Ryan Ermey: Home buying season is about to heat up. Whether you're buying or selling a house this year, we have all the trends and advice you'll need to get the best deal in 2020. Well, we don't, but Zillow economist Jeff Tucker does and we'll interview him in our main segment.
- Episode Length: 00:28:20
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Ryan Ermey: On today's show, Sandy and I give you tips for saving money at the pump and market advice amid coronavirus panic. That's all ahead on this episode of Your Money's Worth. Stick around.
Ryan Ermey: Welcome to Your Money's Worth. I'm Kiplinger's associate editor Ryan Ermey, joined as always by senior editor Sandy Block. Sandy, how are you?
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Sandy Block: Doing great, Ryan.
Ryan Ermey: Today, we're talking tips at the pump and our colleague David Muhlbaum, who is our resident car guy, has a slide show on Kiplinger.com with 10 tips to save on gas. And, really, who doesn't like to save at the pump?
Sandy Block: Right. I mean, right now gas prices have been falling because of various things that are happening in the economy, but you shouldn't become complacent because there's a huge differential even within one area from one gas station to another. You can save a lot of money by paying attention to that and taking some steps that will make your car more gas efficient, as well.
Ryan Ermey: And some of them are advice that I think at least is relatively intuitive, which is, don't drive as much.
Sandy Block: Slow down.
Ryan Ermey: And don't drive so fast. It's obviously a little bit more nuanced than that, but if you're making, if you're running errands, try to do them all at once so you're not making a bunch of trips. Or if you have one of those cars like my mom has that cuts the gas at traffic lights, that's actually a good thing that can save you quite a lot.
Ryan Ermey: But some of it I thought was a little bit less intuitive, at least something that I wouldn't have necessarily thought of, and one of them is if you have a bunch of stuff in your trunk, you should take it out because every time that you're speeding up, you're using gas to get all of that extra stuff up to speed. And it depends on your car, but it's basically for every hundred pounds. So, that spare tire you have in the back, your toolkit...
Sandy Block: Those books you keep needing to take to the library. People have a lot of stuff in their cars.
Ryan Ermey: It's really crazy. So all of that, it's about a 1% reduction per 100 pounds, so that ends up being about three cents a gallon. That's a big deal. Another is that if you have a roof rack or if you have anything really on top of your car, that's drag. And that's...
Sandy Block: Remember when Mitt Romney had his dog on top of his car?
Ryan Ermey: I do remember that.
Sandy Block: I was like that must have been a really big drag. That was a big dog.
Ryan Ermey: There was that SNL bit. Where Jason Sudeikis is Mitt Romney and like, "Oh, like just like my old friend Baxter here and the dog won't stop barking." Then he goes, "I'll put you back up there again." Anyway, if you have anything, skis, bikes, dogs on top of your car, it's going to reduce your car's aerodynamics. It's going to create drag and the higher speed you're going, the worst that's going to be on your gas mileage.
Sandy Block: The other thing that David mentioned that I think is really interesting is don't rely on the monitor in your car to tell you whether your tires are sufficiently inflated. Now I learned this a long time ago, because the monitor in my car is on all the time. So it always says the tires are... so I can't rely on that. But even if yours works properly, according to David, it may not come on in until a tire is more than 25% lower than the recommended pressure. And that's pretty bad.
Ryan Ermey: Yeah.
Sandy Block: That could get you into trouble is actually could be potentially dangerous and if nothing else, it reduces your mileage. So it's a good investment to go out and get yourself a decent quality tire gauge. They cost like $5 to $15, use it at least once a month. And that way you can actually make sure that your tires are sufficiently inflated. Not even if your monitor says that they are.
Ryan Ermey: And even if you're 25% low on air, he says, if your recommended pressure is 40 pounds per square inch, I say 2% hit to your gas mileage. So that's a big deal. The last thing that we've talked about, maybe we've talked about on the show before, I'm not exactly sure. We're always talking about apps. We're so modern.
Sandy Block: And shopping around.
Ryan Ermey: And shopping around. That's exactly what this advice is. There are plenty of apps, Gas Buddy, Gas Guru, Fuelzee -- that's F-U-E-L-Z-E-E, that make it easy to find the cheapest deals on gas in your area. Enter in your... I'm sure they use GPS.
Ryan Ermey: I use the online version of Gas Buddy -- just for a cursory check -- and just typed in my city. And there was a pretty big range on a per gallon gas prices, $2.17 at one station to $2.31 at the other. Which adds up over time. And finally the last thing to kind of consider here is that Costco, Sam's Club, your kind of big bargain stores have really cheap gas. So it's one of these kind of calculations where if I pay to join the club, is it going to add up over time? Obviously, factor your gasoline savings with all the savings that we talked about on wine and honey baked hams. And frankly, you'll get most of your savings just over the holiday season.
Sandy Block: Just the hang.
Ryan Ermey: So for the rest of the year your gas savings will just pile up. So make sure that you head to Kiplinger.com, check out all of our car coverage, but certainly we will be linking to the piece in the show notes. So go check it out. Does the housing market in 2020 favor buyers or sellers? Find out after the break.
Ryan Ermey: We are back and we're here with Zillow economist Jeff Tucker and as we are coming into what is going to be the hot season for housing, we're talking to him about the 2020 housing outlook. Jeff, thank you so much for coming on.
Jeff Tucker: Thanks so much for having me on.
Ryan Ermey: So I guess the top line question is are we in a buyer's or a seller's market?
Jeff Tucker: I would say we are in a seller's market. We are entering 2020 with one of the hottest winter selling seasons. We have seen in ages a certainly hotter than last year. The number one thing going on across the country is that inventory is near record lows and that's being driven by lower mortgage rates, and just not a whole lot of homes available for sale. So that's funneling buyers into fewer and fewer open houses where they're competing with each other and sellers out there know that they've got a little less competition from other listings down the block.
Sandy Block: So Jeff, what are some of the hottest housing markets in the country? I think we all know about the Bay Area, but what are some other areas where inventory is particularly low?
Jeff Tucker: Yeah, so in terms of a price appreciation right now that we're seeing, it's actually Phoenix is leading the way and then some fairly surprising other markets, at least in the context of some of the familiar stories over the last few years, like the Bay Area. Home prices in Bay area actually pretty much flat-lined in 2019. That was a market where buyers really pulled back, well when interest rates had spiked about a year ago.
Jeff Tucker: So when mortgage rates were up around 4.5% and people were really worried about the stock market, folks especially in the Bay Area, it seems like they just hit an affordability ceiling. So with those high mortgage rates, people just couldn't make the monthly payments. So buyers pulled back there. So 2019 was kind of a rebuilding year for places like the Bay Area and actually Seattle where we're based at Zillow. But a lot of the markets where price appreciation is still strong have been more kind of slow and steady wins the race kind of markets. So aside from Phoenix, we actually see, Columbus, Ohio, Charlotte, N.C., Cincinnati and Atlanta are the top five markets for price appreciation right now. And now this price growth isn't off the charts. So that's why I called it slow and steady. These are all places where prices are growing from about 5% to not even quite 7% year-over-year, still certainly faster than inflation. But this is what sort of a hot housing market is looking like today.
Ryan Ermey: Well, and I guess sort of the flip side of that, if I'm a home buyer, especially with a first-time home buyer, are there any markets where I can still maybe get a deal?
Jeff Tucker:Well, what's interesting is that in part of what is making, for instance, Cincinnati, Columbus and Charlotte, part of what's making them go up so much here every year is that in terms of the price level, they are still relatively affordable. So your typical home value in Columbus is $210,000, in Charlotte it's $237,000. So those are places that are still a little bit more affordable than the United States as a whole. Where we've seen an average price around $245,000. I think that's what's driving a lot of people into the purchase market in these, in these cities right now. But the challenge is that even if that purchase prices relatively affordable, you're hitting a lot of competition. A lot of people are getting frustrated, getting outbid or seeing cash offers by other folks who are out competing them. So it's certainly a double edged sword in these markets.
Jeff Tucker:But when you think about really a place where maybe there's a bit of a balance between that's both affordable and where we're prices are certainly not taking off the leading market actually that I would consider for that is Chicago. We're again, prices are a little bit, just a tiny bit below the national average and they've only gone up about 1% in the last year. So Chicago, I'd say certainly a market like that. Las Vegas actually has slowed down pretty significantly. So prices, they're only going up a little over 1% and the typical price is still under $300,000 which compared to a lot of other markets out West is a bargain.
Sandy Block: Right. Jeff so a lot of people have to look for houses where they have a job, which means we all can't move to Vegas.
Jeff Tucker: How much would I love to though.
Sandy Block: So what are your tips for people who are trying to buy a house in this very competitive market?
Jeff Tucker: So a very competitive market, if you're shopping as a home buyer, that is the best time and the most important time to be working with an experienced local agent. They will be the best guide to conditions in the market. They know what kind of offers are actually succeeding right now. They'll be able to get a sense of what kind of competition there is when you do make an offer. And I know one of the tips that they will give you in a hot market that everyone can get started with right away is getting financing lined up ahead of time. So looking for a bank that has good service and you can get a good rate on a mortgage and then getting prequalified and preapproved. Just making sure all the ducks are in a row before you found that dream home on Zillow so that you're not rushing to try to send over all that paperwork after the fact and making your offer look a bit weaker or like you haven't done your homework before walking in the door to that open house.
Ryan Ermey: Well and I guess the sort of flip side of that coin is if we are indeed in a hot market for sellers, I mean that doesn't necessarily mean that the house is going to sell itself. So what advice do you have for people looking to sell their house quickly and getting as much as they can out of it?
Jeff Tucker: Sure. So again, working with a great agent can make a really big difference. And one of the biggest challenges that a great agent can help with is setting the right price. A lower list price -- certainly makes sure that your listing gets seen by more people. A lot of folks go onto sites like Zillow. They set a price filter, they set a price ceiling. And so if you're listing is just above that, they won't even know that it's out there. So a lower price certainly gets more eyeballs on the listing and more foot traffic into your open house. But it can also be an anchoring point where buyers all just offer that listing price and they say, "Well, if that's too low, why did you list your house for such a low price?"
Sandy Block: What's wrong in the basement there?
Jeff Tucker: Yeah, that's a really tough balance to strike where you want it low enough to get attention. And then maybe even drum up multiple offers. If you can get a lot of buyers falling in love with your home, then they could end up trying to outbid each other and as a seller that's really when you can get top dollar for your home. And then of course trying to make it look perfect, make it look beautiful.
Jeff Tucker: And again, listen to the agent about this. A lot of homeowners haven't been out in the real estate game in several years and they may not know exactly what looks best when it comes to staging the house or landscaping, that kind of thing. So you may be attached to all kinds of ways that you've decorated or arranged your house. It's important to let it go and let the agents kind of guide those decisions.
Ryan Ermey: Well that's fantastic. And before we let you go, just wanted to get a sort of sense of the big picture here. We know that home prices have generally been on the rise. Mortgage rates have generally been low. Do we think that these trends will continue in 2020 and what does that mean for people who are in the market and maybe even for people looking to buy their first home?
Jeff Tucker: I think those trends will continue this year. There's certainly a question mark out there about will there be sort of external factors outside the housing market? If those really slow down economic growth, then it's a lot harder to forecast that kind of a thing. But all the fundamentals in the housing market are pointing toward a hot selling season this year. There is growing demand, their record low listings in nationwide and then in most markets around the country, the number of listings available right now as near as at or near record lows and demographically there are just a ton of millennials around the age, 30 to 34 who are interested in buying their first home. That 34 is the age, the median age of buying your first home and there are millions more people in those ages from 25 to 34 then there have been recently.
Jeff Tucker: So there's this sort of mini demographic wave coming of people who want to buy that first home. So these buyers are entering the market, they're running up against a very limited supply. We know home builders are getting the memo. They're trying to get ahead of this and actually build enough homes for all that coming demand. But that takes time and those new homes are often pretty pricey, as well. So all those factors combine of rising demand, also driven by very low mortgage rates, hitting a pretty limited supply that as an economist to me that means we will see prices continue to rise.
Ryan Ermey: Makes sense to me. Well listen, Jeff, we'd like to thank you so much for coming on again. What can people check out over at Zillow if they are maybe in the market, either as a buyer or a seller?
Jeff Tucker: Sure. So we have the most popular listing site in the nation, so I'm sure a lot of listeners have checked out zillow.com and if you are interested in more housing market research, you want to see price trends, inventory trends. We've got a great website, zillow.com/research, where we have recent research briefs that we write and a monthly market report where we update what's going on with prices, inventory and rent. We cover the rental market too. You can drill down to your city and you can even for researchers we have zip code level data there. There're all kinds of stuff in there that you can really dig into. If you want to get granular with a housing market data.
Ryan Ermey: We'll be sure to check that out. Also, be sure to check out our 2020 housing outlook in the April issue of Kiplinger's personal finance magazine and Jeff, once again, thanks so much.
Jeff Tucker: Thank you so much for having me.
Ryan Ermey: When we come back, Sandy and I offer some strategies in perspective amid coronavirus market fears. Don't go anywhere.
Ryan Ermey: We're back. And before we go we wanted to hit on a topic that is really making huge headlines everywhere, which is the coronavirus. And obviously we are a finance podcast, so we're going to talk about its effect on people's finances, but that isn't to minimize what an enormous tragedy it is, how many people we've lost. And our thoughts go out to everyone around the world who is suffering from this.
Ryan Ermey: But what has happened is as of this recording, which is February 27th, so last Thursday, for those of you listening on Monday here when it comes out, we've hit a market correction, which is generally defined as a 10% decline from market highs. So, and we're just pretty much a little bit over that mark. The last time I checked, who knows by the end of the day.
Sandy Block: Yeah, the last two days have been really ugly.
Ryan Ermey: It's been ugly. So Sandy, one of the things that that comes to mind during corrections here, especially this time of year is a possible Roth IRA conversion.
Sandy Block: Right. Basically when... and Ryan can talk about taking advantage of buying. But one of the other strategies that can actually help you profit from a market downturn is doing a Roth IRA conversion. When you convert a regular IRA to a Roth, you have to pay taxes on the amount that you convert. The taxes are based on the value of the IRA at the time you do the conversion. So if your IRA has taken a big hit, you do a conversion. Doesn't matter what happens to the value of your IRA after you do the conversion, you pay the taxes on the amount that you convert at the time when you did it.
Sandy Block: So that this is an opportunity for people. If you've seen your IRA drop 10%, 20% maybe you want to convert a little bit of it, it will lower the amount of taxes that you have to pay next year.
Sandy Block: And this is more important than ever now because you used to be able to change your mind. You could do a conversion and then if you just didn't have the money or some people would do a conversion and find that the value of their IRA went down after they did the conversion and they ended up paying taxes on basically ghost.
Ryan Ermey: Yeah.
Sandy Block: Phantom value. So you can't change your mind. So if you do it, you got to be able to make sure that you pay. But this is something to monitor if you think the market's going to go down more, maybe you want to wait, maybe do a little bit now, a little bit later. But it is an opportunity. And the advantage of this is once you do the conversion and put that money in the Roth future gains are tax free. So if you did a conversion in a market downturn and then the market turned around as it usually does, you're gravy. You've got all these future gains are insulated from taxes. So this is just one thing to think about. One way to turn lemons into lemonade in terms of your retirement savings.
Ryan Ermey: And the thing that's on a lot of people's mind, I've had people texting me over the last couple of days, should I be running for the hills and I just wrote about this in kind of a roundabout way. So what I'll say about... so the question is, are we headed to a bear market, which we would generally define as a 20% decline from highs. And we've had the longest bull in history. It's been going since 2009. And there have been plenty of downturns over that time and it hasn't been like smooth sailing all the way up like an escalator. And so when we have corrections like this, we're starting to think, are we headed toward a bear? Are we headed toward a recession? Bear markets tend to proceed recessions by six to nine months. So one thing to think about is, if we're afraid of the impact of Corona virus, is to look back historically how the market has behaved after the virus outbreaks.
Ryan Ermey: And the good news I would say for investors is that the last several cases, the market has managed to bounce back. So data from our friends at CFRA, S&P Global, the S&P 500 over the last several outbreaks. So SARS, H1N1, MERS, Ebola, Zika, after the first reported U.S. case, the market, and I'm defining the market as the S&P 500, the index for the broad US stock market, has returned an average of positive 4.5% within 30 days of the first US reported case, 60 days 8.7%, 90 days 10.1%. That dates back to 2003. So a lot of these outbreaks tend to be sort of temporary issues for markets. Now if this gets to the point that it's severely crippling global economic production, and I'm talking on the scale of a global pandemic, then we have big problems because we're going to have a big economic slowdown.
Ryan Ermey: But if it doesn't and if it's relatively contained, we don't have a lot of the other symptoms of bear markets. We have some overvaluation in the stock market, but it's not at worrying levels given the extremely low levels of interest rates, inflation and unemployment. And as for recession indicators, they're not all pointing in one direction, but two major ones, housing stats and consumer confidence, at least at last check. We're both solidly healthy. So the big upshot is to not panic, but even if we are headed further down, now is the time to stick to your plan.
Sandy Block: Right.
Ryan Ermey: Don't overreact to movements in the market and sell everything. Hopefully you have a plan for down markets. That means having say a shopping list of stocks that you like that you maybe thought were a little richly valued, maybe now they look a little bit more attractive.
Ryan Ermey: Now as time... own 10%, start kicking the tires on some of those. If you had previously laid plans to sort of... not even tied to individual stocks, let's say in your 401(k), in some kind of investment of yours that has a very long runway, a very long time horizon. You should have the discipline to say, "Okay, if my plan was to buy on deeps, I'm going to put five more percent into large cap stocks in my, in my 401(k)."
Ryan Ermey: So as we've said over and over on the show, and as my editor and Smith has said on this show, you shouldn't let the market dictate your behavior. You dictate your investments and we shouldn't be reacting to shocks here. So if you have a plan, stay the course. Don't panic. Stay invested in line with your tolerance for risk. And that's what we have so far. If things get markedly worse, we can talk then. But for now, stick to the plan.
Ryan Ermey: That'll do it for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show, visit Kiplinger.com/link/podcasts. You can stay connected with us on Twitter, Facebook or by emailing us at podcast@kiplinger.com and if you like the show, please remember to rate, review and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.
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