many members as there were when I joined 20 years ago. There were 6.1 million home sales in 2021.