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Jerome Powell has accidentally jammed the property market—especially for the ultrarich
Jerome Powell and the Federal Open Market Committee (FOMC) have got a job to do—regardless of what the markets or consumers might want. Unfortunately for the property sector, Powell’s rates strategy has thrown a significant spanner in the works.
Consumers are hanging on to properties they purchased a couple of years ago at lower mortgage rates instead of purchasing a new pad at higher rates, a new report has revealed.
Global real estate consultants Knight Frank wrote in its Q4 2024 U.S. market report, published Thursday, that rate volatility paired with economic uncertainty has stalled market movement.
Of course, members of the FOMC could argue that—even if it was their prerogative to insulate certain markets—they only set short-term rates, while mortgages follow the long-term.
However, the latter tends to follow the former, meaning that before the pandemic, house buyers enjoyed an extended period of incredibly low mortgage rates.
Since early 2022—when the Fed first began hiking rates to wrestle rampant inflation back under control—mortgage rates have spiked in turn and now sit at around 6%, while in early 2021, they went as low as 2.6%.
The problem is squeezing buyers across the scale, but for those owing a hefty sum to the bank, a change in mortgage rates could be worth thousands of dollars a month.
Knight Frank writes that the unwinding of the yen carry trade, given base rate moves in the U.S. and Japan, sparked fears among buyers: “Investors were questioning whether the Federal Reserve had underestimated the fragility of the global economy and the risk of a domestic recession.”
Economists’ reactions and advice varied widely. Some called for emergency rate cuts, while others stuck with a 25 basis point (bps) reduction.
“This shift is the key to unlocking the housing market across the U.S.,” Knight Frank continued. “Right now, homeowners remain reluctant to part with mortgages agreed during an era of ultralow rates.
“National market data confirms that turnover in the first eight months of the year hit the lowest level in at least 30 years.”
The trend is particularly pronounced on the more costly end of the scale, the report continues: “Despite a higher prevalence of cash buyers, elevated borrowing costs have weighed on activity in luxury markets, too.
“Prime buyers tend to have wealth tied up in other asset classes, many of which have been hurt by higher rates. That adds uncertainty, which has been compounded by the November election.”
Citing data from real estate consultants Miller Samuel, the report adds that 29 properties sold for at least $50 million in 2023, which is down 41% from 2021.
“You look at that [Fed repricing] and go, ‘Wow, housing should just explode,’ but you have to remember that mortgage rates are still double what they were before the pandemic,” wrote Jonathan Miller, CEO of Miller Samuel, in the report.
This context is important for explaining why the property sector can’t expect a “frenzied boom” as rates begin to come down, added Miller.
Despite the Fed’s unexpected 50 bps cut in September, the base rate is still effectively nearly five times as high as it was in 2021.
Stuck across the board
While the problem is impacting those at the lofty luxury end of the property sector, homeowners across the spectrum are also feeling backed into a corner over interest rates.
Investment and wealth advisors Edelman Financial Engines recently released its Everyday Wealth in America report for 2024, which found more than one in three homeowners feels “stuck” in their current home owing to rates.
This figure rises for homeowners under 50, with 49% of the demographic saying they cannot move up the property ladder because of mortgage offers.
More widely, the report found that nearly three-quarters of respondents (72%) were worried about rates across the board, with four out of 10 people saying they’d be willing to move to another state if it meant saving money.
This story was originally featured on Fortune.com
The habits of millionaires are a topic of interest when it comes to financial advice. After all, unless they received a large chunk of money as an inheritance or gift, most millionaires had to be smart with their money to get where they are.
Learning how millionaires accumulate wealth — and where they keep it — can provide valuable insights for anyone focused on growing their money. One common question is whether or not millionaires keep money in checking accounts.
Studies show that in recent years, millionaires are keeping a significant portion of their wealth in cash. According to CNBC’s , that portion was about 24% in 2023. While this doesn’t necessarily mean a quarter of a millionaire’s wealth is sitting in a checking account, it does indicate the importance of maintaining liquid assets. And a checking account can be a helpful tool for doing so — whether or not you’re a millionaire.
Anyone, regardless of net worth, can find value in a checking account. Checking accounts allow unlimited deposits and withdrawals, check writing, bill pay, and other features to help you manage your money day-to-day.
While millionaires may keep large portions of their wealth in other deposit accounts and investments, some may use a checking account to manage daily spending. Millionaires also recognize the importance of having liquid assets, like funds in checking and savings accounts. Accessible cash lets you cover unexpected expenses without needing to sell off investments, borrow money, or pay a penalty for tapping your retirement savings early.
The amount of money a millionaire keeps in their checking account is highly personal and depends on preference. However, because checking accounts rarely earn competitive — if any — interest, some millionaires intentionally limit their checking account balance. Some may choose to keep the bare minimum, such as a couple of months’ worth of essential expenses, in their checking accounts, keeping the rest of their wealth in more lucrative assets.
Regardless of preference, it would be surprising for a millionaire to keep more than $250,000 in a single checking account. That’s because the Federal Deposit Insurance Corp. (FDIC) only insures up to $250,000 in deposits per institution, per account holder.
While millionaires may use checking accounts for day-to-day financial transactions, they may also use some of the following accounts in addition to, or in place of, a checking account:
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Savings accounts: Like checking accounts, savings accounts provide a high degree of liquidity, allowing you to access your money as needed for regular or unexpected expenses. High-yield savings accounts, in particular, give millionaires an extra bang for their buck. Some of the best accounts currently offer rates upwards of 4% versus the national average savings account rate of 0.46%.
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Cash management accounts: Cash management accounts (CMAs) pay competitive interest rates while maintaining more accessibility than a savings account. Some CMAs come with a debit card and ATM access, and many provide extended FDIC coverage limits by “sweeping” additional deposits into partner banks. CMAs are available at brokerages, not banks, facilitating easy transfers between investment and cash accounts.
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Money market accounts: Similar to CMAs, money market accounts combine features of checking and savings accounts, often paying competitive interest rates and providing check writing and ATM access. Banks and credit unions offer these accounts, which are federally insured. Minimum opening deposit and minimum balance requirements are often higher than those for standard savings accounts.
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Retirement and tax-advantaged accounts: Millionaires understand the importance of investing for their later years, and retirement accounts such as 401(k)s and IRAs allow them to do so in a tax-advantaged way. Some retirement accounts, like 401(k)s, are offered by certain employers. Others, such as traditional and Roth IRAs, are available to anyone.
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Brokerage accounts: The IRS limits contributions to tax-advantaged accounts, and millionaires typically invest beyond these limits. They do so with taxable brokerage accounts, which can hold investments such as stocks, bonds, and mutual funds without contribution limits.
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Other investments, like real estate, commodities, and art: Some millionaires may decide to diversify their portfolio with other investment types. These could include real estate investments, such as investment properties or real estate investment trusts (REITs); commodities, such as metals or energy products; art; and more.
The amount of money millionaires keep in their checking accounts depends on personal preference. While some millionaires may keep six figures in their checking account to maintain a comfortable cash cushion, others may choose to keep the bare minimum in checking. You wouldn’t expect millionaires to keep more than $250,000 in a checking account, however, because balances over this threshold aren’t typically insured.
There’s no single bank that’s a favorite among millionaires; it’s another matter of preference. However, millionaires are likely to bank with institutions that offer private banking to those who meet specific financial requirements. Private banking may include wealth planning services, waived fees, dedicated bankers, and additional perks. J.P. Morgan Private Bank, Citi Private Bank, and Bank of America Private Bank are among some of the most popular banks for millionaires.
Billionaires may have checking accounts, but they likely use accounts that cater to ultra-high-net-worth individuals. These accounts may come with perks such as a dedicated banker, waived fees, and competitive interest rates. Alternatively, billionaires may opt for a cash management account with higher FDIC insurance coverage limits and checking account features.
No rule says you can’t have a million dollars in a checking account, but FDIC insurance typically only covers up to $250,000. Plus, you can get a bigger return on your investment by keeping $1 million elsewhere. One alternative is a cash management account, which acts like a checking account but generally earns higher interest. Plus, many cash management accounts insure more than the standard $250,000 by sweeping funds into multiple partner banks.
Lumen Technologies, Inc. (NYSE:LUMN) shares are trading higher on Monday after the company announced it is partnering with Meta Platforms, Inc. (NASDAQ:META) to significantly increase Meta’s network capacity and help drive its AI ambitions.
Lumen’s partnership offers Meta enhanced flexibility with secure, on-demand bandwidth, supporting its complex computing requirements and enabling it to serve billions daily.
Ashley Haynes-Gaspar, Lumen’s EVP and chief revenue officer, said, “We’ve transformed our company to meet this demand. As Meta’s customers use more AI services across its platforms, we’re helping provide Meta with a seamless, effortless, and flexible network that will meet its growing needs.”
Lumen Technologies said its Private Connectivity Fabric enables long-term network capacity for Meta’s AI.
Alex-Handrah Aimé, director of Meta’s Network Investments stated, “Our AI tools are performing increasingly more complex tasks including enabling conversations in a variety of languages and translating text to images in real time, while helping people interact with the world around them in new, immersive ways.”
Lumen will report third quarter 2024 results on November 5, 2024.
Investors can gain exposure to the stock via Invesco S&P SmallCap Utilities & Communication Services ETF (NASDAQ:PSCU) and First Trust Cloud Computing ETF (NASDAQ:SKYY).
Price Action: LUMN shares are up 9.50% at $7.38 at the last check Monday.
Image via Shutterstock
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This article Lumen And Meta Join Forces To Boost AI With Flexible, On-Demand Network Solutions originally appeared on Benzinga.com
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
CoinShares said the United States and Bitcoin led crypto investment product dynamics last week amid growing optimism over a potential Republican election win in the US.
Bitcoin’s private keys won’t be breached any time soon, but the industry still needs to transition to “post-quantum cryptography.”
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