Have you heard about the change happening across the U.S.? Learn more at JoinChristianCommunity.com. That's JoinChristianCommunity.com. Membership eligibility required. Each account is insured up to $250,000. This institution is not federally insured. Millennials and Gen Z'ers looking to buy houses are having a rough time of it, and analysts say baby boomers are the reason.
Hi, I'm Rob West. Boomers aren't the only reason younger folks are finding it difficult to buy the size home they'd like. Other factors are working against them, too. I'll tell you all about it today with some advice on how to deal with it, and that it's on to your calls at 800-525-7000.
That's 800-525-7000. This is faith and finance, biblical wisdom for your financial journey. Okay, so the real estate site Redfin says that empty nest baby boomers own almost a third of the nation's large homes. These are folks aged 58 to 76. Meanwhile, millennials with kids own just 14%. Millennials are defined as ages 26 to 41. As you might expect, Gen Z'ers ages 19 to 25 own just 0.3% of large homes, and in case you're wondering, a large home is described as having three bedrooms or more.
Now, why is any of this important? Well, because younger folks tend to upsize buying larger houses as their families grow, and so right now there's a huge demand for those homes, but not a lot of inventory. Redfin says this situation is caused by two factors. First, when today's boomers were younger, houses in general were a lot more affordable, so they tended to buy bigger houses. Second, boomers now have little financial incentive to sell. Most of them, 54%, have no mortgage. They own their houses outright. Their median monthly cost of ownership for things like insurance and taxes comes to just over $600. For boomers still holding a mortgage, the vast majority have a much lower interest rate than they'd have if they sold now and bought a different home.
They might downsize and have about the same monthly payment, so they're staying put and keeping inventory low. Of course, for millennials and Gen Z'ers, all this is making their dream house seem like a dream that will never come true. Supply chain interruptions during the COVID pandemic dramatically reduced building starts for a couple of years, while demand for new houses only grew. The increase in building cost raised home values higher and higher, and then came inflation and soaring interest rates. Not surprisingly, all this made 2023 the least affordable home buying year on record.
Folks with equity in their current home can generally sell and buy another house, but first-time home buyers without that leverage are finding themselves priced out of the market. 2024 is projected to be a better year for them, but conditions are a long way from what their parents experienced. Many boomers took advantage of an abundance of newly built homes and favorable economic conditions during their biggest earning years, 30 or more years ago. They built wealth and bought big homes. Those homes proved to be solid investments. Their value has grown several times faster than incomes over the last several decades. Boomers now hold half of the nation's wealth, and a lot of it is in real estate. Also, when they bought homes, they didn't have to spend as high a percentage of monthly income on housing, so they were free to invest more.
Today's younger families aren't being handed those same opportunities, but analysts say they need to be patient. More boomers will decide to sell and downsize in the years ahead. More houses will be built. Inventory will increase and prices will go down. Mortgage rates will also go down. Maybe not to 2% or even 3%, but they will go down, making homes more affordable. It's just a matter of time. In the meantime, you can get ready.
I recently gave you some steps for this, and they're worth repeating. First, accelerate your payments to get rid of credit card debt and any car loans you have. That improves your debt-to-income ratio and will help you get a better mortgage rate. Be sure to make every payment on time.
Check your credit reports for errors and dispute any you find. Bring your credit score up as much as possible. That will also help you get a lower interest rate, which will lower your monthly payment when you do buy. Save as much as you can in liquid savings for your down payment.
20% is best. That way, you won't get stuck with private mortgage insurance, which increases your monthly payment from $30 to $70 for every $100,000 you borrow. And finally, when you are ready to buy, don't take the first mortgage offer that comes your way. Most buyers do, if you can believe it. Get pre-approved and then shop around for a mortgage with the lowest rate and best terms you can find. It could save you tens of thousands of dollars over time. Okay, that's what's going on in the housing market.
I hope you found that to be helpful as you're on your quest to buy a home. Your calls are next. The number, 800-525-7000. That's 800-525-7000.
I'm Rob West, and we'll be right back. faithful stewards. As a nonprofit organization, we rely on help from monthly faith by patrons, supporters of this mission to help us continue and expand our outreach. Has God provided financial answers for you through this ministry? If so, consider becoming a monthly faith by patron. Visit faithfi.com and click Give. God has entrusted his finances to you and we at FaithFi have designed our FaithFi app to help you live, give, owe, and grow with that perspective. Our FaithFi app is the leading biblically-based finance app. You can manage your money, get top biblical financial resources, and interact with a community of like-minded believers where you can ask questions, get answers, and share what you're learning.
Visit faithfi.com and click the word app to get started. Welcome back. This is Faith and Finance. I'm Rob West. We're taking your calls today. 800-525-7000. That's 800-525-7000. By the way, you don't have to call, just send an email. Ask Rob at faithfi.com.
That's ask Rob at Faith, the letters F-I dot com. Let's go to Georgia. Hi, Gail. Go right ahead. Hi. Thank you for taking my call. My question is this. I'm 76 years old and I'm driving a car that's 13 years old. It still runs well, but the AC conked out, which is not a problem now, but it was very uncomfortable last summer in Georgia. Yes, ma'am.
Sure. I've gotten two estimates on the repair. It's quite a job and it would be anything from $1,700 to $1,900 to fix it. And the car, according to Kelly Blue Book, is only worth $4,000, which I think is a high price because there's a little wear and tear on the body. So and it would probably go, my experience with this type of car, it's fairly reliable. Go for 200,000 miles. It's got 139 on it now. So my grandson and I are going to look at another car, which is even more reliable, but it's 2019, which is newer and it's $13,000 and it's got 78,000 miles, but it's a type of car that was known to go for 300,000 miles.
So I would have to withdraw the money from my IRA and my financial consultant says she thinks she can do that in such a way that I won't have to pay taxes. So should I go ahead and go for the repair, which is less than a car, but then have a car that won't go for as long or should I go ahead and take the plunge and I'm going to drive the car and my grandson's going to look at it for me, see if I should go ahead with that purchase. Yeah, very good. Well, I can certainly appreciate your dilemma here, Gail. And obviously, when it comes to cars, it's just so hard to know. I mean, is this going to be the beginning of many substantial repairs? Or could you repair this AC and spend a significant sum of money, but then you've got a car that you could drive for the foreseeable future?
There's just no way to know. The rule of thumb around this, and that's all it is. I mean, that doesn't mean you automatically go with this, but it's at least one data point. The rule of thumb is that if the repair is going to be more than half the car's value, then it makes sense to go ahead and replace the car. And you're getting close to that because if you're saying, Kelly Blue Book's showing $4,000 and you've got to spend $1,700 and you think the $4,000 is high just based on the condition of the car, let's say it's really worth $3,500, then you're pretty much there in terms of having an expense that's about half of the car's value.
And so I think it's worthwhile to certainly look at the possibility of replacing it. Now, you get an independent mechanic that you trust to look at it and say, listen, this thing is in great shape and you replace the AC and you should be able to get quite a bit of additional mileage out of this. You may decide to hang on to your money and continue to drive it, especially because car prices have been coming down, including used car prices.
They were very high. We had 16% plus increases in used car values year over year, a couple of years ago, but last year we started to see those numbers come down just as the new car inventories were replenished following that trip chip shortage that led to the new car shortage. So because of that, we're seeing a better car buying environment.
I think it'll be even better yet next year. So I think you're right on the bubble. I think you could go either way and probably not say it's a bad decision. How many miles did you say are on the car? A little over 139,000 and I had another car like this that went for 200,000.
Yeah, very good. Has the mechanic that she's been looking at it that gave you the estimate on the AC, did that mechanic weigh in on the status of the car? Did he feel like it would continue to, you know, it was in pretty good shape?
Well, he didn't really do that. He just gave me an estimate for the repair. My grandson who knows something about cars drove it and he agrees with me that it's running good. He did detect a rattle that he doesn't think is anything big, a big repair. So he also suggested that I could probably sell it to a teenager or something for, he thinks I could get at least 3000 for it, which would also reduce the price of what I'm paying for the other one.
Yeah, yeah, very good. Well, again, I think, you know, if that's all you believe you'll get out of it, 3000 plus, you know, obviously a $1700 repair is pretty significant, but it does give you a car that if you feel like is in good working order, and I would agree a car properly maintained these days should run 200,000 miles. Our last car we turned in had 230,000 miles. It was a Honda Odyssey minivan.
So you know, I could go either way. I think if your grandson is, you know, has some knowledge around cars, maybe have him check out this new car you're looking at, you know, take another look at the one that you have now if you feel like it's in good working order. You know, the thing I would get concerned about is just you at 76 being out driving in a car that's not reliable.
I just want to make sure you know, you have good reliable transportation. So if at any point you're starting to feel like I just feel like it's time to upgrade to something newer. You know, obviously, if you can pull that out of the the IRA, and that's not money you're depending on, that's probably a good use of those funds. And you're not talking about being exorbitant here. I mean, a $13,000 car purchase is very modest. So you know, I think you're right on the edge there, Gail, and it ultimately is going to come down to, you know, evaluating what you've got now and whether or not it can be, you know, folks who are knowledgeable think it could continue to be a reliable car versus you spending the money to upgrade.
I could probably go either way on this one. So I just pray it through, ask the Lord to give you some wisdom, and then make that decision. Okay, thank you so much. I appreciate your advice and your wisdom. I enjoy your show too. Thank you very much, Gail. Thanks for calling today. We appreciate you very much.
To Newport Ritchie, Florida. Hi, Mary Ann. Go right ahead. My question. I have two IRAs. One is normal, the other one is a Roth. Upon my passing away demise, do my children inherit that money tax-free with no problem? Yeah, the Roth IRA?
Correct. I've got $95,000. I have right now, it's split up between my son and my daughter. If they inherit that money, do they have to pay taxes on that money? They do not, no.
Withdrawals of contributions from an inherited Roth IRA are tax-free. Guess what? That's wonderful. Well, good. I'm glad to hear that.
I've been thinking about that. Yeah, I wanted to know how that went down. Yeah. Now, the key is, there are some exceptions to the earnings on it, but as long as it's over five years old, there should not be any taxes that are due on that. You'll always want to check with your CPA just to make sure, but you should be in good shape. It's one of the great benefits of the Roth IRA. Now, do you have up-to-date beneficiaries on those, Mary Ann?
I do. My children, 50-50, but I was thinking if something would happen to me when they inherit that money, they really don't have to report it, correct? Well, right. So they would get that outside of probate, and then they would take those withdrawals, and no, I don't think they would.
They would want to check with their CPA, but because there's no taxes due, as long as the account was at least five years old, they would not have any taxes at all, and therefore wouldn't report it on their tax return. Okay, guess what? You have made my day, Mr. Roth. You're wonderful. I'm glad to hear that. We appreciate your call. We'll be right back. NMLS, number 39179.
For licensing information, please visit nmlsconsumeraccess.org. Welcome back. This is Faith at Finance. I'm Rob West. We're taking your calls today, 800-525-7000. That's 800-525-7000. Patricia, thanks for calling. Go right ahead.
Hi. I just have a CD that is maturing at the end of the month, and I don't know whether to roll it over at a less percentage or go with another institution at a higher percentage. I can get 5.26 for 15 months, or I can get 5.50 at another institution for a year.
It's like $50,000 in a CD, so I really don't know whether it's worth it to move it or just leave it alone. Yeah, and what would the rate be, Patricia, where it is currently if you roll it over? It'll be 5.26 for 15 months. So we're talking an extra quarter of a point, is that right? Right, but it's also three months more also. Okay, so one is a year and one is 15 months, correct? Right.
All right. Yeah, so obviously it's a matter of a few hundred dollars. You're going to get, at 5.5, you'll earn $2,750 over the next year. At 5.25, you're going to earn $2,625.
So we're talking less than $200. That's not an insignificant sum of money, but there is a hassle factor here of you having to switch to a new institution, open the account, transfer the money. So I think it comes down to obviously the liquidity is number one. You can go with a 15 month or you can go with a 12 month. I think that just comes down to do you have reason to believe you're going to need that money before 15 months, and obviously that would play into it. And then second is, what is the very best rate you can get? And I would agree that about the best you're going to do right now for a year is five and a half. I mean, I'm looking at bankrate.com right now, and I'm seeing at least six or eight at five and a half, but there's nothing higher than that. So the question is, is it worth $150 or so for you over the next year for you to be able to have to move this to another institution?
And what would you say to that? I would probably say it's going to be a hassle to fill out all that type of work. Yeah, I would agree. Now, you can do it all online if you're comfortable with that, and they make it pretty easy these days, but you're right.
There is the hassle factor. So five and a quarter is still a great rate. You already have a relationship there.
Obviously, it's worked out well for you. So what you may want to do is just stay right there and not think twice about it. Roll it over for another year to 15 months, whatever works for you, and then you can revisit at that point. The only other consideration you may want to take into account is the Federal Reserve has said that they're thinking about raising rates next year as many as six times. And so there's no question that a year from now rates will be lower than they are today. So the only other consideration would be whether you want to go in and lock it up longer than that. So for instance, you can get a 5% for two years at some banks right now. And so that may be another option, assuming we think that rates are going to be a good bit lower this time next year. So that would be the only other consideration I would throw out. But bottom line is, if you're happy with your credit union, it's probably not worth moving over a quarter of a point. Well, and the other question is, if I leave it in there, I can do another deal for seven months at 5.45.
But then after that seven months, then I don't know what the rate will be. So I would probably be better off to leave it alone. Is that right?
I think that's probably true. Yes, ma'am. Listen, I appreciate you calling today. Patricia, thanks for listening to the program. If we can help you in any other way in the future, don't hesitate to reach out. May the Lord bless you.
Let's go to Indiana. Hi, Velma. Thanks for calling.
How can I help? So my question is, I want to open a high-yield savings account. And in one of your programs, you just told in your program that look in a bank rate institution and choose on which bank offered a good rate. And I also heard you mention about Capital One is a good company to go to. But then when I look at bank rate, Capital One only offers four point something and the other banks offer five point something. So I was wondering if I can trust the other bank.
Yeah, it's a great question, Velma. I think the key here is bankrate.com is a great option. There are others. NerdWallet would be another. But I would, as long as something has FDIC insurance, and it gets a fairly highly rated using their five star rating system, I would be comfortable with you using any of those online banks. In the past, I had given a list of two or three different options for banks that were typically on the higher end of the yields.
I don't do that anymore just because it changes so often. And I'd rather you just go through and look at who has the best rates right now and make a decision as you explore each of these. Many of them have pros and cons and you want to find the one that's the best fit for you.
But yeah, I think the best approach is just what you described, Velma. I wouldn't automatically go to Capital One by any means. I would go to bankrate.com, check out who has the highest rates, look at their rating out of the five star system, and then you can make a decision from there. They are FDIC insured, right?
Yes, ma'am. And their rate doesn't change or really change early? It does change. So with a CD, a certificate of deposit, you're locking in that rate for a period of time, whatever the term is on the CD. With a high yield savings account, it can change every day. So it's just going to move with interest rates. And so I think the key is just recognize that we're in a high interest rate environment right now. The Federal Reserve has already indicated rates are coming down this year.
They mentioned as many as six times. We'll see. Obviously with inflation continuing to prove a little sticky and the labor market being as strong as it is, we may see a few less than that. But the bottom line is the rates are going to be coming down. And these high yield savings account will come down with the Fed funds rate. And there is no guarantee on that.
So it will move with interest rates. Okay? Okay. Well, thank you so much. You are welcome, Velma. Thank you for your call today. May the Lord bless you. Hey, we're almost out of time, but I wanted to let you know that you don't ever have to miss a program. Just download our Faithfi app for your mobile device and take us with you anywhere. Thanks for joining us today. I look forward to talking with you again next time on Faith and Finance. Faith and Finance is provided by Faithfi and listeners like you.
