November Financial Edge

Hello Advisors,

This November isn’t just about cooler weather and holiday prep—it’s also a sky-gazer’s dream! On November 15, we’ll be treated to a “Beaver Moon,” a full supermoon that promises to be larger and brighter than usual, illuminating the night sky with its warm glow. And that’s not all—November 17 marks the peak of the Leonid meteor shower, where we could see streaks of light from up to 15 meteors per hour. These celestial events are a reminder of the unexpected beauty all around us, even as we approach year-end hustle and market uncertainties​

In this spirit of embracing the unexpected, this month’s insights focus on anticipating market shifts and preparing to help clients finish 2024 on a high note.

In today’s email…

• Housing Market Heatwave: What’s Driving High Prices

• Election Shockwaves: How 2024 Could Reshape Portfolios

• Mortgage Secrets Revealed: New Paths to Ownership

Let’s dive in!

Industry Insight: Housing Market Dynamics and the Path Ahead for Homebuyers

As we approach the end of 2024, the U.S. housing market presents a compelling story for financial advisors and their clients. Recent trends in mortgage rates and market growth reveal a landscape that’s both challenging and promising. With the average 30-year fixed mortgage rate back at 7%, housing affordability is under pressure, yet many expensive markets continue to see strong growth, indicating nuanced shifts that advisors should monitor closely. Here’s a look at what’s driving these trends and how advisors can guide clients through these changing times.

Mortgage Rates at 7%: Implications and Expectations

The return of the 30-year fixed mortgage rate to 7% reflects several economic forces at play. With eased recession fears, the labor market has continued to show strength, reducing demand for safer, low-yielding bonds. In addition, ongoing inflation and federal debt concerns drive higher yields on U.S. Treasuries, pushing mortgage rates up in tandem​. Rising mortgage rates have led to increased monthly payments for homebuyers, intensifying affordability challenges and shaping client discussions around housing investment and refinancing strategies.

For advisors, today’s high-rate environment highlights the importance of setting realistic client expectations. With traditional refinancing offering limited benefits, many clients may need guidance on alternative real estate strategies, such as investing through real estate investment trusts (REITs) or carefully selected rental properties with strong cash flow potential. Advisors can also encourage clients to reassess their long-term home ownership goals in light of elevated interest rates, which are likely to persist given the current fiscal outlook.

Growth in Expensive Markets: Opportunity in High-Cost Hubs

Interestingly, while affordability is a growing concern, some of the nation’s priciest housing markets are also the fastest-growing. According to recent Zillow data, cities like San Francisco, New York, and Seattle have seen a notable uptick in market activity despite elevated prices. This trend reflects the continued allure of high-cost areas that offer strong job markets, vibrant economies, and quality of life. The growth in these markets suggests that buyers are prioritizing investment in locations with high potential for long-term appreciation, even in the face of high initial costs​.

For financial advisors, this presents an opportunity to discuss the advantages of market resilience in these high-cost regions. Cities with robust economic infrastructures and demand often present better long-term growth potential, making them viable options for clients interested in appreciation-focused investments. Advisors may encourage clients with the financial means to consider these markets for their growth potential, while those seeking affordability may need to explore smaller, emerging metro areas where price pressures are less intense.

Top Markets for Affordability and Growth in 2024

For clients looking to balance affordability with growth, several mid-sized and emerging markets offer promising opportunities. According to recent insights, cities like Tampa, Raleigh, and Boise are topping lists as attractive destinations for homebuyers in 2024. These areas are characterized by strong local economies, relatively affordable housing prices, and high rates of inbound migration, making them appealing for clients seeking both lifestyle benefits and investment value​.

In these markets, the housing supply-demand dynamic remains relatively balanced, with moderate price increases and more manageable mortgage payments compared to the national average. For clients considering relocation or real estate investment in these cities, advisors can highlight the comparative affordability and potential for property appreciation, especially as urban migration trends continue to favor these regions.

Strategic Considerations for Advisors in Today’s Market

Given these mixed conditions, advisors should take a tailored approach in helping clients navigate the current housing landscape. Here are a few key strategies to consider:

• Refinancing Alternatives: With traditional refinancing limited by high rates, explore equity-building alternatives. Home equity lines of credit (HELOCs) or home improvement loans may provide clients with capital access without selling properties.

• Geographic Diversification: Clients interested in real estate investment may benefit from diversifying geographically. High-growth, mid-sized cities present opportunities for investment with lower initial costs, appealing for clients looking to capitalize on population shifts toward more affordable regions.

• Long-term Real Estate Planning: The high-cost environments in major metro areas emphasize the importance of long-term planning. Encourage clients to view their real estate investments with a focus on appreciation over time rather than short-term gains, especially in high-cost markets that are proving resilient.

Looking Ahead

While mortgage rates remain elevated, the housing market is resilient, with both high-cost and emerging markets showing strong growth. As the fiscal and economic landscape continues to shift, advisors have the opportunity to guide clients through these dynamics, making informed decisions that align with their financial goals and real estate aspirations.

For more insights on managing housing investments in the current market climate, advisors can continue monitoring trends in both high-cost and emerging cities to offer clients a balanced approach to navigating the complexities of today’s housing market.

The Market Effect of Election Years: Trends and Expectations for 2024

Election years bring a unique atmosphere to financial markets, where speculation, policy shifts, and investor sentiment often collide in a way that drives notable volatility. Historically, election years tend to shape market movements based on perceived candidate policies, potential economic shifts, and the broader economic outlook for the coming term. With Trump and Harris presenting two distinctly different platforms, 2024 is proving no exception to these election-year dynamics. Here’s a look at how the markets may navigate this election cycle and what advisors can expect as they guide clients through it.

The Broader Market Trends in Election Years

Historically, markets have a tendency toward caution during election years, often moving sideways or seeing increased volatility as investors anticipate policy changes that could impact the economy. A general trend observed in the past 24 elections is that when market sentiment leans positively in the months leading up to Election Day, the incumbent party tends to perform better. This year, with both candidates presenting different paths on economic and fiscal policies, markets may swing based on which policies gain traction in the lead-up​​.

According to research from U.S. Bank and Fidelity, election cycles typically see cautious market behavior as investors react to each candidate's potential impact on trade, taxation, and regulatory changes. This cautious optimism or pessimism can influence sector-specific trends. For instance, sectors like energy and defense may see higher gains under more conservative policies, while technology and green energy often thrive under progressive agendas. But regardless of party lines, election years tend to elevate market sensitivity to announcements and policy previews, which may cause short-term disruptions or corrections across sectors​​.

Trump vs. Harris: Divergent Economic Paths

Trump and Harris have presented starkly different economic approaches that investors are watching closely.

Trump’s Approach: Trump’s platform centers on tax cuts and deregulation, with a strong emphasis on domestic energy production. His promises of additional tariffs, particularly a 60% tariff on Chinese imports, signal potential headwinds for companies reliant on global supply chains. Such trade measures could increase costs for goods, raising inflation and impacting sectors like technology and consumer goods. Additionally, proposed tax cuts could drive corporate profits higher, which may buoy market sentiment among certain sectors, particularly within energy and financials​.

Harris’s Approach: Harris has pledged to continue Biden’s policies with support for green energy, tech infrastructure, and increased taxes on corporations and high-income earners. Her platform may maintain stability for markets sensitive to green policies, including tech and renewable energy sectors, while corporate tax hikes could impact bottom lines for some sectors. Harris’s proposed continuation of existing infrastructure and green tech investments suggests growth opportunities in sustainable sectors, potentially giving tech and green energy stocks a boost in a high-tax environment​.

Volatility and Safe-Haven Assets

This election year has already driven increased volatility in bond and equity markets. The potential for policy shifts has led investors toward safe-haven assets, with both gold and Bitcoin seeing upticks as hedges against market swings. Historically, gold has performed well during times of political uncertainty, and Bitcoin has increasingly mirrored this role in recent cycles, becoming a popular alternative for hedging against inflation and economic unpredictability.

As bond markets grapple with rising yields driven by inflationary pressures, U.S. Treasury bonds have also become a focal point. Elevated yields reflect concerns that the next administration may face challenges in managing both fiscal debt and inflation effectively. Advisors should be prepared for clients seeking security in gold, inflation-protected securities, or cryptocurrencies as hedges against potential inflation or economic instability regardless of the election outcome​.

Market Strategy for Advisors: Staying Agile in Election Years

Navigating an election year requires advisors to employ a careful balance of sector-specific positioning and defensive strategies. Diversifying portfolios with a mix of growth sectors (e.g., tech, renewable energy) and inflation-sensitive assets (e.g., commodities, TIPS) can help mitigate risk. Furthermore, monitoring key economic indicators, such as consumer sentiment, job growth, and inflation, will offer guidance as markets respond to both Trump and Harris campaign developments.

In the final days leading up to the election, it’s wise for advisors to remain nimble, prepared for heightened market reactions to policy discussions and economic updates. Historically, post-election markets stabilize as policy clarity unfolds, but in 2024, the stakes and market impacts may be as polarized as the candidates themselves.

In election years, the question is not just who will win, but how markets will react as voters cast their ballots.

The Advantages of Non-QM Loans for Diverse Borrower Needs

In the realm of mortgage financing, Non-Qualified Mortgage (Non-QM) loans are creating new opportunities for clients who don’t fit the traditional lending mold. For financial advisors, understanding Non-QM products can unlock solutions for clients with unique financial profiles—from self-employed individuals to investors and high-net-worth individuals with substantial but non-traditional income. Here’s a closer look at what Non-QM loans offer and why they’re a versatile tool for meeting diverse client needs.

What Are Non-QM Loans?

Unlike traditional Qualified Mortgage (QM) loans that adhere to stringent federal guidelines, Non-QM loans provide flexibility in qualification standards. This means that instead of relying solely on W-2s, tax returns, and strict debt-to-income ratios, Non-QM loans consider alternative forms of documentation and financial strength, opening doors for clients whose income structures or investment goals fall outside conventional limits​.

Key Non-QM Loan Types and How They Help Clients

1. Bank Statement Loans:
   For self-employed clients or business owners whose tax returns may not accurately reflect their income, Bank Statement Loans offer a solution. These loans verify income using personal or business bank statements rather than tax returns, allowing clients to demonstrate financial strength based on actual cash flow. With loan amounts of up to $5 million, clients can qualify for primary residences, investment properties, and even high-end purchases. Advisors can leverage this loan type to support clients with complex income who might otherwise struggle with traditional mortgage approval​.

2. DSCR (Debt Service Coverage Ratio) Loans for Investors:
   DSCR loans cater specifically to real estate investors by focusing on a property’s cash flow instead of the borrower’s personal income. This loan type assesses whether rental income from the property covers debt payments, bypassing personal income requirements altogether. This approach is ideal for clients expanding their real estate portfolios, allowing investors to qualify for financing on the strength of their properties alone. With borrowing limits up to $2 million, DSCR loans can facilitate rapid portfolio growth without personal income documentation—a strategic option for advisors with clients aiming to diversify through real estate​.

3. Asset Depletion Loans:
   For high-net-worth clients with substantial assets but limited income, Asset Depletion Loans offer another pathway. These loans allow clients to qualify based on their assets rather than income, using the value of stocks, bonds, retirement accounts, and even the cash surrender value of life insurance policies. This option empowers wealthier clients to leverage their assets in ways that suit their financial planning, enabling them to qualify for home purchases without relying on steady income streams. Advisors can recommend Asset Depletion Loans as part of a holistic financial strategy, especially for clients nearing retirement or those who prefer to keep investment income untapped​.

Why Non-QM Loans Matter for Advisors’ Clients

Non-QM loans expand the options available for clients who may be limited by traditional mortgage structures. As home prices rise and investment properties become more competitive, these flexible loans allow clients to pursue real estate goals that align with their unique financial situations. Advisors who are knowledgeable about Non-QM options can better serve clients who have complex financial profiles, enabling them to maintain liquidity or avoid heavy documentation requirements while securing financing.

With Non-QM loans, advisors can offer clients access to:

• Higher borrowing limits: Allowing purchases in competitive or high-value markets.

• Alternative documentation options: Ideal for clients with non-traditional income sources.

• Cash flow-based qualifying for investors: Streamlining the process for clients building real estate portfolios.

• Asset-based qualifying for high-net-worth clients: Leveraging assets rather than income to qualify for financing.

Next Steps for Advisors

Understanding the full range of Non-QM products available allows advisors to offer tailored mortgage solutions that support diverse financial goals. For advisors, incorporating Non-QM loans into the conversation can enhance client relationships and open doors for clients who may feel constrained by traditional lending criteria. By embracing these innovative financing solutions, advisors can provide critical support for clients at every stage of their financial journey, from self-employed individuals seeking a home to investors building a portfolio.

With Non-QM loans, advisors have the tools to help clients access real estate in ways that align with their financial situations—making homeownership and investment more attainable than ever before.