April 2025

Tariffs/Investing/Retirement

Source: Fidelity

Tune out short-term volatility

Investing in the stock market can sometimes feel like a roller coaster. Over the long run, however, it has generally traveled in one direction—up. Bouts of short-term volatility are normal, but if you look at the history of the market, they have typically been speed bumps along a path of long-term growth.

When thinking about your invested assets, ask yourself: Do I need that money today or in the near future? If the answer is no, then worrying about the present value of your portfolio may not be very constructive.

“As a long-term investor, there are inevitably going to be periods when your confidence might flag a bit,” says Scott McAdam, an institutional portfolio manager with Strategic Advisers, LLC. “But you need to be thinking about what’s likely to occur in 10 years, not what’s going on today. It doesn’t make sense to allow these short-term events to influence your long-term plan.”

“If you’re worried about market performance over the next few months, you may be inclined to take your money out of the market and wait till things improve,” says McAdam. “But how will you know when to get back in? Historically, this approach has been very unlikely to be successful. It’s difficult, if not impossible to time the market so that you avoid the downside and are able to reinvest at the right moment to catch the upswing.”

2. Consider opportunities for rebalancing

When markets experience a decline, taking the opportunity to adjust your asset allocation may help to mitigate further volatility and could position a portfolio for stronger performance once volatility dissipates.

“When market prices experience significant changes, it can have a big impact on your allocation to the various asset classes,” says McAdam. “Perhaps you decided on a 60% allocation to stocks because you felt that was what best suited your long-term goals. Well, when the market declines, that allocation might be reduced to 55% of your portfolio—it may be wise to adjust your investments to get back to your intended asset mix.”

McAdam notes that this may be an opportunity to sell an asset that has retained its value and use the proceeds from that to invest in something that has experienced a decline and may be more attractive under the circumstances.

When doing so, however, McAdam suggests being mindful of the tax implications. “If you decide to sell an investment that has been performing well,” he says, “be mindful of whether you are selling the tax lots with long-term gains or short-term gains.” Because long-term gains receive a more favorable tax treatment than short-term ones, which lots you sell could make a difference when it comes to your overall tax exposure.

3. Broaden your horizons with international stocks

One way to help build in that layer of preparation is by investing in companies that are based in different parts of the world. Though they come with their own set of risks and volatility, investing in overseas companies could potentially offer growth opportunities and help serve as a way to diversify your portfolio.

International stocks may offer many long-term growth opportunities that are unavailable in the US. Furthermore, exposure to international stocks as part of a hypothetical diversified portfolio has historically led to strong long-term results and lower volatility. Between 1973 and 2023, a balanced stock allocation comprising 70% domestic and 30% international stock delivered similar returns to a 100% domestic stock allocation, but with more modest ups and downs over time.1

“So far this year, US stocks have lagged international stocks, which might come as a surprise given the discussion around tariffs,” says McAdam. Furthermore, international stock valuations have lately been close to their 20-year averages, while domestic stocks have been higher than average. Historically, lower stock valuations have sometimes been associated with above-average returns. Even if domestic stocks were to perform well, the lower valuations on international stocks may potentially offer a different return profile.

Given the potential impact of tariffs and other ongoing geopolitical concerns, investors may want to consider investing assets overseas, particularly in regions like Asia and Latin America, where there are a variety of businesses that may be less affected by these matters.

“Some of the most profitable companies in the world are based outside of the United States,” says McAdam, including many of the top consumer brands and pharmaceutical companies. Restricting yourself to US stocks means potentially missing out on some major components of the global economy.

4. Strike a balance with bonds

Investments that are less correlated with stocks, such as bonds, can help keep your portfolio on an even keel when the markets are choppy. Bonds have historically maintained or even gained value during most periods of stock volatility. “We generally add bonds to a diversified portfolio to provide both income and stability, as they typically experience lower volatility,” says McAdam.

While longer-term bonds are typically more exposed to concerns over shifting policy expectations, shorter-duration bond funds could be an option for investors who are interested in diversifying their assets, as they have historically been less sensitive to uncertainty.

Bonds have also historically been considered a less risky investment compared to keeping your money in cash. “We’ve seen that when bonds are offering yields between 4% and 6%, as they are currently, their forward returns outpace cash over time,” says McAdam.2

5. Remember: It’s a marathon, not a sprint

If you want to improve your chances of reaching your long-term goals, you need to stay focused on the finish line. To do that, you have to work on building your endurance.

Here are some ways you can prepare your portfolio to go the distance:

Think about investing defensively by including more conservative stock investments, high-quality bonds, and alternative investments that are less correlated to the performance of traditional asset classes. This may result in shallower dips in your portfolio when the broader market is in decline.

Take steps to manage your reactions to movements in the market. Understanding why we are prone to react emotionally to market volatility is the first step toward recognizing those feelings and holding them at bay.

Working with a financial professional may provide you with the support necessary to more rationally assess market conditions and determine whether it’s the right time to adjust your strategy. Your professional may also play a role in ensuring that your portfolio is appropriately allocated and diversified over time.

Whatever strategy you choose, you may be best served in the long run by staying in, spreading out, and sticking to your plan.

Knowing your essential living expenses are covered by reliable lifetime income can offer a greater sense of security and help prevent you from making an emotional decision to pull money out of the market at the wrong time. The income annuity removes market risk for the portion you invest, and similar to a pension, annuity income can be received monthly and can feel akin to a paycheck you receive in your working years.

However, as with all financial products, income annuities come with certain tradeoffs, including having no or limited access to assets. For these reasons, Fidelity suggests dedicating a portion—not all—of your assets toward an annuity.

Protection against retiring in a bear market

Consider the hypothetical example of one couple, Jordan and Shawna, who retired in early 2008, just as financial markets were experiencing bouts of volatility. The couple met with their financial advisor prior to retirement and calculated that after Social Security and pension income, they would need $40,000 per year to meet their essential living expenses, with annual increases for inflation.

Because they felt uncomfortable about staying invested through periods of market volatility, Jordan and Shawna decided to invest 30% of their savings in an immediate fixed income annuity, and the rest in a diversified, professionally managed account.

Besides lowered stress, the consistent guaranteed income paid to Jordan and Shawna gave them greater comfort to remain invested through times of volatility. In 2008, one of the toughest years on record for stocks, their investment portfolio lost 30%. However, over the following 2 years, the markets rebounded, with their portfolio balance returning to nearly where it had started in 2008. “In scenarios like this, the annuity is supplying a good chunk of the income for the retiree’s journey so the portfolio balance is less affected by withdrawals and the investors may feel less stress,” explains Malwal. The consistent income allowed Jordan and Shawna to participate in market performance and at times even lower the amount needed from their investment portfolio to meet their essential expenses.

In this educational example, shown in the graphic below, Jordan and Shawna maintained a comfortable and consistent withdrawal rate from their portfolio for the next 15 years, which, in combination with the annuity, allowed them to easily cover their expenses and stay invested through some historically challenging market conditions. “This couple went through the 2008 great financial crisis, 5 bear markets, a global pandemic and recession, and numerous other challenging market events. And they still managed to stay comfortably retired,” says Malwal. “This example shows how having a long-term financial plan and sticking with it can help investors in the long run.”

1. Consider adding some inflation-resistant diversifiers

Though rising inflation may be troubling, investors who already have a well-diversified portfolio of traditional stocks and bonds may already have some degree of protection. That’s because portfolios like these have historically tended to grow even in periods of high inflation. “We still believe that a mix of stocks and bonds can help investors experience growth while managing risk,” says Naveen Malwal, an institutional portfolio manager with Strategic Advisers, LLC.

The average inflation rate since 1980 through 2024 has been 3.2%.

Sources: Bloomberg Finance, L.P., Bureau of Labor Statistics. Past performance is no guarantee of future results. Stocks are represented by the S&P 500® index. Inflation is represented by the 12-month percent change in the Consumer Price Index for All Urban Consumers from 1980 to 2024.

In periods of elevated inflation, Strategic Advisers, LLC takes specific steps within managed client accounts to help provide additional inflation protection, by emphasizing certain investments that have historically done well in inflationary environments. This has included adding diversified commodities, such as energy, industrial metals, precious metals, and agricultural products, as well as international stocks.

In the bond market, Malwal highlights the utility of high-yield bonds. “While these carry more risk than investment-grade debt, the higher yield may allow them to more easily withstand any increases in interest rates that might occur in response to rising inflation.” He also noted that short-term bonds have typically experienced less volatility during periods of higher inflation. “But we may also include some exposure to intermediate- and long-term bonds, as they have historically provided stability within well-diversified portfolios during periods of stock market volatility,” says Malwal

2. Take a close look at your budget

David Peterson, head of Wealth Planning at Fidelity Investments, notes that rising prices tend to have a greater impact on discretionary spending, as consumers are likely to cut back on nonessential expenses. Peterson suggests that such changes in spending can be an important lever in reducing the impact of inflation. “Consider what’s driving inflation,” says Peterson, “and see if you can shift what you’re spending your money on, so it has less of an impact.”

3. Don’t get too comfortable in cash

In times of volatility and uncertainty, it can be tempting to retreat from the market and reallocate some of your assets into a cash position. But in an inflationary environment, holding cash can be counterproductive. “It may feel safe,” says Malwal, “because the number in your account appears to be staying stable. But the longer it sits there, the lower your purchasing power can get.” Additionally, taking money out of the market can have a substantial effect on long-term performance. A hypothetical investor who missed out on just the five best days over the past 35 years (between January 1, 1988 and December 31, 2024) would have reduced their portfolio’s value by 37%.1 “Investors who can take on even just a bit of risk will typically have a better chance of keeping up with, if not passing, the rate of inflation,” says Malwal.

4. Reassess your emergency savings

However, some investors may want to keep more cash on hand in their emergency savings to account for the rising cost of living that comes with inflation. “While it may not be wise to leave a lot of investible assets in cash,” says Peterson, “it’s still important to be prepared for any short-term liquidity needs. When prices are rising, you may want to add to your emergency savings, to help ensure you’re able to cover the costs of an unexpected expense should one arise.”

It’s generally recommended that you set aside enough to cover 3 to 6 months’ worth of essential expenses. If you haven’t taken stock of how much your day-to-day expenses are really costing you, your emergency savings may not be ready when you need it most.

5. Watch out for estate tax liabilities

“In some markets, you may see significant increases in home values,” says Peterson, “and depending on where you live, the increased value of your home could put you over the estate or inheritance tax exemption for your state.”

“It’s important to remember that your house is an asset,” says Peterson. Because you’re not pricing it every day, it may not be top of mind, but it could expose your family to a significant tax bill when it comes time to pass on your estate.” Investors who suddenly find themselves at risk due to increased home values may want to consider estate tax reduction or “freeze” strategies, such as utilizing their annual gift exclusion or moving assets into a trust to get incremental growth out of their estate.

6. Reduce your tax drag

“Taxes are one of the main drags on portfolio performance,” says Peterson. “The more tax-efficient you are, the better off you’re going to be.” By taking advantage of market volatility to engage in tax-loss harvesting and properly locating tax-inefficient investments in the appropriate tax-deferred or tax-exempt accounts, you can potentially lower your overall tax bill, which can help offset the bite of inflation.

The best defense is a good offense

“There’s not a one-size-fits-all answer,” says Peterson. “The best course of action is going to depend on your level of wealth and your stage of life. But having a good, robust financial plan can provide some comfort when the markets seem uncertain.”

“In an inflationary environment, being too defensive or having too much of your assets in short-term investments like cash and CDs may be particularly risky,” says Malwal. “There’s a real risk that being too cautious might result in diminishing the purchasing power of your assets.”

1. Start early

37% of Americans who consider themselves wealthy said that saving from a young age was an essential part of achieving wealth. “We never know when the unexpected will become a reality,” says Rich Compson, head of Wealth Solutions at Fidelity Investments. “The best thing you can do to prepare for that is to start planning as early as possible and engage in conversations with your family.”

If you’re a parent or grandparent, take the time to help your children or grandchildren get comfortable with managing their financial lives. Involving them in your own financial planning and empowering them to take steps to begin their own financial journey could be a beneficial step toward their future financial goals. Over 80% of survey respondents said they would’ve benefited from some financial education at an earlier age, but more than half (56%) say their parents never discussed money with them.

“Planning together as a family is such a personal experience—it’s no surprise that, historically, people have felt uncomfortable about it,” says Compson. “It’s important to start these conversations early to help ensure you’re prepared before things get more complex. Too often, we see families who have waited until a crisis occurs to have these critical discussions. And the result is that the conversations you have and the decisions you make may be more difficult than they might have been otherwise.”

2. Save consistently

Maximizing and optimizing your savings can potentially have a big impact on your long-term financial prospects. 32% of Americans who consider themselves wealthy said that consistently saving a portion of their paycheck helped them reach a level where they were comfortable with their finances.

“Getting a handle on your day-to-day spending and savings is key,” according to Gina Gillespie, Vice President, Financial Consultant, Fidelity Investments. “You should look for any chance to save more. Perhaps you’ve received a bonus or recently exercised some of your some stock options—if you have money on hand, you may be able to take advantage of this opportunity and save in your tax-advantaged accounts. Health savings accounts, if you are eligible, can be beneficial, as they may offer triple tax savings.”2

3. Invest strategically

40% of Americans who consider themselves wealthy attributed their success to investing strategically; that is, making investments that were based on clearly articulated goals and aligned to their personal tolerance for risk. Investing strategically can be a significant factor in wealth accumulation.

Strategic investing begins with a firm understanding of your wants, needs, and concerns. With those elements in mind, you can determine an appropriate asset allocation that gives you enough exposure to risk that you may benefit from long-term, compounding growth, but not so much that you end up deviating from your plan in the face of uncertainty or market volatility.

Investing strategically involves more than just finding the right asset allocation, however. “There are 3 components to managing your assets efficiently,” says Gillespie. “Deferring taxes, managing taxes, and reducing taxes.”

“Using retirement accounts, such as 401(k)s, IRAs, and HSAs, you can potentially defer taxes and help your wealth grow faster by keeping more of it invested,” says Gillespie. “Outside of those accounts, you can manage your exposure to taxes by making strategic decisions about when to buy and sell your investments or by choosing investments that are more tax-efficient. Finally, you can reduce taxes by implementing charitable giving strategies that can benefit the causes you care about and give you the opportunity to deduct those donations from your taxable income.”

It all starts with a plan

Having a financial plan in place can play a big role in helping you apply these lessons to your own finances. 78% of those who have a financial plan say they are confident that they’ve taken the right steps to build and protect their wealth; only about 26% of those who do not have a plan can say the same.

A financial professional may be able to help you build and maintain a plan that works for you. They can work with you to develop and test an investment plan that’s personalized for you and your family. With their knowledge of your financial circumstances and your attitudes toward wealth, they may be able to identify new opportunities to help grow your assets, opportunities that may have not been immediately obvious if you were managing everything yourself. “With a better understanding of you and your family, a professional can work with you to develop a set of financial planning strategies that are well aligned to help meet your needs,” says Gillespie.

However you manage your finances, the important thing is that you’re making an effort to implement these 3 strategies in your own life. “When it comes down to it, this is about protecting your family and preserving their assets,” says Compson. “The conversations you have with your family are an important step toward helping the next generation feel confident and prepared to take on future challenges.”

The tariff announcement made by President Trump last Wednesday sent shockwaves to financial markets across the globe and raised serious concerns that the U.S. economy could fall into a recession in the next 12 months. While the March jobs report released in the same week suggests that the labor market remained solid last month, the decent updates on employment were overshadowed by the tariff turmoil. In his first public speech after the tariff announcement, Federal Reserve Chair Jerome Powell said that the economic fallout from tariffs is likely larger than expected and high inflation could be here to stay. The economic impact is hard to assess at this point and how the situation will play out depends on how long these reciprocal tariffs will stay.

Zillow to bar publicly marketed listings not shared on MLS

Source: Real Estate News

​​In a move designed to “create an even playing field,” listings that are publicly promoted to consumers but not made widely available via the multiple listing services (MLSs) will be barred from Zillow.com starting in May. “Our belief is that, if a listing is going to be marketed to a buyer or a subset of buyers, it really needs to be made available to all buyers,” said Errol Samuelson, Zillow’s chief industry development officer.

Samuelson confirmed that Zillow considers social media, email blasts and even yard signs to be the kind of public marketing that could keep a listing off Zillow forever if that listing is not submitted to an MLS within 24 hours and made widely available to the places buyers search for homes. “It’s really up to the listing agent and their seller to decide how they’re going to market the listing,” he said. “But if they choose to say, for example, ‘I’m only going to market this listing on my own brokerage website,’ there isn’t fair access to all other buyers.”

Tax credit proposed for hardening homes against fires

Source: Los Angeles Times

For his first bill in the U.S. Senate, Adam Schiff (D-Calif.) has joined a Republican colleague to propose a federal tax credit for certain homeowners who retrofit and harden their homes against wildfires and other natural disasters.

Schiff said the bill would help families making less than $300,000 per year protect themselves and their homes by helping them afford retrofits, while also encouraging insurers to cover more homes in vulnerable areas, which have expanded due to climate change. Insurance policies have become increasingly expensive and difficult to secure across California and in other states as the insurance industry has reassessed the growing threat and potential cost of major climate-driven disasters, such as the wildfires that destroyed parts of the Los Angeles region this year.

Trump trade war with China revives recession, bear market fears

Source: Reuters

President Trump’s trade war rattled global markets anew on Thursday as stocks and oil prices sank amid fears China may once again respond in kind with higher tariffs to match the latest levies imposed by the United States.

Battered global markets and anxious global leaders welcomed Wednesday’s reprieve when Trump suddenly decided to freeze most of his hefty new duties for 90 days. But the uncertainty in the meantime extended some of the most volatile trading since the early days of the COVID-19 pandemic. The S&P 500 ended 3.5 percent lower on Thursday, while the Nasdaq dropped 4.3 percent and the Dow Jones Industrial Average was down 2.5 percent. Oil prices fell more than 3 percent. The S&P 500 is down about 15 percent from its peak, and analysts believe stocks are in danger of falling into a bear market due to the uncertainty surrounding tariff policy.

Recession fears ease briefly as jobless claims remain low

Source: MarketWatch

Initial jobless claims rose by 4,000 to 223,000 in the week ended April 5, the Labor Department said today. This gain was in line with expectations of economists surveyed by the Wall Street Journal. So far, jobless claims have remained remarkably steady even as economists identify a rising risk of a recession in the U.S. economy.

When claims, which are a good and timely measure of layoffs, are below 300,000, that is generally seen as representative of a healthy economy. In fact, claims have been below 226,000 for six straight weeks and for 16 of the past 17 weeks. This raises the prospect that the economy could experience negative GDP growth, setting the stage for a recession, while the labor market remains relatively strong.

California’s new law promises to simplify inheriting a home, for some

Source: SF Gate

As of this month, inheriting property just got a little easier in California, but only for a select few. Starting April 1, 2025, a new law significantly expanded the definition of so-called “small estates,” allowing more heirs to bypass the lengthy and expensive probate process if they meet certain qualifications. A primary residence valued at up to $750,000 can now qualify for expedited transfer without going through the full-blown probate process.

The exemption only applies to one property, and it must have been the decedent’s primary residence. Vacation homes, rental properties, and any residence exceeding the $750,000 cap (even if it was a primary residence) must still go through full probate unless already held in a trust or shared title.

Mortgage rates slingshot higher as tariff uncertainty roils market

Source: CNBC

Mortgage rates hit their highest level in over a month this week, reversing course after a period of improvement. The average rate on the 30-year fixed loan jumped 22 basis points Monday and another 3 basis points Tuesday to 6.85 percent, according to Mortgage News Daily. Much like the stock market, the bond market has been on a roller coaster over the last week, and mortgage rates are along for the ride.

Last week the 30-year fixed rate dropped to the lowest level since last October after President Trump announced global tariffs. The announcement sent the stock market plunging and investors rushing to the relative safety of the bond market. As a result, bond yields fell. Mortgage rates loosely follow the yield on the 10-year Treasury bond.

U.S. employers added 151,000 new jobs in February, in line with most expectations, with unemployment coming in at 4.1%. Since December, the U.S. economy has averaged about 200,000 new jobs a month, meaning this report is generally in line with recent trends. Still, the jobs report has been overshadowed by economic uncertainty stemming from the United States’ trade policy. On March 4, the White House announced 25% tariffs on Mexico and Canada, causing the stock market to lurch; later, automakers and goods protected under a 2018 trade agreement were exempted until April 2nd. Dipping mortgage rates have led to a surge in refinance activity so far in 2025, while consumer sentiment towards the housing market declined year-over-year for the first time since 2023, according to Fannie Mae, echoing longstanding concerns in the housing market about affordability and the effects of mortgage rates remaining elevated.

Governor Newsom Extends Protections for LA Firestorm Survivors

Governor Gavin Newsom issued an executive order to maintain protections for renters and homeowners affected by Los Angeles area firestorms. The order extends state price gouging restrictions for rental housing, hotels, and short-term housing, extends support for survivors sheltering in hotels and short-term housing, and prioritizes fire-survivors experiencing homelessness for state-funded housing.

The executive order extends several of Governor Newsom’s executive orders that were set to expire, helping to encourage immediate access to housing and protect tenants from potential exploitation.

Gov. Newsom extends protections for LA firestorm survivors

Source: Office of the Governor

Gov. Gavin Newsom issued an executive order to maintain protections for renters and homeowners affected by Los Angeles area firestorms. The order extends state price gouging restrictions for rental housing, hotels, and short-term housing, and it prioritizes fire survivors experiencing homelessness for state-funded housing. Price gouging protections on rental housing, hotels and motel rates, including prohibitions on evictions of tenants to relist the rental at a higher rate to July 1, 2025, while retaining exemptions for large homes in certain zip codes.

In addition, FEMA has extended the deadline to apply for federal disaster assistance in the wake of the Southern California wildfires to Monday, March 31, 2025. Survivors are encouraged to file insurance claims for damage to their homes, personal property and vehicles before they apply for FEMA assistance. To apply with FEMA, go to www.disasterassistance.gov , use the FEMA app, or call the FEMA helpline at 800-621-3361. Visit a Disaster Recovery Center for help with applications: DRC Locator.

Consumer housing sentiment declines in 2025

Source: MPAMag

Consumer sentiment toward the housing market has declined on a year-over-year basis for the first time since 2023, according to the latest Fannie Mae home Purchase Sentiment Index (HPSI). The index fell by 1.8 points in February to 71.6, reflecting growing pessimism about mortgage rates and personal finance situations.

The percentage of consumers who believe mortgage rates will decline over the next year fell from 35 percent to 30 percent, while those expecting an increase in rates rose from 32 percent to 33 percent. Additionally, concerns over personal finances contributed to the drop in sentiment, as more consumers expressed worries about potential job losses and reported lower household income compared to the previous year.

Can fire-gutted suburbs rebuild safer? What experts say

Source: Yahoo! News

The wildfires that devastated Southern California, reducing entire neighborhoods to checkerboards of ash, have left behind tough questions about how to build in this land of dry brush and wind. The answers might involve more than just new homes made of flame-resistant materials. A true paradigm shift could include strategic buffer zones, permanent escape routes and urban firebreaks.

Instead of rebuilding neighborhoods that border the wilderness exactly as they once were, communities could establish a protective shield of parkland, agricultural fields or even a golf course that could act a speed bump for onrushing flames. This buffer zone could be reinforced by pockets of open space within the urban landscape. A strip mall, for instance, could be transformed into tennis courts or a public garden with fire-resistant plants, or the city could create a network of paved bike paths. These features would serve as firebreaks, places for first responders to make a stand and refuge for fleeing residents.

Mortgage rates are falling; here’s how much homeowners might save by refinancing

Source: MarketWatch

Mortgage rates are falling, and some homeowners are racing to refinance. How much can the average homeowner save by refinancing? It depends on where they are starting from. The 30-year fixed-rate mortgage fell to an average of 6.63 percent on March 6, the lowest level in three months and the biggest one-week drop since mid-September, according to Freddie Mac.

About 17.2 percent of homeowners in the U.S. have an interest rate of 6 percent or more. On a mortgage for a median-priced $400,000 home with a 10 percent down payment, a drop in rates of even half a percentage point, from 7 percent to 6.5 percent, saves the buyer about $120 per month, said Bright MLS Chief Economist Lisa Sturtevant. The vast majority of current homeowners, however, have little reason to refinance their mortgage to obtain a lower rate. About 83 percent of homeowners with a mortgage have a rate of less than 6 percent, and 21 percent have a rate of less than 3 percent, according to Redfin.

San Diego rolls back ADU policy that allowed backyard apartment buildings

Source: Axios

San Diego officials took steps Tuesday to roll back a policy that let property owners build apartment buildings in the backyards of single-family homes. In 2020, the city adopted the “ADU bonus program,” which surpassed a state mandate that cities allow property owners to build three ADUs (accessory dwelling units) on single-family lots.

In the program, each ADU an owner builds and reserves with income-restricted rents grants them the right to build an additional ADU. In areas near transit, they can repeat that process until they reach the maximum allowed building height or overall square footage allowed in the area. In practice, that meant owners of large properties could develop full apartment buildings on single-family lots, and they were technically considered ADUs. Opposition came specifically from residents of District 4, the city’s historically black community that has been hit especially hard with bonus ADU projects because many of its single-family neighborhoods have large lot sizes. However, those projects then led to increased traffic, parking shortages and aesthetic changes. The city council voted to direct city planners to return within 90 days with a repeal of the program in single-family zones that tend to have the largest lot sizes.

Mortgage demand surges 11% as interest rates drop again

Source: CNBC

Mortgage rates dropped to the lowest rate since October of last year, and that pushed demand even higher last week, after a substantial jump the previous week. Total mortgage application volume rose 11.2 percent for the week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($806,500 or less) decreased to 6.67 percent from 6.73 percent, with points increasing to 0.63 from 0.60 (including the origination fee) for loans with a 20 percent down payment. Applications to refinance a home loan, which are the most sensitive to weekly moves in interest rates, climbed 16 percent for the week and were 90 percent higher than the same week one year ago. Applications for a mortgage to purchase a home rose 7 percent for the week and were 4 percent higher than the same week one year ago.

Market Update

Inflation easing and retail sales bouncing back provide some good news for the economy and help set the tone for the Federal Reserve’s meeting scheduled to take place later this week. It will be difficult, however, for the central bank’s officials to ignore the consumers’ pessimism and their persistent rise in inflation expectations observed in recent weeks. As of now, financial markets are betting that the Fed will leave the benchmark fed funds rate unchanged in the March meeting, but a 25-basis point rate cut in their May meeting is still a possibility.

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What is Rental Property Depreciation?

Buying a rental property like a building, house, or apartment is typically a long-term investment. Like many investments, you’re generally required to pay taxes on property every year. However, buildings typically deteriorate, need repairs, and lose their value as time goes on.

Because of this decrease, it doesn’t really make sense to pay taxes on the original property value every year. Thankfully, the IRS provides a tax deduction to offset this reality. According to the “IRS How to Depreciate Property”, property depreciation is:

An annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. It is an allowance for the wear and tear, deterioration, or obsolescence of the property

Property depreciation is one of many tax benefits for landlords. Additionally, the IRS considers “property” more than just a physical space where people live.

The same IRS guide linked above also explains you can also depreciate:

Buildings

Machinery

Vehicles

Equipment

Furniture

Note: land generally cannot be depreciated

So, if you have landscaping equipment, power tools, rent out furnished apartments, or have other similar expenses you use in your property business, you may be able to depreciate the value of these items, too.

As you work on this year’s tax returns, keep the following deductions in mind:

1. Long Distance Travel
2. Mortgage Interest
3. Personal Property Taxes
4. Repairs
5. Local Travel
6. Legal Fees for an Eviction
7. Home Office
8. Wages for Employees and Independent Contractors
9. Casualty Losses
10. Depreciation
11. Insurance
12. Capital Expenses
13. Professional Services
14. Operating Expenses
15. Maintenance

10 Rental Documents to Keep on File:

1. Rental Application
2. Tenant Screening Forms
3. Lease or Rental Agreement Documents
4. Rental Pet Policy Forms
5. Welcome Letter for New Tenants
6. Tenant Move-In Checklists
7. Lease Renewal Paperwork
8. Move-Out Letter
9. Tenant Move-Out Checklist
10. Communication with Tenants

Why Invest in Los Angeles Real Estate in 2025?

Los Angeles has long been a sought-after real estate market, offering investors strong appreciation, high rental demand, and a resilient economy. As we step into 2025, several factors make investing in Los Angeles real estate an attractive opportunity.

1. Strong Market Growth and Price Appreciation

Despite economic fluctuations, Los Angeles continues to see property value appreciation. According to the California Association of Realtors, home prices in the state are expected to rise by 4.6% in 2025, driven by high demand and limited supply. With Los Angeles being one of the most desirable metropolitan areas in the country, property values are likely to continue their upward trend.

2. High Rental Demand and Strong ROI

Los Angeles has a large population of renters, making rental properties a lucrative investment. With housing affordability concerns and rising mortgage rates, many residents are choosing to rent rather than buy, leading to high occupancy rates and increasing rental prices. This creates an opportunity for investors to generate strong and stable returns on rental properties.

3. Resilient Economy and Job Market

As a major economic hub, Los Angeles is home to diverse industries, including technology, entertainment, healthcare, and international trade. The city’s economic strength helps maintain a steady demand for housing. Additionally, upcoming infrastructure projects and business expansions will continue to attract new residents and workers, further driving housing demand.

4. Limited Housing Supply and High Competition

The housing shortage in Los Angeles contributes to sustained property value growth. Due to strict zoning laws, geographic constraints, and high construction costs, the city has a limited ability to expand housing inventory. This keeps home values resilient and makes real estate investments in Los Angeles a solid hedge against inflation.

5. Tourism and Short-Term Rental Opportunities

With millions of visitors each year, Los Angeles presents profitable short-term rental opportunities, especially in tourist-heavy areas like Hollywood, Venice Beach, and downtown. Platforms like Airbnb allow property owners to capitalize on this demand, generating higher rental income than traditional long-term leasing.

6. Future-Proof Investment

Los Angeles continues to develop, with ongoing investments in public transportation, green energy, and smart city initiatives. These developments enhance the city’s livability and long-term appeal, ensuring that real estate investments remain valuable for years to come.

Conclusion

Investing in Los Angeles real estate in 2025 offers a compelling opportunity due to strong market appreciation, high rental demand, economic resilience, and future growth potential. While challenges such as affordability and regulatory changes exist, the city’s real estate market remains one of the most robust and rewarding in the country. For those looking to build long-term wealth, Los Angeles remains a prime investment destination.

Are you the kind of person who makes resolutions on New Year’s Day? Here are five steps we encourage all investors to consider taking to boost their financial fitness at any time of the year.

(SOM recommend research and consultation with professionals prior to any decision making and investing.  SOM is not responsible or liable for actions taken by readers of these blogs)

Resolution 1: Create a budget

Committing to a saving and investing program during your working years is generally the best way to boost your net worth and help achieve many of life’s most important goals. Of course, first you’ll need to know how much money you’ve got to work with. That’s where a budget and net worth statement can help. Here’s how to think about them:

Budget and save. At a minimum, be sure to have a high-level budget with three things: how much you’re taking in after taxes, how much you’re spending, and how much you’re saving. If you’re not sure where your money is going, track your spending using a spreadsheet or an online budgeting tool for 30 days. Determine how much money you need to cover your fixed monthly expenses, such as your rent or mortgage and other living expenses, and how much you’d like to put away for other goals. For retirement, we suggest saving 10%-15% of pre-tax income, including any match from an employer, starting in your 20s. If you delay, the amount you may need to save goes up. Add 10% for every decade you delay saving for retirement. Once you commit to an amount, consider ways you can save automatically, such as through monthly direct deposits.

Calculate your personal net worth annually. It doesn’t have to be complicated. Make a list of your assets (what you own) and your liabilities (what you owe). Subtract the liabilities from the assets to determine your net worth. Don’t panic if your net worth declines when the market is struggling. What’s important is to see a general upward trend over your earning years. If you’re retired, you’ll want to plan an income and distribution strategy to help make your savings last as long as necessary and support other objectives.

Project the cost of essential big-ticket items. If you have a big expense in the near term, like college tuition or roof repair, put the money aside or increase your savings and treat that money as spent. If you know you’ll need the money within a few years, keep it in relatively liquid, safe investments like short-term certificates of deposit (CDs), a savings account, or money market funds purchased within a brokerage account. If you choose to invest in a CD, make sure the term ends by the time you need the cash. If you have more than a few years, invest wisely, based on your time horizon.

Prepare for emergencies. If you aren’t retired, consider creating an emergency fund with three to six months’ worth of essential living expenses set aside in a savings account. The emergency fund can help you cover unexpected but necessary expenses without having to sell more volatile investments.

Retired? Invest your living-expense money conservatively. Consider keeping 12 months of living expenses—after accounting for non-portfolio income sources like Social Security or a pension—in cash, an interest-bearing savings account, or a money market fund. Then consider keeping another two to four years’ worth of spending laddered in short-term bonds or individual CDs or invested in short-term bond funds as part of your portfolio’s fixed income allocation. You can use this money to cover expenses in the near term. Having a chunk of savings invested conservatively should allow you to invest a portion of your remaining savings for potential growth, at a level of risk appropriate for you, while reducing the chances you’ll be forced to sell more volatile investments (like stocks) in a down market.

Resolution 2: Manage your debt

Debt is neither inherently good nor bad—it’s simply a tool. It all depends on how you use it. For most people, some level of debt is a practical necessity, especially to purchase an expensive long-term asset to pay back over time, such as a home. However, problems arise when debt becomes more of a burden than a tool. Here’s how to stay in control.

Keep your total debt load manageable. Don’t confuse what you can borrow with what you should borrow. Keep the monthly costs of owning a home (principal, interest, taxes, and insurance) below 28% of your pre-tax income, and your total monthly debt payments (including credit cards, auto loans, and mortgage payments) below 36% of your pre-tax income.

Eliminate high-cost, non-deductible consumer debt. Try to pay off credit-card debt and avoid borrowing to buy depreciating assets, such as cars. The cost of consumer debt adds up quickly if you carry a balance. Consider consolidating your debt in a low-rate home equity loan or line of credit, setting a realistic budget, and implementing a schedule to pay it back.

Match repayment terms to your time horizons. If you’re likely to move within five to seven years, you could consider a shorter-maturity loan or an adjustable-rate mortgage (ARM), depending on current mortgage rates and options. Don’t consider this if you think you may live in your home for longer or struggle to manage mortgage payment resets if interest rates or your plans change. We also don’t suggest that you borrow money under the assumption that your home will automatically increase in value. Historically, long-term home appreciation has significantly lagged the total return of a diversified stock portfolio. And, for any type of debt, have a disciplined payback schedule. Create a plan to pay off the mortgage on your primary home before you plan to retire.

Resolution 3: Optimize your portfolio

We all share the goal of getting better investment results. But research shows it’s extremely difficult to always invest at the “perfect” time. So, create a plan that will help you stay disciplined in all kinds of markets. Follow your plan and adjust it as needed. Here are ideas to help you stay focused on your goals.

Focus on your overall investment mix. After committing to a savings plan, how you invest is your next most important decision. Have a targeted asset allocation—that is, a strategically proportioned mix of stocks, bonds, and cash in your portfolio—that you’re comfortable with, even in a down market. Make sure it fits your long-term goals, risk tolerance, and time frame. The longer your time horizon, the more time you’ll have to potentially benefit from up or down markets.

Diversify across and within asset classes. Diversification can help reduce risk and can be a critical factor in helping you reach your goals. Mutual funds and exchange-traded funds (ETFs) are great ways to own a diversified basket of securities in just about any asset class.

Consider taxes. Place relatively tax-efficient investments, like ETFs and municipal bonds, in taxable accounts and relatively tax-inefficient investments, like mutual funds and real estate investment trusts (REITs), in tax-advantaged accounts. Tax-advantaged accounts include retirement accounts, such as a traditional or Roth individual retirement account (IRA). If you trade frequently, do so in tax-advantaged accounts to help reduce your tax bill.

Monitor and rebalance your portfolio as needed. Evaluate your portfolio’s performance at least twice a year using a benchmark that makes sense for you. Remember, the long-term progress you make toward your goals is more important than short-term portfolio performance. As you approach a savings goal, such as the beginning of a child’s education or your retirement, begin to reduce investment risk, if appropriate, so you don’t have to sell more volatile investments, such as stocks, when you need them.

Choose appropriate benchmarks. Lastly, your benchmark to measure investment performance should match your portfolio and your goals. Don’t be tempted to compare your portfolio to what performed best in the market last year or even a portfolio invested 100% in stocks. You should have a portfolio selected to best meet your goals, with an appropriate balance of potential return and risk as well. Progress toward your goals is more important than picking the top-performing stocks each year—which, for any investor, isn’t possible to predict.

Resolution 4: Prepare for the unexpected

Risk is a part of life, particularly in investments and finance. Your financial life can be upended by all kinds of surprises—illness, job loss, disability, death, natural disasters, or lawsuits. If you don’t have enough assets to self-insure against major risks, make a resolution to get your insurance needs covered. Insurance helps protect against unforeseen events that don’t happen often but are expensive to manage yourself when they do. The following guidelines can help you prepare for life’s unexpected moments.

Protect against large medical expenses with health insurance. Select a health insurance plan that matches your needs in areas like medical and drug coverage, deductibles, co-payments, and choice of medical providers. If you’re in good health and don’t visit the doctor often, consider a high-deductible plan to insure against the possibility of a serious illness or unexpected health-care event.

Purchase life insurance if you have dependents or other obligations. First, take advantage of a group term insurance policy, if offered by your employer. Such programs don’t generally require a medical exam and can be a cost-effective way to provide income replacement for dependents. If you have minor children or large liabilities that will continue after your death for which you can’t self-insure, you may need additional life insurance. Unless you have a permanent life insurance need or special circumstances, consider starting with a low-cost term life policy before a whole life policy.

Protect your earning power with long-term disability insurance. The odds of becoming disabled are greater than the odds of dying young. According to the Social Security Administration, a 20-year-old American has a 25% chance of becoming disabled before normal retirement age and a 13% chance of dying before retirement age.1 If you can’t get adequate short- and long-term coverage through work, consider an individual policy.

Protect your physical assets with property-casualty insurance. Check your homeowner’s or renter’s and auto insurance policies to make sure your coverage and deductibles are still right for you.

Obtain additional liability coverage, if needed. A personal liability “umbrella” policy is a cost-effective way to increase your liability coverage by $1 million or more in case you’re at fault in an accident or someone is injured on your property. Umbrella policies don’t cover business-related liabilities, so make sure your business is also properly insured, especially if you’re in a profession with unique risks and aren’t covered by an employer.

Consider the pros and cons of long-term-care insurance. If you’re considering a long-term-care policy, look for a policy that provides the right type of care and is guaranteed renewable with locked-in premium rates. Long-term care insurance typically is most cost-effective starting at about age 50 and generally becomes more expensive or difficult to find after age 70. You can get independent sources of information from your state insurance commissioner. A sound retirement savings strategy is another way to plan for long-term-care costs.

Create a disaster plan for your safety and peace of mind. Review your homeowner’s or renter’s policy to see what’s covered and what’s not. Talk to your agent about flood or earthquake insurance if either is a concern for your area. Generally, neither is included in most homeowner’s policies. Keep an updated video inventory of valuable household items and possessions along with any professional appraisals and estimates of replacement values in a safe place away from your home.

Consider storing inventories and important documents on a portable hard drive. It’s also a good idea to have copies of birth certificates, passports, wills, trust documents, records of home improvements, and insurance policies in a small, secure “document safe” (the fireproof, waterproof kind that you can lock is best) that you can grab in a hurry in case you have to evacuate immediately. Make sure your trusted loved ones know about this file as well, in case they need it.

Resolution 5: Protect your estate

An estate plan may seem like something only for the wealthy. But there are simple steps everyone should take. Without proper beneficiary designations, a will, and other basic steps, the fate of your assets or minor children may be decided by attorneys and tax agencies. Taxes and attorney fees can eat away at these assets and delay their distribution just when your heirs need them most. Here’s how to protect your estate—and your loved ones.

Review your beneficiaries, especially for retirement accounts, annuities, and life insurance. The beneficiary designation is your first line of defense to make your wishes for assets known and ensure that they transfer to who you want quickly. Keep information on beneficiaries up to date to ensure the proceeds of life insurance policies and retirement accounts are consistent with your wishes, your will, and other documents.

Update or prepare your will. A will isn’t just about transferring assets; it can provide for your dependents’ support and care and help avoid the costs and delays associated with dying without one. It can also spell out plans to repay debts, such as a credit card or mortgage. Keep in mind, a beneficiary designation or asset titling trumps what’s written in a will, so make sure all documents are consistent and reflect your desires. When writing a will, we recommend working with an experienced lawyer or estate planning attorney.

Coordinate asset titling with the rest of your estate plan. The titling of your property and non-retirement accounts can affect the ultimate disposition and taxation of your assets. Talk with an estate attorney or lawyer about debts and the titling of assets, such as a home, that don’t have a beneficiary designation to make sure they reflect your wishes and are consistent with titling laws that can vary by state.

Have in place durable powers of attorney for health care. In these documents, appoint trusted and competent confidants to make decisions on your behalf if you become incapacitated.

Consider a revocable living trust. This is especially important if your estate is large and complex and you want to spell out how your assets should be used in detail, or if you have dependent children and want to detail how assets should be managed to support them, who will manage the assets, and other issues. A living trust may not be needed for smaller estates where beneficiaries, titling, and a will can suffice, but talk with a qualified financial planner or attorney to be sure.

Take care of important estate documents. Make sure a trusted and competent family member or close friend knows the location of your important estate documents.

Finally, remember you don’t have to do everything at once. There’s a lot you can do to improve your financial health by taking one step at a time and think of these resolutions as a checklist. Then use the checklist to make some real progress on your journey this year.

Tax-Smart Ways to Gift Highly Appreciated Assets

Transferring appreciated investments to family members or charity can benefit others while also potentially reducing your taxes.

If your estate-planning goals include transferring wealth to future generations or creating a charitable legacy, using highly appreciated assets to achieve those aims can help generate substantial potential income and estate tax savings in the process.

In most cases, transferring such assets to a family member or charity allows you to avoid paying capital gains taxes on the appreciation (your heirs will be subject to capital gains tax when they sell the holding) which for long-term holdings is taxed at up to 20%, plus an additional 3.8% net investment income tax if your income exceeds certain thresholds. Furthermore, gifting these assets removes any future appreciation from your estate.

Here are some popular ways to transfer highly appreciated assets for maximum tax efficiency.

1. Giving to family

There’s a limit on how much you can gift to family members and others over your lifetime with no gift tax consequences. The federal gift and estate tax exemption is $13.61 million per person ($27.22 million for a married couple) in 2024 and $13.99 million ($27.98 million for couples) in 2025. However, if Congress doesn’t renew key provisions from the Tax Cuts and Jobs Act of 2017, the exemption may be cut in half starting in 2026 (with a new administration coming in, significant tax changes may be in store).

Estates that exceed the exemption limit may be subject to estate taxes up to 40%—but transferring highly appreciated assets to heirs before you pass can help reduce your taxable estate. To do so in a tax-smart manner, consider:

Outright gifting: In 2024, the IRS allows you to gift up to $18,000 per person (it increases to $19,000 in 2025) without utilizing part of your lifetime exemption or being required to complete a gift-tax return. As a couple, you and your spouse could give each of your children and grandchildren $36,000 this year with no hit to your estate tax exemption. And if you institute a regular annual gifting strategy, you could meaningfully reduce your taxable estate over time.

However, unlike assets passed down after death, assets that are gifted carry over your original purchase price (carry over basis) and holding period. If and when your heirs decide to sell the stock, they will incur capital gains on the appreciation from the date of your purchase to the date of their sale. That said, the inheritor’s taxes may be lower than yours if they’re in a lower tax bracket, so this option might be worth considering if, say, the gift is for a new graduate or other lower-income family member.

Upstream gifting: Gifting a highly appreciated position to older family members could also be an option if their estate isn’t large enough to exceed the estate tax exemption. With this strategy, known as upstream gifting, you transfer appreciated positions to your parent, who benefits from any income the assets generate before ultimately leaving the asset to your children or other selected beneficiary. When they eventually inherit the asset from your parent, they will receive the step-up in cost basis.

This strategy uses part of your lifetime estate and gift tax exemption to facilitate the transfer, but it removes future appreciation from your estate.

Establishing a trust: A grantor retained annuity trust (GRAT) is another method of removing future appreciation from your estate while passing assets to your beneficiaries tax-efficiently. They are often used for gifts to children but not grandchildren because GRATs are not necessarily exempt from generation skipping taxes.

Under this strategy, you transfer highly appreciating assets into a fixed-term, irrevocable trust, which then pays you annuity payments plus a rate of return (as determined by the IRS) for a set number of years. At the end of the term, any excess appreciation (i.e., if the investment return of the GRAT is greater than the IRS interest rate) of the assets passes to your beneficiaries tax-free and, depending on how you structure your GRAT, the gift may not count against your lifetime gift and estate tax exemption. Keep in mind that your heirs will maintain the original tax basis you had.

If you die before your GRAT term ends or the assets don’t grow as much as expected or lose value, little or no assets will be transferred and the value of the remaining assets, including any earnings, will be included in your taxable estate.

2. Giving to charity

If philanthropy is a priority for you, donating long-term highly appreciated stock and other holdings directly to a charity can make your donated dollars stretch further because of both the income and estate tax advantages.

For one, doing so allows you to avoid the capital gains tax you would owe if you sold the asset first and then donated the proceeds. Plus, you may also be able to deduct the donated investment’s fair market value in the year of the donation up to IRS limitations.

To get this favorable tax treatment, you must have held the asset for longer than a year. Also be aware that the deduction for non-cash donations is capped at 30% of your adjusted gross income (AGI), versus 60% of AGI for charitable donations made in cash. If your deduction exceeds 30%, you can carry over and deduct any excess amount for up to five additional years.

Let’s say you paid $100,000 to purchase a stock that is now valued at $750,000—a gain of $650,000. Here’s how the tax savings compare for selling the asset first versus donating it directly to charity:

Donating stock directly to charity can have more tax savings than selling a stock first.

Sell stock and donate after-tax proceeds Donate stock directly to charity

Long-term capital gains taxes owed

$130,000

($650,000 x .20)

$0

Charitable gift and equivalent tax deduction

$620,000

($750,000 – $130,000)

$750,000

Tax savings

$99,400

([$620,000 x .37] – $130,000)

$277,500

($750,000 x 0.37)

Disclosure

Several vehicles can help implement this tax-smart strategy:

Donor-advised fund: These charitable accounts have no setup costs, low to no minimum contributions, and relatively low administrative fees. You can contribute your highly appreciated stock or other investments for a deduction in the current tax year, but you don’t have to immediately decide which charities will benefit from your gift.

Charitable remainder trust: You can donate your highly appreciated position to this type of irrevocable trust and you or your heirs receive an income stream for a dedicated term (not to exceed 20 years), after which the remaining trust assets go to your charity or charities of choice. You get an immediate charitable deduction on the value of the assets estimated to pass to the charity at the end of the trust term.

Private foundation: These are federally recognized charitable tax-exempt organizations that allow families and others to create and manage a legacy of charitable gift-giving for generations to come. Establishing a private foundation is a complex endeavor with differing tax deductions and implications, so be sure you’re prepared for the related time and expense involved.

Incorporating the whole picture

These are just a few of the many ways to potentially maximize your gift-giving while reducing the income and estate tax bite of your most appreciated investments. Having clearly defined giving strategy helps you manage estate tax risks, regardless of changes in estate tax limits across administrations. A financial or wealth consultant can help you approach your decision with your comprehensive financial situation in mind.

How to Cut Your Tax Bill with Tax-Loss Harvesting

Tax-loss harvesting—offsetting capital gains with capital losses—can lower your tax bill and better position your portfolio going forward.

Not every investment will be a winner. Fortunately, even losing investments come with a silver lining: You may be able to use those losses to lower your tax liability and reposition your portfolio for the future.

This strategy is known as tax-loss harvesting, and it’s one technique investors can use to make their investments more tax-efficient.

Tax-loss harvesting generally works like this:

You sell an investment that’s underperforming and losing money.

Then, you use that loss to reduce your taxable capital gains and potentially offset up to $3,000 of your ordinary income.

Finally, you reinvest the money from the sale in a different security that meets your investment needs and asset-allocation strategy.

The principle behind tax-loss harvesting is fairly straightforward, but it does involve some potential pitfalls you should try to avoid.

The basics of tax-loss harvesting

Imagine you’re reviewing your portfolio and see that your industrial stocks have dropped in value while your tech holdings have risen sharply. As a result, the industrial sector now accounts for less of your stock allocation than you’d prefer, while the tech sector is overweight.

To get your portfolio closer to your target allocation—a portfolio-maintenance practice known as rebalancing—you would sell your industrial-sector losers for a loss, as well as some of your tech stocks for a gain.

This allows you to do two things:

You can use the proceeds of these sales to buy other industrial stocks whose prospects you prefer, bringing your portfolio back to its target allocation.

You can use the value of your loss from the industrial shares to offset the taxable gains from the sale of your tech shares, thereby reducing your tax liability.

Furthermore, if your losses are larger than the gains, you can use the remaining losses to offset up to $3,000 of your ordinary taxable income (for married couples filing separately, the limit is $1,500). Any amount over $3,000 can be carried forward to future tax years to offset income down the road.

For example, let’s say you recognize a gain of $20,000 on a stock you bought less than a year ago (Investment A). Because you held the stock for less than a year, the gain is treated as a short-term capital gain and will be taxed at the higher ordinary-income rates rather than the lower long-term capital-gain rates, which apply to investments held for more than a year.

At the same time, you also sell shares of another stock for a short-term capital loss of $25,000 (Investment B). Your $25,000 loss would offset the full $20,000 gain from Investment A, meaning you’d owe no taxes on the gain, and you could use the remaining $5,000 loss to offset $3,000 of your ordinary income. The leftover $2,000 loss could then be carried forward to offset income in future tax years. Assuming you’re subject to a 35% marginal tax rate, the overall tax benefit of harvesting those losses could be as much as $8,050.

Using an investment loss to lower your capital-gains tax

Infographic illustrating the example outlined in the preceding paragraphs.

Source: Schwab Center for Financial Research.

Assumes a 35% combined federal/state marginal income tax bracket. The example is hypothetical and provided for illustrative purposes only. It is not intended to represent a specific investment product and the example does not reflect the effects of fees.

Neither the tax-loss harvesting strategy, nor any discussion herein, is intended as tax advice and Charles Schwab & Co., Inc. does not represent that any particular tax consequences will be obtained. Tax-loss harvesting involves certain risks including unintended tax implications. Investors should consult with their tax advisors and refer to the Internal Revenue Service (IRS) website at www.irs.gov about the consequences of tax-loss harvesting.

By offsetting the capital gains of Investment A with your capital loss from Investment B, you could potentially save $7,000 on taxes ($20,000 × 35%). Because you lost $5,000 more than you gained ($25,000 – $20,000), you can reduce your ordinary income by $3,000, potentially lowering your tax liability an additional $1,050 ($3,000 × 35%), for a total savings of $8,050 ($7,000 + $1,050). You could then apply the remaining $2,000 of your capital loss from Investment B ($5,000 – $3,000) to gains or income the following tax year.

Issues to consider before utilizing tax-loss harvesting

As with any tax-related topic, there are rules and limitations:

Tax-loss harvesting isn’t useful in retirement accounts, such as a 401(k) or an IRA, because you can’t deduct the losses generated in a tax-deferred account.

Long-term losses are first applied to long-term gains, while short-term losses applied to short-term gains. If you have excess losses in one category, you can apply them to gains of either type.

When conducting these types of transactions, you should also be aware of the wash-sale rule, which states that if you sell a security at a loss and buy the same or a “substantially identical” security within 30 days before or after the sale, the loss is typically disallowed for current income tax purposes.

A tax break for ordinary income

Even if you don’t have capital gains to offset, tax-loss harvesting could still help you reduce your income tax liability.

Let’s say Sofia, a single income-tax filer, holds XYZ stock. She originally bought it for $10,000, but it’s now worth only $7,000. She could sell those holdings and take a $3,000 loss. Then, she could use the proceeds to buy shares of ZYY stock (a similar but not substantially identical stock) after determining that it’s as good as or better than XYZ.

Sofia could use the $3,000 capital loss from XYZ to reduce her taxable income for the current year. If her combined marginal tax rate is 30%, she could receive a current income tax benefit of up to $900 ($3,000 × 30%). She could then turn around and invest her tax savings back in the market. If she assumes an average annual return of 6%, reinvesting $900 each year could potentially amount to approximately $35,000 after 20 years.

Harvesting losses regularly and proactively—when you rebalance your portfolio, for instance— can save you money over the long run, effectively boosting your after-tax return.

The Corporate Transparency Act and Your Small Business

What small-business owners need to know about the new Corporate Transparency Act.

If you own a small business or family office, you could soon be required to report ownership details to the federal government—or face stiff penalties and possible jail time. Here’s what you need to know.

Litigation Update: A federal district court recently ruled that the Corporate Transparency Act (CTA) is likely unconstitutional, placing a temporary ban on enforcement of the CTA. The Financial Crimes Enforcement Network (FinCEN) has agreed to suspend the mandatory reporting requirements of beneficial ownership information required by the CTA until the resolution of the ongoing litigation.

The federal government has filed an appeal to the United States Court of Appeals for the 5th Circuit, and the appeals court could decide to stay the district court’s ruling, which would mean that the CTA—including the mandatory reporting requirements—could be enforced while we await a possible future trial to decide the fate of the CTA. Because of the uncertainty, we believe business owners affected by the CTA should continue to prepare to comply with the new law’s reporting requirements.

What is it?

The Corporate Transparency Act (CTA), which goes into effect on January 1, 2024, requires otherwise unregulated companies to report information about “beneficial owners”—those who own at least 25% of or exercise substantial control over the reporting company—to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Failure to comply could result in fines of up to $10,000 and imprisonment for up to two years.

The substantial control attributed to beneficial owners could be serving as a senior officer, having the authority to appoint or remove senior officers, serving on a board of directors, having rights associated with financing arrangements, or overseeing intermediary entities that exercise substantial control over the business.

While this means a trust technically could be beneficial owner, the CTA states that beneficial owners must be individuals. Therefore, the trust document would need to be reviewed to determine whether the grantor, trustee, or beneficiaries are considered beneficial owners.

How does it affect business operations?

The immediate impact of the CTA on a small business is that owners will incur the administrative costs associated with compliance. Some business owners claim the law will affect their privacy because the FinCEN will receive their personal information.

In addition, the CTA may have implications for mergers and acquisitions. Potential buyers may require access to the beneficial ownership information as part of their due diligence process, which could make it difficult to attract buyers or negotiate favorable terms.

Why target small businesses?

The law attempts to close a loophole in corporate regulations that enables criminals to hide their identities using shell companies. However, the legislation may affect almost every small business in the U.S., including family offices, independent contractors, and the limited liability companies (LLCs) commonly used by mom-and-pop shop owners.

Family LLCs, in particular, are often used to transfer ownership of a business from one generation to the next in a tax-efficient way. By retaining a small interest, the original owner can claim certain discounts that reduce the value of the transfer for tax purposes. The CTA doesn’t prohibit this type of transaction, but new IRS rules will require these entities to report ownership information. Individuals who value privacy may forgo the use of LLCs in favor of other structures that still allow for some level of anonymity, such as irrevocable trusts.

What are the requirements?

Entities created on or after January 1, 2024, must report beneficial owner information to the FinCEN website within 90 calendar days of creation. Existing entities have until January 1, 2025, to comply with the statute, unless they undergo ownership changes—such as those triggered by a sale or minor children reaching the age of majority—in which case they have 30 days from the date of change.

The law exempts 23 types of businesses, including accounting firms, banks, charitable entities, and large operating companies that meet certain requirements.

If you’re a business owner, familiarize yourself with the CTA’s reporting requirements and meet with your accountant or attorney to discuss whether the new law affects you. Don’t wait for the government to come knocking—the stakes are just too high.

Jan 2025

A new study has revealed a few connections through which homeownership can impact longevity. The study, led by Dr. Casey Breen, Senior Postdoctoral Research Fellow at Oxford University’s Leverhulme Center for Demographic Science and Department of Sociology, examined the benefits of homeownership in the male population in the United States. It looked at 1920 and 1940 U.S. census records and Social Security mortality records to document Black-White disparities in homeownership rates and estimated the effect of homeownership on longevity using a sibling-based approach.

It found that homeownership was linked to an increased in life expectancy of 0.36 years for Black male Americans born in the early 20th century, and 0.42 years for white male Americans in the same cohort. According to the study, the connection to longevity came partly through wealth accumulation. “A home is the single largest component of nonpension wealth in the United States,” the study explains. First, homeownership likely reduces housing costs, saving owners from high rental prices and providing tax benefits such as tax deductions on mortgage interest and no capital gains tax. Second, homes will generally gain value over time. And third, monthly mortgage payments encourage savings, the study says. Another reason for longevity is that homeownership has a connection to social networks. Homeowners are more likely to feel a sense of community than renters, largely because homeowners often live in one neighborhood much longer than renters do. This helps them foster stronger ties to their communities, as well as more integration and interaction at community events. Longevity was also impacted by improved housing conditions as well as the psychological benefits of feeling a stronger sense of control and self-determinism over their lives because their environments are predictable and dependable.

LA City Council votes to boost housing development and leave single-family-home zones

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Source: MSN

The Los Angeles City Council on Tuesday voted to boost housing development in existing high density residential neighborhoods and along commercial corridors, while leaving single-family zones largely untouched. In a 15 to 0 vote, the council asked the city attorney to draft an ordinance to carry out that plan, which provides incentives to build both market rate and affordable units. Once the ordinance is drafted, it will come back to council for final approval.

The rezoning effort is in response to state housing mandates that seek to alleviate the housing crisis by requiring the city to find land where an additional 255,000 homes can be built and have the plan in place by mid-February. Last month, a city council committee approved a plan that allowed for more building in existing high density residential neighborhoods and along main streets in areas with jobs and good schools. Under the plan, developers would be able to build more than they currently can in those areas if they include a certain percentage of affordable units.

Mortgage rates dip today and refinance demand surges

Source: CNBC

Mortgage rates had been moving higher this week in anticipation of the release of the Consumer Price Index, which would reveal whether inflation were increasing. However, when the inflation numbers were released, rent inflation had its lowest gain since April 2021. According to the Mortgage Bankers Association’s seasonally adjusted index, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,650 or less decreased to 6.75 percent from 6.78 percent, with points remaining falling to 0.66 from 0.67 (including the origination fee) for loans with a 20 percent down payment.

Mortgage applications overall surged 5.4 percent last week compared with the prior week. Applications to refinance a home loan rose 27 percent week to week and were 42 percent higher than the same week one year ago. Applications for a mortgage to purchase a home fell 4 percent for the week and were 4 percent higher than the same week one year ago.

Here are five steps we encourage all investors to consider taking to help boost their financial fitness at any time of the year.

re you the kind of person who makes resolutions on New Year’s Day? Here are five steps we encourage all investors to consider taking to boost their financial fitness at any time of the year.

Resolution 1: Create a budget

Committing to a saving and investing program during your working years is generally the best way to boost your net worth and help achieve many of life’s most important goals. Of course, first you’ll need to know how much money you’ve got to work with. That’s where a budget and net worth statement can help. Here’s how to think about them:

Budget and save. At a minimum, be sure to have a high-level budget with three things: how much you’re taking in after taxes, how much you’re spending, and how much you’re saving. If you’re not sure where your money is going, track your spending using a spreadsheet or an online budgeting tool for 30 days. Determine how much money you need to cover your fixed monthly expenses, such as your rent or mortgage and other living expenses, and how much you’d like to put away for other goals. For retirement, we suggest saving 10%-15% of pre-tax income, including any match from an employer, starting in your 20s. If you delay, the amount you may need to save goes up. Add 10% for every decade you delay saving for retirement. Once you commit to an amount, consider ways you can save automatically, such as through monthly direct deposits.

Calculate your personal net worth annually. It doesn’t have to be complicated. Make a list of your assets (what you own) and your liabilities (what you owe). Subtract the liabilities from the assets to determine your net worth. Don’t panic if your net worth declines when the market is struggling. What’s important is to see a general upward trend over your earning years. If you’re retired, you’ll want to plan an income and distribution strategy to help make your savings last as long as necessary and support other objectives.

Project the cost of essential big-ticket items. If you have a big expense in the near term, like college tuition or roof repair, put the money aside or increase your savings and treat that money as spent. If you know you’ll need the money within a few years, keep it in relatively liquid, safe investments like short-term certificates of deposit (CDs), a savings account, or money market funds purchased within a brokerage account. If you choose to invest in a CD, make sure the term ends by the time you need the cash. If you have more than a few years, invest wisely, based on your time horizon.

Prepare for emergencies. If you aren’t retired, consider creating an emergency fund with three to six months’ worth of essential living expenses set aside in a savings account. The emergency fund can help you cover unexpected but necessary expenses without having to sell more volatile investments.

Retired? Invest your living-expense money conservatively. Consider keeping 12 months of living expenses—after accounting for non-portfolio income sources like Social Security or a pension—in cash, an interest-bearing savings account, or a money market fund. Then consider keeping another two to four years’ worth of spending laddered in short-term bonds or individual CDs or invested in short-term bond funds as part of your portfolio’s fixed income allocation. You can use this money to cover expenses in the near term. Having a chunk of savings invested conservatively should allow you to invest a portion of your remaining savings for potential growth, at a level of risk appropriate for you, while reducing the chances you’ll be forced to sell more volatile investments (like stocks) in a down market.

Resolution 2: Manage your debt

Debt is neither inherently good nor bad—it’s simply a tool. It all depends on how you use it. For most people, some level of debt is a practical necessity, especially to purchase an expensive long-term asset to pay back over time, such as a home. However, problems arise when debt becomes more of a burden than a tool. Here’s how to stay in control.

Keep your total debt load manageable. Don’t confuse what you can borrow with what you should borrow. Keep the monthly costs of owning a home (principal, interest, taxes, and insurance) below 28% of your pre-tax income, and your total monthly debt payments (including credit cards, auto loans, and mortgage payments) below 36% of your pre-tax income.

Eliminate high-cost, non-deductible consumer debt. Try to pay off credit-card debt and avoid borrowing to buy depreciating assets, such as cars. The cost of consumer debt adds up quickly if you carry a balance. Consider consolidating your debt in a low-rate home equity loan or line of credit, setting a realistic budget, and implementing a schedule to pay it back.

Match repayment terms to your time horizons. If you’re likely to move within five to seven years, you could consider a shorter-maturity loan or an adjustable-rate mortgage (ARM), depending on current mortgage rates and options. Don’t consider this if you think you may live in your home for longer or struggle to manage mortgage payment resets if interest rates or your plans change. We also don’t suggest that you borrow money under the assumption that your home will automatically increase in value. Historically, long-term home appreciation has significantly lagged the total return of a diversified stock portfolio. And, for any type of debt, have a disciplined payback schedule. Create a plan to pay off the mortgage on your primary home before you plan to retire.

Resolution 3: Optimize your portfolio

We all share the goal of getting better investment results. But research shows it’s extremely difficult to always invest at the “perfect” time. So, create a plan that will help you stay disciplined in all kinds of markets. Follow your plan and adjust it as needed. Here are ideas to help you stay focused on your goals.

Focus on your overall investment mix. After committing to a savings plan, how you invest is your next most important decision. Have a targeted asset allocation—that is, a strategically proportioned mix of stocks, bonds, and cash in your portfolio—that you’re comfortable with, even in a down market. Make sure it fits your long-term goals, risk tolerance, and time frame. The longer your time horizon, the more time you’ll have to potentially benefit from up or down markets.

Diversify across and within asset classes. Diversification can help reduce risk and can be a critical factor in helping you reach your goals. Mutual funds and exchange-traded funds (ETFs) are great ways to own a diversified basket of securities in just about any asset class.

Consider taxes. Place relatively tax-efficient investments, like ETFs and municipal bonds, in taxable accounts and relatively tax-inefficient investments, like mutual funds and real estate investment trusts (REITs), in tax-advantaged accounts. Tax-advantaged accounts include retirement accounts, such as a traditional or Roth individual retirement account (IRA). If you trade frequently, do so in tax-advantaged accounts to help reduce your tax bill.

Monitor and rebalance your portfolio as needed. Evaluate your portfolio’s performance at least twice a year using a benchmark that makes sense for you. Remember, the long-term progress you make toward your goals is more important than short-term portfolio performance. As you approach a savings goal, such as the beginning of a child’s education or your retirement, begin to reduce investment risk, if appropriate, so you don’t have to sell more volatile investments, such as stocks, when you need them.

Choose appropriate benchmarks. Lastly, your benchmark to measure investment performance should match your portfolio and your goals. Don’t be tempted to compare your portfolio to what performed best in the market last year or even a portfolio invested 100% in stocks. You should have a portfolio selected to best meet your goals, with an appropriate balance of potential return and risk as well. Progress toward your goals is more important than picking the top-performing stocks each year—which, for any investor, isn’t possible to predict.

Resolution 4: Prepare for the unexpected

Risk is a part of life, particularly in investments and finance. Your financial life can be upended by all kinds of surprises—illness, job loss, disability, death, natural disasters, or lawsuits. If you don’t have enough assets to self-insure against major risks, make a resolution to get your insurance needs covered. Insurance helps protect against unforeseen events that don’t happen often but are expensive to manage yourself when they do. The following guidelines can help you prepare for life’s unexpected moments.

Protect against large medical expenses with health insurance. Select a health insurance plan that matches your needs in areas like medical and drug coverage, deductibles, co-payments, and choice of medical providers. If you’re in good health and don’t visit the doctor often, consider a high-deductible plan to insure against the possibility of a serious illness or unexpected health-care event.

Purchase life insurance if you have dependents or other obligations. First, take advantage of a group term insurance policy, if offered by your employer. Such programs don’t generally require a medical exam and can be a cost-effective way to provide income replacement for dependents. If you have minor children or large liabilities that will continue after your death for which you can’t self-insure, you may need additional life insurance. Unless you have a permanent life insurance need or special circumstances, consider starting with a low-cost term life policy before a whole life policy.

Protect your earning power with long-term disability insurance. The odds of becoming disabled are greater than the odds of dying young. According to the Social Security Administration, a 20-year-old American has a 25% chance of becoming disabled before normal retirement age and a 13% chance of dying before retirement age.1 If you can’t get adequate short- and long-term coverage through work, consider an individual policy.

Protect your physical assets with property-casualty insurance. Check your homeowner’s or renter’s and auto insurance policies to make sure your coverage and deductibles are still right for you.

Obtain additional liability coverage, if needed. A personal liability “umbrella” policy is a cost-effective way to increase your liability coverage by $1 million or more in case you’re at fault in an accident or someone is injured on your property. Umbrella policies don’t cover business-related liabilities, so make sure your business is also properly insured, especially if you’re in a profession with unique risks and aren’t covered by an employer.

Consider the pros and cons of long-term-care insurance. If you’re considering a long-term-care policy, look for a policy that provides the right type of care and is guaranteed renewable with locked-in premium rates. Long-term care insurance typically is most cost-effective starting at about age 50 and generally becomes more expensive or difficult to find after age 70. You can get independent sources of information from your state insurance commissioner. A sound retirement savings strategy is another way to plan for long-term-care costs.

Create a disaster plan for your safety and peace of mind. Review your homeowner’s or renter’s policy to see what’s covered and what’s not. Talk to your agent about flood or earthquake insurance if either is a concern for your area. Generally, neither is included in most homeowner’s policies. Keep an updated video inventory of valuable household items and possessions along with any professional appraisals and estimates of replacement values in a safe place away from your home.

Consider storing inventories and important documents on a portable hard drive. It’s also a good idea to have copies of birth certificates, passports, wills, trust documents, records of home improvements, and insurance policies in a small, secure “document safe” (the fireproof, waterproof kind that you can lock is best) that you can grab in a hurry in case you have to evacuate immediately. Make sure your trusted loved ones know about this file as well, in case they need it.

Resolution 5: Protect your estate

An estate plan may seem like something only for the wealthy. But there are simple steps everyone should take. Without proper beneficiary designations, a will, and other basic steps, the fate of your assets or minor children may be decided by attorneys and tax agencies. Taxes and attorney fees can eat away at these assets and delay their distribution just when your heirs need them most. Here’s how to protect your estate—and your loved ones.

Review your beneficiaries, especially for retirement accounts, annuities, and life insurance. The beneficiary designation is your first line of defense to make your wishes for assets known and ensure that they transfer to who you want quickly. Keep information on beneficiaries up to date to ensure the proceeds of life insurance policies and retirement accounts are consistent with your wishes, your will, and other documents.

Update or prepare your will. A will isn’t just about transferring assets; it can provide for your dependents’ support and care and help avoid the costs and delays associated with dying without one. It can also spell out plans to repay debts, such as a credit card or mortgage. Keep in mind, a beneficiary designation or asset titling trumps what’s written in a will, so make sure all documents are consistent and reflect your desires. When writing a will, we recommend working with an experienced lawyer or estate planning attorney.

Coordinate asset titling with the rest of your estate plan. The titling of your property and non-retirement accounts can affect the ultimate disposition and taxation of your assets. Talk with an estate attorney or lawyer about debts and the titling of assets, such as a home, that don’t have a beneficiary designation to make sure they reflect your wishes and are consistent with titling laws that can vary by state.

Have in place durable powers of attorney for health care. In these documents, appoint trusted and competent confidants to make decisions on your behalf if you become incapacitated.

Consider a revocable living trust. This is especially important if your estate is large and complex and you want to spell out how your assets should be used in detail, or if you have dependent children and want to detail how assets should be managed to support them, who will manage the assets, and other issues. A living trust may not be needed for smaller estates where beneficiaries, titling, and a will can suffice, but talk with a qualified financial planner or attorney to be sure.

Take care of important estate documents. Make sure a trusted and competent family member or close friend knows the location of your important estate documents.

Finally, remember you don’t have to do everything at once. There’s a lot you can do to improve your financial health by taking one step at a time and think of these resolutions as a checklist. Then use the checklist to make some real progress on your journey this year.

Tax-Smart Ways to Gift Highly Appreciated Assets

Transferring appreciated investments to family members or charity can benefit others while also potentially reducing your taxes.

If your estate-planning goals include transferring wealth to future generations or creating a charitable legacy, using highly appreciated assets to achieve those aims can help generate substantial potential income and estate tax savings in the process.

In most cases, transferring such assets to a family member or charity allows you to avoid paying capital gains taxes on the appreciation (your heirs will be subject to capital gains tax when they sell the holding) which for long-term holdings is taxed at up to 20%, plus an additional 3.8% net investment income tax if your income exceeds certain thresholds. Furthermore, gifting these assets removes any future appreciation from your estate.

Here are some popular ways to transfer highly appreciated assets for maximum tax efficiency.

1. Giving to family

There’s a limit on how much you can gift to family members and others over your lifetime with no gift tax consequences. The federal gift and estate tax exemption is $13.61 million per person ($27.22 million for a married couple) in 2024 and $13.99 million ($27.98 million for couples) in 2025. However, if Congress doesn’t renew key provisions from the Tax Cuts and Jobs Act of 2017, the exemption may be cut in half starting in 2026 (with a new administration coming in, significant tax changes may be in store).

Estates that exceed the exemption limit may be subject to estate taxes up to 40%—but transferring highly appreciated assets to heirs before you pass can help reduce your taxable estate. To do so in a tax-smart manner, consider:

Outright gifting: In 2024, the IRS allows you to gift up to $18,000 per person (it increases to $19,000 in 2025) without utilizing part of your lifetime exemption or being required to complete a gift-tax return. As a couple, you and your spouse could give each of your children and grandchildren $36,000 this year with no hit to your estate tax exemption. And if you institute a regular annual gifting strategy, you could meaningfully reduce your taxable estate over time.

However, unlike assets passed down after death, assets that are gifted carry over your original purchase price (carry over basis) and holding period. If and when your heirs decide to sell the stock, they will incur capital gains on the appreciation from the date of your purchase to the date of their sale. That said, the inheritor’s taxes may be lower than yours if they’re in a lower tax bracket, so this option might be worth considering if, say, the gift is for a new graduate or other lower-income family member.

Upstream gifting: Gifting a highly appreciated position to older family members could also be an option if their estate isn’t large enough to exceed the estate tax exemption. With this strategy, known as upstream gifting, you transfer appreciated positions to your parent, who benefits from any income the assets generate before ultimately leaving the asset to your children or other selected beneficiary. When they eventually inherit the asset from your parent, they will receive the step-up in cost basis.

This strategy uses part of your lifetime estate and gift tax exemption to facilitate the transfer, but it removes future appreciation from your estate.

Establishing a trust: A grantor retained annuity trust (GRAT) is another method of removing future appreciation from your estate while passing assets to your beneficiaries tax-efficiently. They are often used for gifts to children but not grandchildren because GRATs are not necessarily exempt from generation skipping taxes.

Under this strategy, you transfer highly appreciating assets into a fixed-term, irrevocable trust, which then pays you annuity payments plus a rate of return (as determined by the IRS) for a set number of years. At the end of the term, any excess appreciation (i.e., if the investment return of the GRAT is greater than the IRS interest rate) of the assets passes to your beneficiaries tax-free and, depending on how you structure your GRAT, the gift may not count against your lifetime gift and estate tax exemption. Keep in mind that your heirs will maintain the original tax basis you had.

If you die before your GRAT term ends or the assets don’t grow as much as expected or lose value, little or no assets will be transferred and the value of the remaining assets, including any earnings, will be included in your taxable estate.

2. Giving to charity

If philanthropy is a priority for you, donating long-term highly appreciated stock and other holdings directly to a charity can make your donated dollars stretch further because of both the income and estate tax advantages.

For one, doing so allows you to avoid the capital gains tax you would owe if you sold the asset first and then donated the proceeds. Plus, you may also be able to deduct the donated investment’s fair market value in the year of the donation up to IRS limitations.

To get this favorable tax treatment, you must have held the asset for longer than a year. Also be aware that the deduction for non-cash donations is capped at 30% of your adjusted gross income (AGI), versus 60% of AGI for charitable donations made in cash. If your deduction exceeds 30%, you can carry over and deduct any excess amount for up to five additional years.

Let’s say you paid $100,000 to purchase a stock that is now valued at $750,000—a gain of $650,000. Here’s how the tax savings compare for selling the asset first versus donating it directly to charity:

Donating stock directly to charity can have more tax savings than selling a stock first.

Sell stock and donate after-tax proceeds Donate stock directly to charity

Long-term capital gains taxes owed

$130,000

($650,000 x .20)

$0

Charitable gift and equivalent tax deduction

$620,000

($750,000 – $130,000)

$750,000

Tax savings

$99,400

([$620,000 x .37] – $130,000)

$277,500

($750,000 x 0.37)

Disclosure

Several vehicles can help implement this tax-smart strategy:

Donor-advised fund: These charitable accounts have no setup costs, low to no minimum contributions, and relatively low administrative fees. You can contribute your highly appreciated stock or other investments for a deduction in the current tax year, but you don’t have to immediately decide which charities will benefit from your gift.

Charitable remainder trust: You can donate your highly appreciated position to this type of irrevocable trust and you or your heirs receive an income stream for a dedicated term (not to exceed 20 years), after which the remaining trust assets go to your charity or charities of choice. You get an immediate charitable deduction on the value of the assets estimated to pass to the charity at the end of the trust term.

Private foundation: These are federally recognized charitable tax-exempt organizations that allow families and others to create and manage a legacy of charitable gift-giving for generations to come. Establishing a private foundation is a complex endeavor with differing tax deductions and implications, so be sure you’re prepared for the related time and expense involved.

Incorporating the whole picture

These are just a few of the many ways to potentially maximize your gift-giving while reducing the income and estate tax bite of your most appreciated investments. Having clearly defined giving strategy helps you manage estate tax risks, regardless of changes in estate tax limits across administrations. A financial or wealth consultant can help you approach your decision with your comprehensive financial situation in mind.

How to Cut Your Tax Bill with Tax-Loss Harvesting

Tax-loss harvesting—offsetting capital gains with capital losses—can lower your tax bill and better position your portfolio going forward.

Not every investment will be a winner. Fortunately, even losing investments come with a silver lining: You may be able to use those losses to lower your tax liability and reposition your portfolio for the future.

This strategy is known as tax-loss harvesting, and it’s one technique investors can use to make their investments more tax-efficient.

Tax-loss harvesting generally works like this:

You sell an investment that’s underperforming and losing money.

Then, you use that loss to reduce your taxable capital gains and potentially offset up to $3,000 of your ordinary income.

Finally, you reinvest the money from the sale in a different security that meets your investment needs and asset-allocation strategy.

The principle behind tax-loss harvesting is fairly straightforward, but it does involve some potential pitfalls you should try to avoid.

The basics of tax-loss harvesting

Imagine you’re reviewing your portfolio and see that your industrial stocks have dropped in value while your tech holdings have risen sharply. As a result, the industrial sector now accounts for less of your stock allocation than you’d prefer, while the tech sector is overweight.

To get your portfolio closer to your target allocation—a portfolio-maintenance practice known as rebalancing—you would sell your industrial-sector losers for a loss, as well as some of your tech stocks for a gain.

This allows you to do two things:

You can use the proceeds of these sales to buy other industrial stocks whose prospects you prefer, bringing your portfolio back to its target allocation.

You can use the value of your loss from the industrial shares to offset the taxable gains from the sale of your tech shares, thereby reducing your tax liability.

Furthermore, if your losses are larger than the gains, you can use the remaining losses to offset up to $3,000 of your ordinary taxable income (for married couples filing separately, the limit is $1,500). Any amount over $3,000 can be carried forward to future tax years to offset income down the road.

For example, let’s say you recognize a gain of $20,000 on a stock you bought less than a year ago (Investment A). Because you held the stock for less than a year, the gain is treated as a short-term capital gain and will be taxed at the higher ordinary-income rates rather than the lower long-term capital-gain rates, which apply to investments held for more than a year.

At the same time, you also sell shares of another stock for a short-term capital loss of $25,000 (Investment B). Your $25,000 loss would offset the full $20,000 gain from Investment A, meaning you’d owe no taxes on the gain, and you could use the remaining $5,000 loss to offset $3,000 of your ordinary income. The leftover $2,000 loss could then be carried forward to offset income in future tax years. Assuming you’re subject to a 35% marginal tax rate, the overall tax benefit of harvesting those losses could be as much as $8,050.

Using an investment loss to lower your capital-gains tax

Infographic illustrating the example outlined in the preceding paragraphs.

Source: Schwab Center for Financial Research.

Assumes a 35% combined federal/state marginal income tax bracket. The example is hypothetical and provided for illustrative purposes only. It is not intended to represent a specific investment product and the example does not reflect the effects of fees.

Neither the tax-loss harvesting strategy, nor any discussion herein, is intended as tax advice and Charles Schwab & Co., Inc. does not represent that any particular tax consequences will be obtained. Tax-loss harvesting involves certain risks including unintended tax implications. Investors should consult with their tax advisors and refer to the Internal Revenue Service (IRS) website at www.irs.gov about the consequences of tax-loss harvesting.

By offsetting the capital gains of Investment A with your capital loss from Investment B, you could potentially save $7,000 on taxes ($20,000 × 35%). Because you lost $5,000 more than you gained ($25,000 – $20,000), you can reduce your ordinary income by $3,000, potentially lowering your tax liability an additional $1,050 ($3,000 × 35%), for a total savings of $8,050 ($7,000 + $1,050). You could then apply the remaining $2,000 of your capital loss from Investment B ($5,000 – $3,000) to gains or income the following tax year.

Issues to consider before utilizing tax-loss harvesting

As with any tax-related topic, there are rules and limitations:

Tax-loss harvesting isn’t useful in retirement accounts, such as a 401(k) or an IRA, because you can’t deduct the losses generated in a tax-deferred account.

Long-term losses are first applied to long-term gains, while short-term losses applied to short-term gains. If you have excess losses in one category, you can apply them to gains of either type.

When conducting these types of transactions, you should also be aware of the wash-sale rule, which states that if you sell a security at a loss and buy the same or a “substantially identical” security within 30 days before or after the sale, the loss is typically disallowed for current income tax purposes.

A tax break for ordinary income

Even if you don’t have capital gains to offset, tax-loss harvesting could still help you reduce your income tax liability.

Let’s say Sofia, a single income-tax filer, holds XYZ stock. She originally bought it for $10,000, but it’s now worth only $7,000. She could sell those holdings and take a $3,000 loss. Then, she could use the proceeds to buy shares of ZYY stock (a similar but not substantially identical stock) after determining that it’s as good as or better than XYZ.

Sofia could use the $3,000 capital loss from XYZ to reduce her taxable income for the current year. If her combined marginal tax rate is 30%, she could receive a current income tax benefit of up to $900 ($3,000 × 30%). She could then turn around and invest her tax savings back in the market. If she assumes an average annual return of 6%, reinvesting $900 each year could potentially amount to approximately $35,000 after 20 years.

Harvesting losses regularly and proactively—when you rebalance your portfolio, for instance— can save you money over the long run, effectively boosting your after-tax return.

The Corporate Transparency Act and Your Small Business

What small-business owners need to know about the new Corporate Transparency Act.

If you own a small business or family office, you could soon be required to report ownership details to the federal government—or face stiff penalties and possible jail time. Here’s what you need to know.

Litigation Update: A federal district court recently ruled that the Corporate Transparency Act (CTA) is likely unconstitutional, placing a temporary ban on enforcement of the CTA. The Financial Crimes Enforcement Network (FinCEN) has agreed to suspend the mandatory reporting requirements of beneficial ownership information required by the CTA until the resolution of the ongoing litigation.

The federal government has filed an appeal to the United States Court of Appeals for the 5th Circuit, and the appeals court could decide to stay the district court’s ruling, which would mean that the CTA—including the mandatory reporting requirements—could be enforced while we await a possible future trial to decide the fate of the CTA. Because of the uncertainty, we believe business owners affected by the CTA should continue to prepare to comply with the new law’s reporting requirements.

What is it?

The Corporate Transparency Act (CTA), which goes into effect on January 1, 2024, requires otherwise unregulated companies to report information about “beneficial owners”—those who own at least 25% of or exercise substantial control over the reporting company—to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Failure to comply could result in fines of up to $10,000 and imprisonment for up to two years.

The substantial control attributed to beneficial owners could be serving as a senior officer, having the authority to appoint or remove senior officers, serving on a board of directors, having rights associated with financing arrangements, or overseeing intermediary entities that exercise substantial control over the business.

While this means a trust technically could be beneficial owner, the CTA states that beneficial owners must be individuals. Therefore, the trust document would need to be reviewed to determine whether the grantor, trustee, or beneficiaries are considered beneficial owners.

How does it affect business operations?

The immediate impact of the CTA on a small business is that owners will incur the administrative costs associated with compliance. Some business owners claim the law will affect their privacy because the FinCEN will receive their personal information.

In addition, the CTA may have implications for mergers and acquisitions. Potential buyers may require access to the beneficial ownership information as part of their due diligence process, which could make it difficult to attract buyers or negotiate favorable terms.

Why target small businesses?

The law attempts to close a loophole in corporate regulations that enables criminals to hide their identities using shell companies. However, the legislation may affect almost every small business in the U.S., including family offices, independent contractors, and the limited liability companies (LLCs) commonly used by mom-and-pop shop owners.

Family LLCs, in particular, are often used to transfer ownership of a business from one generation to the next in a tax-efficient way. By retaining a small interest, the original owner can claim certain discounts that reduce the value of the transfer for tax purposes. The CTA doesn’t prohibit this type of transaction, but new IRS rules will require these entities to report ownership information. Individuals who value privacy may forgo the use of LLCs in favor of other structures that still allow for some level of anonymity, such as irrevocable trusts.

What are the requirements?

Entities created on or after January 1, 2024, must report beneficial owner information to the FinCEN website within 90 calendar days of creation. Existing entities have until January 1, 2025, to comply with the statute, unless they undergo ownership changes—such as those triggered by a sale or minor children reaching the age of majority—in which case they have 30 days from the date of change.

The law exempts 23 types of businesses, including accounting firms, banks, charitable entities, and large operating companies that meet certain requirements.

If you’re a business owner, familiarize yourself with the CTA’s reporting requirements and meet with your accountant or attorney to discuss whether the new law affects you. Don’t wait for the government to come knocking—the stakes are just too high.

More Home Buyers Expect Rosier 2025 Housing Outlook

The housing market could open up more opportunities to home buyers in the new year and lead to a housing rebound after two years of sluggish sales, housing economists said last week during NAR’s Real Estate Forecast Summit. During the virtual summit, NAR released its 2025 housing forecast, predicting stronger home sales (rebounding after hitting a 15-year low this summer), moderating but still increasing home prices, a greater number of homes coming up For Sale—both newly built and existing—as well as stabilizing mortgage rates.

Zillow’s Housing Market Predictions for 2025

Zillow predicts a more active housing market and more buyers gaining the upper hand in 2025, but those hoping to buy — or even refinance — should buckle up for a bumpy ride and stay ready to move when conditions are right. Rent affordability is on track to improve next year, as long as wages continue to grow, after a construction boom has eased pressure on rent prices.

Market Update

Despite mortgage rates remaining elevated in the past couple of months, the latest housing report offers some hope that the market will continue to get better as we wrap up 2024 and move into 2025. While home sales remained well below the pre-pandemic norm in November, market conditions continued to improve year-over-year. Inflation appears to be sticky, but it is in line with expectations for now, and the Fed will likely follow through with a reduction this week as such. Consumers are also feeling more optimistic about the housing market, which is a good sign that many potential homebuyers could be moving off the sidelines in the coming year.

Housing Market Unlikely to Thaw in 2025 Due to Affordability Challenges and ‘Lock-in Effect’

Affordability and the so-called “lock-in effect” are expected to keep housing activity subdued in 2025, with existing home sales forecast to move only slightly upward from recent multi-decade lows, according to the December 2024 commentary from the Fannie Mae Economic and Strategic Research Group. The broader economy is expected to remain on solid footing and expand at an above-trend pace through 2026 as it navigates elevated core inflationary pressures and heightened policy uncertainty.

California housing market sees largest sales increase since 2021

Source: Times of San Diego

California’s housing market recorded its largest annual increase in existing home sales since June 2021 this November, reported the CALIFORNIA ASSOCIATION OF REALTORS® on Tuesday. However, the market continues to recover slowly, with overall sales still far below pre-COVID levels. The sales of existing single-family homes climbed 1.1 percent from October’s 264,870 homes to 267,770 homes in November. Compared to November 2022, sales surged 19.5 percent from a revised 224,140 homes. C.A.R. noted, though, that this significant year-over-year growth was due to the “low-base effect,” as November 2022 sales dropped to their lowest point since late 2007.

The statewide median home price declined 4 percent month-over-month, from $888,740 in October to $852,880 in November. Despite this drop, the median price rose 3.8 percent year-over-year from November 2022’s revised $821,710. November’s price drop marked the largest October-to-November decline since 2008, following a significant price increase in the prior month. C.A.R. attributed the drop primarily to a shift in the sales mix, with higher-priced home sales pulling back more sharply than lower-priced sales.

Federal Reserve lowers interest rates but hints at fewer cuts next year

Source: NPR

The Federal Reserve lowered interest rates on Wednesday, but policy makers signaled caution about additional rate cuts next year in the face of stubborn inflation. The central bank lowered its benchmark interest rate by a quarter percentage point to a range of 4.25 percent to 4.5 percent. Rates have fallen by a full percentage point since September, making it cheaper to get a car loan, finance a business or carry a balance on your credit card.

On average, members of the Fed’s rate-setting committee said they expect borrowing costs to fall by only another half percentage point in 2025. That’s less than the projections three months ago, which predicted a full percentage point in rate reductions next year. While inflation has fallen sharply since hitting a four-decade high in 2022, progress on prices has slowed in recent months. The annual inflation rate in November was 2.7 percent – slightly higher than the month before. Fed officials say they’re determined to bring inflation down further, while acknowledging it’s been a lengthy and exhausting battle. Members of the rate-setting committee now think it will be 2027 before inflation falls to the Fed’s 2 percent target.

SoCal housing market slows for homes and rentals

Source: Los Angeles Times

The Southern California housing market is downshifting. The average home price in the six-county region fell 0.3 percent from October to $869,288 in November, according to Zillow, marking the fourth consecutive month of declines. Price are now 1.3 percent off their all-time high in July, but some economists say prospective home buyers and sellers shouldn’t expect home values to plunge – one reason behind the shift is the market typically slows in the fall and prices are still above where they were a year ago.

Still, more homes are hitting the market and mortgage interest rates remain high, creating a situation of slightly more supply and slightly less demand. As a result, annual price growth has slowed. Last month, Southern California home prices were 4.3 percent higher than a year earlier, compared to a recent peak of 9.5 percent in April. Senior economist at Zillow Orphe Divounguy said he expects annual price growth in Southern California to slow further next year, but not to turn negative. Though more homeowners are choosing to sell their home, many others still don’t want to give up their ultra-low mortgage rates they took out during the pandemic.

New California insurance rule will increase coverage in fire-prone areas

Source: CBS News

Under a new insurance regulation that just got approved last week, California Insurance Commissioner Ricardo Lara said homeowners would have an easier time buying fire insurance. The insurance crisis has been unfolding in the state for the last couple of years, with companies leaving or dropping customers, especially those who live in wildfire-prone areas.

Commissioner Lara announced on Friday that his plan to allow companies to use catastrophe models and climate change to set higher rates got the approval from the Office of Administrative Law. In exchange, he said companies promised to sell policies in areas with the greatest fire risks, such as Wine Country, the Santa Cruz Mountains, and the Oakland Hills. “This is the first time in California that there’s a requirement for insurance companies to write policies and we’re going to be enforcing that,” said Michael Soller, a deputy insurance commissioner at the state’s insurance department. He said the new regulation will require companies to try to cover 85 percent of homes in designated fire-prone zip codes.

California’s fourth-largest home insurer to drop all condo, rental policies

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Source: San Francisco Chronicle

Liberty Mutual, California’s fourth-largest home insurer, is planning to exit the condo and rental insurance markets in 2026. On the eve of a slate of reforms meant to incentivize insurance companies to write policies in California, Liberty Mutual has told state regulators it will stop offering new condo and renter policies in 2025. Existing customers will begin losing coverage in 2026, according to filings with the California State Department of Insurance.

In 2023, Liberty Mutual insured 6.75 percent of the California home insurance market, which includes homeowners, condo owners and renters insurance. Filings show Liberty Mutual currently insures just under 67,500 condos and about 102,000 rental properties under its Liberty Mutual and Safeco brands. The company hasn’t written new condo and rental policies under the Liberty Mutual brand since December 2023, according to the spokesperson. All existing customers will remain covered until at least January 2026. The company will continue offering insurance for homeowners.

November home sales surged more than expected

Source: CNBC

Sales of previously owned homes rose 4.8 percent in November compared with October, according to the National Association of REALTORS. That put them at a seasonally adjusted, annualized rate of 4.15 million units. Sales were 6.1 percent higher than November 2023. This is the third-highest pace of the year and the largest annual gain in three years. This count is based on closings, so contracts were likely signed in September and October.

According to the Mortgage Bankers Association’s seasonally adjusted index, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,650 or less increased to 6.75 percent from 6.67 percent, with points remaining unchanged at 0.66 (including the origination fee) for loans with a 20 percent down payment. Applications for a mortgage to purchase a home increased 1 percent for the week and were 6 percent higher than the same week one year ago. Refinance demand fell 3 percent for the week but was 41 percent higher than the same week one year ago.

California Experiences Largest Annual Increase in Home Sales Since June 2021

California had its largest yearly increase in existing home sales since June 2021 in November, but overall, the housing market remained a work-in-progress.  Despite a double-digit growth rate from their year-ago level, sales of existing single-family homes remained well below the pre-Covid norm of 400,000 units, C.A.R. reported last week.

Existing, single-family home sales totaled 267,800 in November on a seasonally adjusted annualized rate, up 1.1 percent from 264,870 in October and up 19.5 percent from 224,140 in November 2023.

November’s statewide median home price was $852,880, down 4 percent from October but up 3.8 percent from $821,710 in November 2023.

Year-to-date statewide home sales edged up 3.1 percent

Fed Lowers Rates But Sees Fewer Cuts Next Year

The U.S. central bank cut interest rates last Wednesday, as expected, but Federal Reserve Chair Jerome Powell said more reductions in borrowing costs now hinge on further progress in lowering stubbornly high inflation, remarks that showed policymakers are starting to reckon with the prospects for sweeping economic changes under a Trump administration.

Court Grants Final Approval of NAR’s Settlement Agreement

Judge Stephen Bough last week granted final approval of the NAR settlement agreement in the class action case related to broker commissions.

C.A.R. supports the judge’s final approval as a reasonable and fair compromise that allows REALTORS® and REALTOR® organizations nationwide to move forward and serve consumers.

The agreement will resolve claims against NAR, over one million NAR members, all state/territorial and local REALTOR® associations, all association-owned MLSs, and all brokerages with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or less.

The judge’s approval of the settlement is an important step, but not the final one. It’s likely that many objectors will appeal the settlement to the Eighth Circuit Court of Appeals. While the outcome there may be unclear, the appellants would face an uphill battle in challenging the settlement and its approval.

FHFA Announces 2025 Conforming Loan Limits

The Federal Housing Finance Agency (FHFA)  last week announced the conforming loan limit values for mortgages acquired by Fannie Mae and Freddie Mac (the Enterprises) in 2025. The conforming loan limit is $806,500 on one-unit properties and a cap of $1,209,750 in high-cost areas. The previous loan limits were $766,550 and $1,149,825, respectively.

The conforming loan limit determines the maximum size of a mortgage that government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac can buy or “guarantee.” Non-conforming or “jumbo loans” typically have tighter underwriting standards and sometimes carry higher mortgage interest rates than conforming loans, increasing monthly payments and hampering the ability of families in California to purchase homes by making them less affordable.

Market Update:

News on the economy and the housing market last week were mostly positive and encouraging. Black Friday kicked off the holiday shopping season and consumers were able to deliver. Retail sales on the day after Thanksgiving increased 3.4% year-over-year and more money is expected to be spent on Cyber Monday. Consumers are feeling more confident about the economy and their financial well-being was one reason for the holiday spending spree. The Consumer Confidence index which measures the level of optimism, indeed, increased for the second straight month in November. There was also good news in the housing market, as conforming loan limits were raised for 2025 and mortgage rates continued to recover after reaching their recent peak in early November. And while it was disappointing to see new home sales dropping to the lowest level in October, a separate housing market index released recently suggests that an improvement in buyers’ traffic and future sales were observed in November.

Homeowners’ wealth jumped $150,000 in 5 years

Source: Money.com

Though the housing market has been a rollercoaster ride over the past few years, homeowner wealth has surged by nearly $150,000 in the last five years. The pandemic initially caused a slowdown, but it was followed by a period of unprecedented demand, leading to sharp price increases and a competitive landscape for buyers. According to the National Association of REALTORS®, the pace of price increases has slowed down somewhat, however. The national median home price increased by 3.1 percent year-on-year in the third quarter of 2024, a slowdown from the 5 percent increase seen in the second quarter. While prices are still elevated, the deceleration suggests a potential shift toward a more balanced market.

NAR’s data shows that nearly 90 percent of major U.S. metro areas saw home price increases in the third quarter of 2024. Prior to 2024, mortgage rates had been steadily rising, reaching a peak above 7 percent, which had a chilling effect on affordability. However, the 30-year fixed-rate mortgage has since averaged in the mid-6 percent range, improving affordability. The monthly mortgage payment on a typical existing single-family home with a 20 percent down payment decreased by 2.4 percent year-over-year in the third quarter.

Unsung power players of real estate: How Gen X impacts the market

Source: Realtor.com

The real estate market seems to be constantly buzzing about baby boomers, Millennials and Gen Z, but what about Gen X? Born between 1965 and 1982, Gen X is the smallest age cohort by population, but they’re no less mighty when it comes to the housing market. Though Gen X accounts for just 19 percent of the U.S. population, a new National Association of REALTORS® report reveals that they represent 24 percent of recent homebuyers – a significant slice of the market. Around 60 percent of Gen Xers own their homes, and these properties carry some serious value.

Gen X is the second-highest-earning generation with an average annual income of $126,900 in 2023, with an average home size of 1,940 square feet. But homeownership hasn’t come without challenges. Gen X also shoulders more debt than any other generation, including an average of $45,557 in student loans and an average of $279,935 in mortgage balances. Many Gen Xers locked in historically low interest rates during the 2000s and early 2010s, with an average mortgage rate of just 4 percent, according to Freddie Mac.

Mini gold rush drives up property values in the Mojave Desert

Source: KTLA

It has been nearly 200 years since the famous California gold rush of the late 1840s, but mining property is hot once again, at least in one area of Southern California. Record-high gold prices have driven demand for mines in the Mojave Desert, the Los Angeles Times reports. “It’s a modern day gold rush,” entrepreneur Sean Tucker told the Times. “People are snapping up claims as quickly as possible.”

The physical dangers of mining remain, as do financial concerns. One might need to find only 18 ounces to make the property pay for itself. Plenty of gold is being found, but as one truck-driver-turned-miner noted, nothing about mining is simple or guaranteed. “It’s not easy,” Rudy Salazar said. “But I hope it pans out.”

Housing clash involving two mortgage giants could drive up mortgage costs

Source: Yahoo! Finance

The Trump administration’s latest push to end government conservatorship of Fannie Mae and Freddie Mac has the housing world abuzz. According to the National Association of REALTORS, these government-sponsored enterprises (GSEs) guarantee about 70 percent of U.S. mortgages. Any alterations to their structure could send shock waves through the housing market, impacting everything from mortgage rates to affordability

Fannie Mae and Freddie Mac have been under federal control since 2008 when the financial crisis pushed them into conservatorship. They are critical to the housing market because they buy mortgages from lenders, package them into securities and sell them to investors. This process allows banks to maintain the liquidity they need to continue issuing loans that help millions of Americans obtain long-term fixed-rate mortgages. Privatizing these two major lenders could remake the entire housing finance system. Advocates argue that it would reduce taxpayer risks and bring competition into the market. Critics, however, caution that it could come at a high price for borrowers. Without the implicit guarantee from the government, investors might grow more wary of mortgage-back securities, forcing up yields and, ultimately, mortgage rates.

Housing cost burdens climbed to record levels in 2023

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Source: Harvard Joint Center for Housing Studies

Housing affordability worsened again last year, as a record number of U.S. households were cost burdened. According to Harvard’s Joint Center for Housing Studies’ analysis of the 2023 American Community Survey data, an all-time high 42.9 million households were cost burdened, meaning they spent more than 30 percent of their income on housing costs. Additionally, 21.5 million households were severely cost burdened, devoting more than 50 percent of their income to housing, marking another all-time high.

The majority of the rise in burdened households was driven by an increasing number of cost-burdened homeowners, up by 3.6 million since 2019 to 20.3 million overall. Fully 24 percent of homeowners were burdened by housing costs. Median monthly costs for homeowners increased 6 percent in 2023 to $1,327. Overall costs for homeowners have risen 18 percent since 2019. At the same time, median homeowner incomes have risen 16 percent.

Homebuyer mortgage demand jumped 6% as interest rates fell

Source: CNBC

Potential homebuyers are responding to lower mortgage rates and a higher supply of homes for sale. That fueled mortgage demand last week, as consumers looking to refinance pulled back. Total mortgage application volume rose 2.8 percent compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. An additional adjustment was made for the Thanksgiving holiday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,650 or less decreased to 6.69 percent from 6.86 percent, with points remaining falling to 0.67 from 0.70 (including the origination fee) for loans with a 20 percent down payment. Applications for a mortgage to purchase a home jumped 6 percent for the week and were 21 percent lower than the same week one year ago. Refinance demand dropped 1 percent for the week and were 7 percent lower than the same week one year ago. Conventional refinance applications declined despite the lower rates, but FHA and VA refinances rebounded from the week prior.

Reasons 2025 is the year to buy a home in California

Source: GoBankingRates.com

California’s desirable climate and geographical variety, from mountains to deserts with a mix of big cities and suburbs, contribute to housing prices that are often higher than in other parts of the country. However, things are shifting, and some experts say 2025 may be the year to consider buying a home here. Single-family home sales are expected to increase by 10.5 percent in 2025, to 304,400 units, according to data from the CALIFORNIA ASSOCIATION OF REALTORS®. If mortgage rates might ease, potential buyers previously priced out could find a more favorable environment.

While home prices will continue to rise, they are expected to do so at a slower pace than in the past few years, so getting in now will be better than waiting a few years. Unlike the rapid price hikes of recent years, this gradual appreciation rate can offer buyers more predictable investment returns.

Where economists think the housing market is headed

Source: HousingWire

Housing markets across the country have stalled since mortgage rates began to rise in 2022, but relief may be on the way. That’s according to Lawrence Yun, chief economist for the National Association of REALTORS® (NAR), whose latest forecast calls for a 9 percent increase in home sales in 2025 and a further boost of 13 percent in 2026. Underpinning these numbers are Yun’s belief that broader macroeconomic trends will boost the housing market.

Yun’s forecast came at the same time that the Mortgage Bankers Association (MBA) released a macroeconomic forecast that predicts a sluggish economy over the next few years. While gross domestic product rose 3.2 percent in 2023, MBA’s outlook is that 2024 will finish at 2.3 percent, followed by three years of growth of 2 percent or less. Residential investment, which boomed in the years following the COVID-19 pandemic, will be more mixed after hitting 2.5 percent growth in 2023. The MBA forecast shows a 0.1 percent gain in 2024, followed by more volatile growth of 1.1 percent to 3.3 percent in the next three years.

Interest rates keep going down, but mortgage rates don’t — here’s why

Source: CNC

The Federal Reserve keeps dropping key interest rates, but mortgage rates are actually going up, leaving some prospective homeowners facing a difficult reality. As mortgage rates continue to climb, potential buyers are starting to accept that they won’t come down for a while. The average mortgage rate is sitting at around 6.8 percent this week, and it has remained above 6 percent for the past two years. So why are mortgage rates remaining high? Experts blame a combination of better-than-expected growth and uncertainty over the economic impact of another Trump administration.

While the Federal Reserve has started easing interest rates, those cuts typically only impact long-term lending such as car loans or credit card debt. Mortgages are more closely tied to government bonds. Experts say that mortgage rates could push higher if the economy stays strong. Because of that, some economists expect the housing market to remain quiet through 2025.

California agencies issue alert on mortgage modification scams

Source: Calif. Dept. of Financial Protection & Innovation

The California Department of Corporations and the California Department of Real Estate jointly issued a consumer alert today warning homeowners about mortgage loan modification and home refinancing scams. Homeowners should be wary of any offer that tries to collect a fee in advance. Such practices are illegal. “Advance fees for loan modifications have been illegal in California since 2009,” said Corporations Commissioner Jan Lynn Owen. “Anyone trying to charge a homeowner upfront for such a service is violating the law and should be reported.”

Other scams include proposals to sign over your home to a third party to avoid foreclosure to stop making payments or even default on your mortgage loan as a means to gain negotiating leverage with your bank. Neither of these options will prevent foreclosure and could result in a property owner losing their home even sooner than if the bank were to foreclose.

Record number of first-time homebuyers needed inheritance to buy a home

Source: Yahoo! Finance

According to the latest data from the National Association of REALTORS® (NAR), a record share of first-time homebuyers at 7 percent are using an inheritance to finance their down payment. That’s more than double the share of repeat buyers who are doing the same. The trend highlights the growing disparity between who can buy a home in the U.S. and who can’t.

Amid higher rates and sky-high prices, the typical buyer is also older and wealthier than ever before. The median age of first-time buyers was up to 38 from 35 last year, and the median household income of first-time buyers was $97,000. At the same time, first-time buyers are putting down the largest down payments in almost 30 years to compete with the 26 percent of buyers who paid all cash for their home, also an all-time high.

Mortgage demand stalls as financial markets digest Trump presidency

Source: CNBC

Mortgage rates continued to climb last week as investors considered the future of the economy under a Trump presidency. Total mortgage application volume was essentially flat, rising just 0.5 percent last week compared with the prior week, according to the Mortgage Bankers Association’s seasonally adjusted index. While tiny, the increase marked the first rise in overall demand in seven weeks.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,650 or less increased to 6.86 percent from 6.81 percent, with points decreasing to 0.60 from 0.68 (including the origination fee) for loans with a 20 percent down payment. Refinance demand, which is most sensitive to weekly rate moves, fell 2 percent for the week but were 43 percent higher than the same week one year ago. Last year at this time, the 30-year fixed rate mortgage was 75 basis points higher. Applications for a mortgage to purchase a home rose 2 percent for the week and were just 1 percent higher than the same week one year ago. Homebuyers may be looking at lower rates than last year, but they are also seeing higher home prices while the supply of homes for sale remains lean.

Young homeowners more likely better off now than 4 years ago than young renters

Source: Redfin

Just over two-thirds (68.7 percent) of millennial/Gen Z homeowners say they are better off financially than they were four years ago. That compares to just over half (52.2 percent) of millennial/Gen Z renters, according to survey by Ipsos and commissioned by Redfin in September 2024. The survey was fielded to 1,802 U.S. residents aged 18-65. For the purposes of this report, respondents aged 18-27 were classified as Gen Z, while respondents aged 28-43 were classified as millennials. Those aged 44-59 were called Gen Xers and those aged 60-65 were baby boomers.

As recently as four years ago, millennials were considered the “unluckiest generation” given their relatively weak economic standing, saddled with debt for higher education and suffering from low wages and high costs of living. However, that started to change during the pandemic. Scores of young Americans bought their first home during the pandemic or the years leading up to it, and then benefitted from a surge in home values fueled by the 2021-2022 homebuying boom. That helped many young people build tremendous home equity, and home values are still on the rise today.

Annual inflation dips to 2.1%

Source: U.S. News and World Report

The last inflation report ahead of Tuesday’s election and next week’s Federal Reserve meeting shows prices rose at a 2.1 percent annual rate in September – a hair’s breadth away from the central bank’s 2 percent target. The personal consumption price expenditures index report last Thursday shows inflation at the lowest level since February 2021 and down from 2.2 percent in August. The core index, leaving our energy and food costs, was 2.7 percent. Analysts believe the Fed is likely to lower interest rates by 25 basis points, or one-quarter of a percent, following its surprise 50-basis-point (one-half a percent) cut in September.

The promise of lower borrowing costs appears to be cheering up consumers. Although shelter costs have remained a problem for inflation readings because rents remain high, the Conference Board’s monthly consumer confidence index surged in October, rising to 108.7 from 99.2 in September. On Wednesday, the government reported that gross domestic product increased at a 2.8 percent annual rate in the third quarter on strong consumer and government spending. Also, ADP said that employers added 233,000 jobs in October, far more than had been expected.

California sees spike in home sales falling through due to insurance

Source: Newsweek

California home sales are falling as property insurance becomes increasingly unaffordable, a new report from the CALIFORNIA ASSOCIATION OF REALTORS® has found. Based on responses from 96,000 REALTORS® in California, 13.4 percent said a sale had fallen through because of issues finding affordable insurance. That means about one in seven REALTORS® saw home insurance issues derail a sale – what was double the rate of last year, when 6.9 percent of REALTORS® said the same.

For 74.7 percent of REALTORS®, no insurance was available to a client, reflecting a growing crisis as more insurers leave the state. Meanwhile, 17.8 percent of the REALTORS said insurance premiums were simply too expensive for their client, causing the deal to collapse. While the insurance crisis might not be posing a significant problem in top markets such as the Bay Area, it can still force expensive renovations and delays in escrow, experts say.

Scammers are stealing homes using AI

Source: Business Insider

Emboldened by AI technology and immense amounts of public information, some scammers have begun more aggressively stealing deeds – also called title theft – say real-estate fraud experts. Their targets can range from mansion dwellers to owners of more modest homes and parcels of land. A May 2024 study by the American Land Title Association and economic research form NDP Analytics with 783 responses found seller impersonation fraud – when someone fakes the identities of property owners with the aim to sell their properties – is fairly common. Twenty-eight percent of title insurance companies experienced at least one seller impersonation fraud attempt in 2023; 19 percent saw attempts in April 2024 alone.

The FBI’s Internet Crime Complaint Center doesn’t specifically track deed fraud. However, in 2023, it processed a total of 9,521 real-estate-related complaints – which it defines as a loss of funds from a real-estate investment – resulting in more than $145 million in losses. Property data is readily available to the public, and in some states a simple search can unearth appraisal data, blueprints, transaction records, and even pictures of executed deeds. With AI, fake documents could be created faster and look more realistic. AI tools can also recognize vacant properties in databases faster than a human could or identify homes without mortgages attached to them (which could mark them as targets for a refinancing scheme). The amount of personal information available to fraudsters also makes impersonation easier.

Pending home sales took an unexpected leap last month, despite higher rates

Source: CNBC

Signed contracts to buy existing homes in September jumped a surprising 7.4 percent compared with August, according to the National Association of REALTORS. Analysts had been expecting a 1 percent gain. Pending sales were at the highest level since March and 2.6 percent higher than September of last year. However, mortgage rates rose last week for the fourth time in five weeks, causing a pullback in refinancing. Total mortgage application volume was essentially flat, falling 0.1 percent compared with the prior week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,650 or less increased to 6.73 percent from 6.52 percent, with points increasing to 0.69 from 0.64 (including the origination fee) for loans with a 20 percent down payment. Refinance demand dropped 6 percent for the week but were 84 percent higher than the same week one year ago. Applications for a mortgage to purchase a home increased 5 percent for the week and were 10 percent higher than the same week one year ago.

Market Minute

With mortgage rates climbing to a 3-month high, housing demand in the past few weeks has gone down as the number of mortgage applications reached its recent low since July. Home sales, as such, will likely remain soft in October and November until rates start coming down again. Meanwhile, new home sales last month reached the highest level since May 2023 as new housing markets benefited from low rates in September. However, with rates back to 7% recently, sales momentum in the new housing market will likely slow in the near future. On a brighter note, consumer short-term inflation expectations in September continued to stay at the lowest level since early 2021, which at least offers hopes that rates could gradually come down in the coming months.

October 2024

Pending home sales post biggest increase since 2021

Source: RedfinPending U.S. home sales rose 2 percent from the year prior during the four weeks ending October 6, the biggest increase in three years. Demand picked up at earlier stages of the homebuying process, too. Redfin’s Homebuyer Demand Index – a measure of tours and other buying services from Redfin agents – say near its highest level since May last week, and mortgage-purchase applications are up 8 percent month over month. New listings are also rising, with a 5.7 percent year-over-year uptick.

Pending sales improved because buyers came out of the woodwork in late September after the Fed’s interest rate cut, even though mortgage rates had already been declining for several weeks in anticipation of the cut.

Consumer confidence in housing market reaches highest level in two years

Source: Mortgage Orb

Consumer confidence in the housing market increased in September, as per Fannie Mae’s Home Purchase Sentiment Index (HPSI), which rose to a score of 73.9, the highest in two years. The share of survey respondents who say it is a good time to buy a home increased 2 percentage points (19 percent) in September compared with August, while the percentage who say it is a bad time to buy decreased from 83 percent to 81 percent. Conversely, the percentage of respondents who say it is a good time to sell a home (65 percent) remained unchanged compared with August, while the percentage who say it’s a bad time to sell (35 percent) increased 1 percentage point.

The share of respondents who say they expect mortgage rates to go down in the next 12 months increased from 39 percent to 42 percent, a new survey high – while the percentage who expect mortgage rates to go up increased from 25 percent to 27 percent.

America’s inflation is getting back to normal, but price problems persist

Source: CNN

America’s inflation continued to slow in September, reaching a fresh, three-and-a-half-year low and coming in at a pace that’s similar to what was seen in 2017 and 2018, according to data released Thursday. The Consumer Price Index, which measures price changes across commonly purchased goods and services, was 2.4 percent for the 12 months ended in September, slowing from a 2.5 percent annual rate in August, according to the latest Bureau of Labor Statistics report. This is the slowest since February 2021.

A jump in food prices – a sweeping bird flu has caused egg prices to spike – combined with ongoing, but easing, shelter-related inflation drove the overall CPI higher last month despite falling gas prices, BLS said. Stripping out food and energy costs, categories that are typically quite volatile, core CPI rose 0.3 percent in September, bringing the annual rate up to 3.3 percent after holding firm at 3.2 percent the past two months. The CPI was expected to be stubbornly high for the month, reflecting persistent housing inflation and lifts in prices for items such as insurance, lodging costs and vehicle prices.