22 Predictions For 2022: Covid, Midterm Elections, The Oscars, and More

Predicting future events is hard, but it’s among the most important tasks a journalist can perform. Especially if you work at a section called Future Perfect.

Our mission is to explain the world around us to our readers, and it’s impossible to do that without anticipating what comes next. Will inflation continue to rise in the US and Europe, or level off? Will the Supreme Court allow states to ban abortion, eliminating legal access in red states? Will Brazil’s 212 million people be led by a left-wing populist, or a far-right anti-vaxxer?

All of these questions matter, and preparing ourselves for potential outcomes — and having a good sense of how likely specific outcomes are — is a major part of explaining the world accurately. And if policymakers could rely on accurate predictions about the outcome of a foreign war or the advisability of a budget proposal, they could make much better policy decisions.

Being good at predictions is a skill like any other — you have to practice it. University of Pennsylvania psychologist Philip Tetlock studies forecasting, holding tournaments to identify the skills that make people better than their peers at predicting future events. He finds that the most critical skills for forecasting are thinking numerically, being open to changing your mind, updating your beliefs incrementally and frequently instead of in rare big moments, and — most encouragingly — practicing.

Practice makes perfect for prediction-making, but you need to do it all the time, note your successes, learn from your failures, and refine your understanding of where your forecasting abilities are strongest. So for the third year in a row, the staff of Future Perfect is providing predictions on the year to come. As with last time, we assign each event a probability between 10 percent and 95 percent (Tetlock found that the best forecasters thought in terms of probabilities rather than simple yes/no predictions).

To say that something has an 80 percent chance of happening doesn’t mean it’s definitely happening; it means that if we make five predictions at 80 percent confidence, we’re expecting to have four of them come true. (This kind of probabilistic thinking can trip people up, as Nate Silver has documented.)

You can also read our retrospectives on our 2021 predictions, our 2020 predictions, and our 2019 predictions. We don’t speak for Vox, or even for each other, and we hope that where you disagree, you’ll weigh in with predictions of your own. If you want to try your hand, the site Metaculus is a good place; the successor company to Tetlock’s Good Judgment Project also runs competitions.

The United States

Democrats will lose their majorities in the US House and Senate (95 percent)

Midterm elections are fairly predictable. With extremely rare exceptions, the party in power loses seats. Public opinion is, as political scientist Christopher Wlezien has argued, thermostatic: The public elects one party, then finds that its policies are a little too far left or right for its tastes, and compensates by moving the other way in the midterms.

Wlezien, along with Joseph Bafumi and Robert Erikson, has also found that polling many months ahead of midterms can be quite predictive of the eventual results. As of this writing, Democrats are slightly behind in national House polling, which suggests they’ll lose the popular vote for the House this coming November. Data analyst David Shor told me that as of December 9, 2021, the generic ballot polling suggests Democrats losing the House popular vote, 48 percent to 52 percent. With the current razor-thin Democratic majority in both chambers of Congress, such a performance would translate to a near-certain Republican takeover. —Dylan Matthews

Inflation in the US will average under 3 percent (80 percent)

The definition of “inflation” I’m using here is annualized rate of growth in the personal consumption expenditure (PCE) price index, excluding food and energy. This measure, known as “core PCE,” is the one preferred by the Federal Reserve, and thus the one most relevant for public policy. I’m also specifically looking at the average of the first three quarters of 2022, as we plan on reviewing these predictions in December 2022, when the final quarter’s data won’t be available.

While higher-than-expected demand and worse-than-expected supply chains have led to elevated inflation in 2021, I suspect that problem will resolve itself in 2022. The Fed predicts core PCE inflation of 2.7 percent in 2022; the Congressional Budget Office predicts 2 percent. Professional private-sector forecasters predict it will decline from 2.5 percent in quarter one to 2.3 percent in quarter three. All of this suggests to me that inflation will fall below 3 percent, toward a much more comfortable range than experienced in 2021. —DM

Unemployment in the US will fall below 4 percent by November (80 percent)

The current US unemployment rate is only a hair above 4 percent, so one might think it’d be an easy call to predict it will dip below 4 next year. But I do have a couple of hesitations, with the big one that the omicron coronavirus variant is here and looks likely to be at least temporarily devastating. And it might not be the last game-changing variant.

The pandemic has done bizarre things to the US employment situation, and predicting where the next year will take us requires predicting the pandemic’s course from here. That means that while I’m broadly optimistic about job growth in 2021, it’s hard to be too sure of anything. But on the whole, it seems to me that we ought to see at least a moderate degree of economic recovery over next summer and fall, and that moderate degree should be enough for unemployment to fall below 4 percent at some point. —Kelsey Piper

The Supreme Court will overturn Roe v. Wade (65 percent)

For nearly 50 years, anti-abortion activists have engaged in a highly organized campaign to appoint judges willing to overturn Roe v. Wade and allow states to enact outright bans on abortion. The savvy opinion has traditionally been that conservative jurists will seek to narrow, not overrule, Roe by gradually allowing more and more restrictions short of outright bans. I think this is mistaken.

While Chief Justice John Roberts may be pragmatic enough to take that option, my sense is that the other five Republican appointees genuinely believe Roe was wrongly decided and likely believe overturning it will be an admirable part of their legacy.

The Court is currently weighing Dobbs v. Jackson Women’s Health Organization, a case considering Mississippi’s ban on abortions after 15 weeks. After oral arguments, court observers like my colleague Ian Millhiser were confident that all the conservatives but Roberts were ready to overturn Roe. The prediction market at FantasyScotus concludes the same. I defer to their expertise and think 2022 will see the emergence of a divide between red states where abortion is outright banned and blue ones where it is legally protected and funded. —DM

Stephen Breyer will retire from the Supreme Court (55 percent)

In September, Supreme Court Justice Stephen Breyer, the Court’s oldest and most senior member, published a book warning against “politicizing” the Court. To me, this is absurd: The Court is, has always been, and always will be a political institution. Indeed, his colleague Ruth Bader Ginsburg’s willful obliviousness to partisan political concerns will likely soon cause the overturn of Roe and the undermining of one of her biggest legacies.

Partially as a reaction to Ginsburg’s colossal mistake, I predict Breyer will buckle to public pressure to retire before the 2022 midterms. Without a Democratic Senate, President Biden can’t replace Breyer with a like-minded jurist. Breyer is not a fool — he knows this is the dynamic, and while it likely pains him to be seen as responding to political concerns, I suspect he will ultimately let Biden pick his successor. —DM

The world

Emmanuel Macron will be reelected as president of France (65 percent)

Three years ago, when Emmanuel Macron’s public approval rating dipped below 25 percent, it appeared plausible that he would either decline to seek reelection (like his unpopular predecessor François Hollande) or fall to far-right leader Marine Le Pen. But Macron gained substantial ground over 2020, despite a chaotic handling of Covid-19, including repeated attempts at “reopening” usually followed by a new lockdown when the reopening inevitably led to a surge in the disease.

Macron also benefits from a divided far right, with newcomer Éric Zemmour digging into Le Pen’s base. Macron’s best-case scenario is that Zemmour and Le Pen continue to attack each other viciously, leaving whoever prevails in a weak position to take him on in the second round of the election. If he loses, my guess is it’s because mainstream center-right candidate Valérie Pécresse snuck past Zemmour and Le Pen and made it to the runoff, where she stands a better shot than the far-right leaders. —DM

Jair Bolsonaro will be reelected as president of Brazil (55 percent)

If you consult the opinion polls, you’ll see that Bolsonaro — the radical right-wing anti-vaxxer and death squad fanboy currently running Brazil — is behind leftist former president Luiz Inácio Lula da Silva by a decent margin. And I think it’s certainly possible Lula prevails.

But I still give Bolsonaro the edge for three reasons: 1) in Brazil in particular and modern South America more generally, incumbents very often win reelection; 2) in both 2010 and 2018, the party consistently leading in polling for months in the run-up to election season wound up dropping ground rapidly and losing the election; and 3) Lula was knocked out of the 2018 race because of since-overturned corruption charges, and while there’s probably not enough time to convict him of new charges before the 2022 election, I think it’s possible that Bolsonaro and allies will succeed in pushing Lula out of the race. —DM

Bongbong Marcos will be elected as president of the Philippines (55 percent)

The runup to the 2022 Philippine presidential election has been chaotic, to say the least. Sara Duterte, daughter of term-limited incumbent President Rodrigo Duterte, was widely expected to run but opted instead to try for the vice presidency. Duterte then endorsed longtime aide Bong Go, but Go has since withdrawn. And Duterte seems displeased with Bongbong Marcos, the son of former dictator Ferdinand Marcos, even though Marcos is Duterte’s daughter’s running mate. Among other things, Duterte has started spreading rumors that Marcos uses cocaine.

That said, the younger Duterte is a powerful ally for Marcos, as is the somewhat surprising phenomenon of autocratic nostalgia. Keiji Fujimori, the daughter of Peru’s former dictator, has come close to winning the presidency there several times, and the right-wing candidate in this year’s Chilean presidential election is the scion of a family closely allied to the late dictator Augusto Pinochet. A similar romanticization of an autocratic past could help put Marcos over the top.

Marcos seems to be ahead of Manila mayor Isko Moreno and boxer Manny Pacquiao in the (admittedly sparse) polling of the race, and I suspect his last name and canny alliance-building will win him the presidency. —DM

Rebels will NOT capture the Ethiopian capital of Addis Ababa (55 percent)

Two years after Ethiopia’s prime minister Abiy Ahmed won a Nobel Peace Prize, he finds himself losing a brutal civil war. From 1991 to 2018, Ethiopia was ruled by a coalition centered around the Tigray People’s Liberation Front. As its name suggests, the TPLF is based in the Tigray region in the country’s north, and during its rule repressed the Amhara and Oromo ethnic groups. Growing discontent led to the Oromo politician Abiy coming to power.

After a couple of calm years, during which Abiy made peace with neighboring Eritrea, conflict between Abiy and the TPLF turned violent, with the national government sending the military into Tigray and bombing the capital. The humanitarian consequences have been brutal, to say the least.

Abiy’s decision to purge the national army of Tigrayans (when half the officer corps was Tigrayan) weakened his position and helped set up a TPLF comeback. Now, the TPLF has not only pushed the national army out of Tigray, but allied with a powerful group of Oromo rebels.

Disclosure: When I wrote the draft article initially in early December, I predicted that the TPLF would capture the capital of Addis Ababa, as seemed likely around that time. But since then, the national army has regained ground and the TPLF has withdrawn from strategically important neighboring regions. So I reversed my prediction, albeit with considerable remaining uncertainty.

China will not reopen its borders in the first half of 2022 (80 percent)

China has been intent on preserving a zero-Covid policy, even as other governments have abandoned that strategy. When a single person tests positive there, it can trigger a lockdown for tens of thousands of people. The country mandates quarantines for even remote contacts of positive cases. And the authoritarian government has tied up its prestige with its ability to crush the virus.

There’s no indication that China’s approach will change in the coming months. In fact, when one of its top scientists suggested relaxing the zero-Covid policy in 2022, he was ridiculed. Economically, China can afford to keep its borders closed; exports and foreign investment are doing just fine. And politically, it may actually be in China’s interest to stay closed: With the Beijing Winter Olympics coming up in February, and followed by the session of its rubber-stamp parliament and, later, party congress, the government may not be keen to let in foreigners who might critique its policies, especially its human rights abuses.

So I predict that China will not reopen its borders in the first half of the year. Specifically, I mean that China will not allow in foreigners for nonessential purposes like tourism. —Sigal Samuel

Chinese GDP will continue to grow for the first three quarters of the year (95 percent)

Per World Bank data, the last year that Chinese GDP fell was 1976, when Mao Zedong died and the Gang of Four was deposed. The 2008 global financial crisis and the pandemic in 2020 (originating in China) couldn’t stop the country’s economy from growing. I’m therefore very confident that Chinese GDP in the first three quarters of 2022 (which are the quarters we’ll consider for this prediction) will grow. —DM


20 percent of US children between 6 months and 5 years old will have received at least one Covid vaccine by year’s end (65 percent)

Vaccine makers are busy testing the safety and efficacy of their shots in children under 5. Pfizer/BioNTech is furthest along, with Phase 2/3 trials currently running that may yield initial data within the next month. Of course, the Food and Drug Administration and the Centers for Disease Control and Prevention will still need to issue an approval before shots can go into arms, but Pfizer/BioNTech is already saying it expects to deliver the doses by April 2022.

Dr. Anthony Fauci seems to think a spring vaccination rollout is doable. “Hopefully within a reasonably short period of time, likely the beginning of next year in 2022, in the first quarter of 2022, it will be available to them,” he said, referring to kids under 5.

That said, according to polling from the Kaiser Family Foundation, 30 percent of parents with kids under 5 say they will “definitely not” vaccinate the kids. As of this writing, only about 17 percent of kids aged 5-11 have gotten at least one dose. When it comes to even younger kids, the hesitation may be more pronounced as some parents choose to “wait and see” about side effects; polling suggests that parents become more hesitant about getting their kids the Covid vaccine the younger the children are.

So, although I think there’s a decent chance that 20 percent of kids between 6 months and 5 years old will have gotten at least one shot if we give the “wait and see” crowd until the end of 2022, I’m not going to bet on a higher percentage. —SS

The WHO will designate another variant of concern by year’s end (75 percent)

I really hope I’m wrong on this one. But I fear a new variant of concern will appear on the WHO’s list, for a simple reason: Between rich countries hoarding doses and some populations showing hesitancy to get immunized, we’re not vaccinating the globe fast enough to starve the virus of opportunities to mutate into something new and serious. In low-income countries, only 7.3 percent of people have received at least one dose.

Within the past year, five variants of concern have made it onto the WHO’s list. I don’t have high hopes that we’ll go all of 2022 without adding at least one more to that sad litany. —SS

12 billion shots will be given out against Covid-19 globally by November 2022 … (80 percent)

The global vaccine rollout has not been as good as was hoped for, or as good as it needs to be to prevent the emergence of new variants. But compared to what the world was capable of even a few decades ago, it has been pretty impressive. It is about one year since the first countries issued approval for vaccines developed against Covid-19, and already more than 8.5 billion doses have been administered. If that rate continued into next year, the world would easily hit 12 billion shots given out, or enough for every person over 20 to get two shots.

Countries probably won’t maintain that rate or even close to it, because people easy to reach for vaccination have largely already been reached, and the remaining vaccination efforts are going to have to involve delivery in poor and rural areas and overcoming vaccine hesitancy. But I still expect the world to hit this milestone, probably sometime in the summer.

Of course, those 12 billion shots will still be nowhere near evenly distributed; many rich countries are now encouraging boosters and vaccinating children, and there are still some parts of the world where vaccination rates are very low. —KP

… but at least one country will have less than 10 percent of people vaccinated with two shots by November 2022 — (70 percent)

For vaccination to help protect the world against the emergence of future variants, there can’t be huge gaps in vaccination coverage. Unfortunately, that’s probably exactly what we’re going to get. In many areas, a lot of people are reluctant to get vaccinated; in others, access to vaccines has been severely limited, and changing that will require funding and dedicated effort that rich countries have been unwilling to extend.

In many parts of the world, health care clinics are viewed as an expensive option for emergencies, not as resources for preventive care; they’re also thought of as primarily serving pregnant people and young children. That makes it hard to get older people at highest risk from Covid-19 vaccinated. Underresourced vaccination campaigns won’t succeed, and sufficient resources means not just access to enough physical vaccines but also the capacity to get them to people. I’d love to see this happen in 2022, but unfortunately I don’t expect to see it everywhere it’s needed. —KP

Science and technology

A psychedelic drug will be decriminalized or legalized in at least one new US state (75 percent)

Psychedelics have been undergoing a renaissance over the past few years as the evidence mounts that they have potential to help treat mental health conditions like depression and PTSD. A movement to decriminalize or legalize such drugs is gaining traction. In 2020, Oregon voters elected to legalize psilocybin, the main psychoactive ingredient in magic mushrooms, in supervised therapeutic settings (the state also decriminalized all drugs). In Washington, DC, voters effectively decriminalized psychedelic plants. A handful of US cities, including Detroit and Denver, have decriminalized psilocybin.

As momentum continues to build, I think there’s a solid chance we’ll see a psychedelic drug decriminalized or legalized in at least one more US state. I’ll be keeping my eyes on California, which will put decriminalization of a wide class of psychedelics to a vote in a 2022 ballot measure. —SS

AI will discover a new drug — or an old drug fit for new purposes — that’s promising enough for clinical trials (85 percent)

For years, there’s been a ton of hype about AI’s potential to transform drug discovery. We’re finally starting to see the hype turn into reality. In 2020, AI researchers based at MIT found a new type of antibiotics, and a British startup called Exscientia said its new pill for OCD would be the first AI-designed drug to be clinically tested on humans. In 2021, Exscientia followed that up with two more drugs, one for patients with tumors and another for Alzheimer’s disease psychosis.

Based on the track record of the past two years, I predict that another such discovery will happen in 2022, yielding a drug that’s promising enough to merit a clinical trial. This could be either a totally new compound or an existing drug that AI has found can be repurposed for a new use. One big new player to watch in this arena is Isomorphic Labs, just launched by Alphabet to discover new drugs using DeepMind’s AI. (Demis Hassabis, the CEO of DeepMind, will also serve as Isomorphic’s CEO.) —SS

US government will not renew the ban on funding gain-of-function research (60 percent)

In 2014, after a series of disastrous lab accidents made it clear that lab procedures weren’t adequate to prevent the release of deadly pathogens, the US government temporarily paused funding for “gain of function” research in diseases that could affect humans and make viruses more deadly or transmissible.

To my mind, this was an incredibly sensible call by the Obama administration. Biology research is valuable, and we should as a society invest more in it, but lab research that involves engineering what could effectively function as deadly weapons isn’t acceptable and shouldn’t be funded. Researchers engaged in gain-of-function work pushed back on the ban, and in 2017 it was reversed — the US is now funding such experiments again.

This is outrageous, and if anything could prompt the government to revisit it, you’d think it’d be the millions of deaths from a new pandemic over the past two years. But I haven’t yet seen any moves by the US government to put this policy back in place. I sincerely hope that changes in 2022. —KP


The Biden administration will set the social cost of carbon at $100 per ton or more (70 percent)

The social cost of carbon (SCC) is a measure, in dollars, of how much economic damage results from emitting 1 ton of carbon dioxide. SCC is an important measure because it guides policymaking — and there’s good reason to think we’ve been radically underestimating it. Although the Obama administration had set the SCC at $51 per ton, the Trump administration put it as low as $1. In early 2021, the Biden administration restored it to $51 as an interim move, promising to study the matter in depth and release its final determination in early 2022.

Recent findings indicate that the official social cost of carbon should be substantially increased. One study found that when factoring in projected heat-related deaths — the “mortality cost of carbon” — the SCC jumps to a whopping $258 per ton. The Biden administration probably won’t go that far, but it really should go at least as high as $100, economists say.

Two top experts on SCC — Joseph Stiglitz of Columbia University and Lord Nicholas Stern of the London School of Economics — have said around $100 would be appropriate. Other experts, not to mention New York state, have decided $125 is a better estimate. Taking all this into consideration, I think it’s reasonable to predict that Biden will go with at least $100. —SS

2022 will be warmer than 2021 (80 percent)

One of the more obvious — yet sometimes overlooked — consequences of climate change is that almost every year is warmer than the last, meaning experiencing the warmest year in recorded history is now routine. This means that a recurring prediction here at Future Perfect is this gloomy one: that it is 80 percent likely that each year will be warmer than the last. This is based on looking at the last 25 years of atmospheric temperature data: On average, in four out of five years, this prediction would be right. —KP


Kenneth Branagh’s Belfast will win Best Picture (55 percent)

This is not a very brave prediction; bet365, BetMGM, and Betfair all give Belfast, Kenneth Branagh’s autobiographical film about his childhood in Northern Ireland during the Troubles, the edge to win Best Picture. All of those betting sites give it odds of roughly 25 percent, so I’m going out on a bit of a limb by giving it higher odds than the field, but I think that’s justified.

The Oscars like giving late-career awards to directors they forgot to honor earlier, even if the awarded films are inferior to their best. (Think Martin Scorsese for The Departed rather than Taxi Driver or Goodfellas, or Guillermo del Toro for The Shape of Water and not Pan’s Labyrinth). Branagh, whose reputation rests on his Shakespeare adaptations in the 1980s and ’90s, fits the bill. Repeat wins for directors are rare, which is bad news for del Toro’s Nightmare Alley and Steven Spielberg’s West Side Story.

The best competition I can see are Jane Campion’s The Power of the Dog and Paul Thomas Anderson’s Licorice Pizza, but both of those directors are, to be frank, too good to win Oscars. Branagh is in the midcult sweet spot. —DM

Norway will win the most medals at the 2022 Winter Olympics (60 percent)

Similar to my Oscar prediction, here I’m relying on the odds of experts. Gracenote, a division of Nielsen, predicts the Olympics by looking at recent results in non-Olympic competitions in various events. It gives Norway a strong edge in Beijing 2022 Winter Olympics, with 45 medals to the Russian Olympic Committee’s 33. Norway also came in first in Pyeongchang in 2018, and while the Russians are formidable opposition (they came first on their home turf in Sochi in 2014), the fact that they’re still not allowed to compete as the nation of Russia, due to doping scandals, holds them back. They underperformed in 2018, and I see them coming up short again this time.

Dylan Matthews

Source: 22 predictions for 2022: Covid, midterm elections, the Oscars, and more – Vox


Should I Cash Out of Mutual Funds to Pay Off Debt?

If you have some money invested in mutual funds, using them to pay off debt may seem like an attractive option. You may assume that you’ll get more benefit from using the money that you’ve invested to eliminate debt (and the associated high interest rates). But cashing in your mutual funds may not be the best way to become debt-free if there are other options available. And depending on where you hold your mutual funds, you could end up receiving a steep tax bill.

Key Takeaways

  • Cashing out mutual funds may not be the best option for repaying debt.
  • You may owe capital gains tax on mutual funds that you cash out from a taxable brokerage account.
  • Cashing out mutual funds from an IRA or other qualified retirement account could trigger income tax on earnings, as well as an early withdrawal tax penalty.
  • Withdrawing money from your investments to pay debt means missing out on future growth from compounding interest.

Pros and Cons of Cashing Out Mutual Funds to Pay Off Debt

Using mutual funds to pay off debt may seem appealing at first glance. If you aren’t using the money that you’ve invested for any particular financial goal, then why not use it to pay off credit cards, student loans, or other debts? After all, eliminating debt can free up more money in your budget that you can then reinvest in mutual funds, stocks, or other securities.However, there are some problems with that logic.

Specifically, there are two major drawbacks associated with cashing out mutual funds to pay down debt. The first is taxes; the second is how it may negatively impact your long-term financial goals.In terms of tax implications, there are two ways that cashing out mutual funds to pay debt can backfire, depending on where you hold them. If you have mutual funds in a taxable brokerage account, then cashing them out may trigger capital gains tax if you’re selling them above what you initially paid for them.

Short-term capital gains on securities owned for less than one year are subject to ordinary income tax rates.1 The long-term capital gains tax rate is 0%, 15%, or 20%, depending on your income.

If the mutual funds are in an IRA, you may pay ordinary income tax on the entire withdrawal, the exception would be if you had any basis in your IRA. Then a 10% penalty may apply. The rules are slightly different for Roth IRAs, especially when it comes to taxes.

Aside from the tax consequences of using mutual funds to pay down debt, it’s also important to consider how it may impact your ability to grow wealth. By selling off mutual funds and not replacing them with other investments, you miss out on the power of compounding interest. Depending on how much of your mutual fund holdings you choose to sell, that could mean losing thousands of dollars in growth over time.

If you’re considering cashing out mutual funds in a brokerage account, use an online capital gains tax calculator to estimate how much you may owe on the sale.

Other Options for Paying Off Debt

Cashing out mutual funds isn’t the only way to manage debt. There are other possibilities for eliminating debt faster while also saving money on interest, including:

  • Refinancing student loans, personal loans, or other loans at a lower interest rate
  • Consolidating credit card debts into a single personal loan
  • Taking advantage of 0% credit card balance transfer offers
  • Using a home equity loan to consolidate debts
  • Selling vehicles or other non-investment assets that you own and applying the proceeds to your debt balances

If you’re struggling with debt repayment, then you may consider other options, such as a debt management plan or debt settlement. With a debt management plan, you work with a certified credit counselor to create a plan for paying off what’s owed. This may include reducing interest rates or fees. You make a single payment to the credit counselor, who then distributes the funds among your creditors.

Debt settlement is something that you may consider for past-due debts. This involves working with a consumer debt specialist to negotiate debts with creditors. The goal is to pay off debts for less than what’s owed to avoid filing for bankruptcy as a last resort.

Debt management and debt settlement may have potentially negative impacts to your credit score, so it’s important to weigh these options carefully.

Making an Informed Decision

If you’re considering selling mutual funds to pay off debt, it’s important to do your research beforehand. Your broker or financial advisor can provide you with the expected rate of return for a mutual fund going forward. Compare this rate to the fund’s historical performance to ensure its accuracy. If the mutual funds pay dividends, then this amount should be included in the assessment. If funds are held within a retirement account, find out the fees and penalties for cashing out.

Again, cashing out of a traditional IRA before age 59½ results in a 10%, or 25% if you have a SIMPLE IRA, tax penalty. There are exceptions for withdrawals, such as disability, medical debt, certain educational expenses, and buying a home. Mutual funds held within regular brokerage accounts have the standard commission charges, but the fund itself still may charge a fee for redeeming your shares. Brokers and financial advisors are great resources for this information.

The interest rate on your debt and the length of the loan should provide the last pieces of evidence to make an informed decision. Debts such as credit cards and short-term loans typically have higher interest rates than longer-term debts such as vehicle loans or mortgages. For mortgages, check to make sure that you have a fixed interest rate. Adjustable-rate mortgages (ARMs) can keep increasing over time and lead to payments that might balloon above your ability to repay them.


A 401(k) loan also is an option for repaying debt, but if you separate from your job before the loan is repaid, then the entire amount could be treated as a taxable distribution.

The Bottom Line

While becoming debt-free may be relief, there are some downsides to consider if you’re using mutual funds to achieve that goal. Fees and penalties are red flags when thinking about cashing in your mutual funds. Loss of future investment income and the lack of a retirement account can put you in a worse situation later in life.

You can make additional debt payments using current income to shorten the length of the loan and reduce the total amount of interest that you have to pay, assuming your budget allows it. If you’re truly struggling with how to repay debt, then consider reaching out to debt relief companies to see how they may be able to help.

When researching debt relief companies, be sure to get a clear explanation of the services that they offer and the fees that you might have to pay before signing a contract for services.

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By: Nathan Buehler

Nathan Buehler is a well-established writer on the VIX and its related exchange traded products. Nathan also provides coverage on publicly traded companies, commodities, and personal finance/budgeting. Not only is Nathan a writer, but he is also a teacher. His drive to help others doesn’t end in the classroom. This is evident by the time and commitment he gives to his readers through personal feedback and open discussion of topics. He has written articles on topics such as economics, investing, and finance.

Source: Should I Cash Out of Mutual Funds to Pay Off Debt?


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Modern Monetary Theory Isn’t the Future. It’s Here Now

The infrastructure act signed into law last week marked a defeat for the faction of progressive economists in ascendancy in 2020. For these advocates of modern monetary theory, the insistence by both political parties that all the $550 billion of new spending be matched by offsetting revenue, known as “payfors,” goes against their belief that money is merely a tool for government.

This is a temporary rhetorical setback. The reality is that MMT’s ideas have insinuated themselves deep into government, central banking and even Wall Street—and the infrastructure act is in fact deficit-financed anyway.

MMTers detest payfors as wrongheaded thinking about money. Money only exists because of government spending, and under MMT, the government should just create as much as it needs to finance its projects. In a tight economy—like we have now—MMT might want offsets to new spending. But higher taxes or lower spending elsewhere would be aimed at avoiding inflation, not at balancing the budget.

The government hasn’t embraced MMT. But important elements of it are now accepted by much of the economic and financial establishment, with major implications for how the economy is run.The most important claim of MMT is that a government need never default on debt issued in its own currency. The lesson of 2020 was that MMT is right.

“We got five or six trillion dollars of spending and tax cuts without anyone worrying about payfors, so that was a good thing,” says L. Randall Wray, an economics professor at Bard College in New York and a leading MMT academic. “In January [2020], MMT was a crazy idea, and then in March, it was, OK, we’re going to adopt MMT.”

It isn’t just MMTers who say the world took a turn toward a new way of thinking.

“Governments have lost their fear of debt,” says Karen Ward, chief market strategist for EMEA at JPMorgan Chase’s asset-management arm. “They were terribly worried about bond markets and investors punishing them. What they saw last year was record high levels of debt at record low levels of interest rates.”

Central banks that had struggled for a decade to boost inflation using monetary tools found that fiscal tools were far more powerful. Government spending does far more for inflation than quantitative easing, it turns out, and central-bank calls for more fiscal action to boost the economy are more likely to be accepted next time deflation looms.

Key parts of MMT haven’t been adopted, particularly its call for government to guarantee everyone a job. But the MMT critique of the status quo, where the central bank modulates the number of unemployed people to control inflation, hit a nerve. The Federal Reserve shifted in favor of running the economy hot to reduce inequality. Employment has become more important in its thinking, and its move to a target of average inflation means it is willing to accept higher inflation than previously.

Still, the Fed is (rightly) worried about inflation and is tweaking its tools to try to influence the economy with monetary policy, something MMTers think just doesn’t work. As Mr. Wray points out, it wasn’t when trillions in benefit checks landed in bank accounts last year that inflation went up; prices went up when the recipients went out and spent the money. “Money doesn’t cause inflation,” Mr. Wray argues, a view that infuriates monetarist economists. “Spending causes inflation.”

In the next downturn it is going to be very difficult for governments to resist calls to provide huge support, now that it has been shown that bond markets don’t care. That should mean recessions are shallower, debt is higher, the government is more involved in the economy and, assuming the Fed doesn’t accept that its tools are useless, interest rates are higher on average than in the past. Bond markets aren’t pricing in anything of the sort, though. The 30-year Treasury yield is only 2%, well below the 3.2% average of the 10 years up to 2020.

Under full-blown MMT, payfors would be ditched for a mix of micro-planning of the resources needed for new projects, and an assessment of the overall impact on the economy—and potentially, higher taxes.

MMT is both right and wildly optimistic that higher taxes could slow an overheated economy and bring down inflation. The flip side of last year’s demonstration of the power of fiscal policy is that higher taxes can suck demand out of the economy much more effectively than the Fed’s interest-rate tools.

There was a brief moment when it looked as though Democrats might impose higher taxes on billionaires as part of the payfors for the roughly $2 trillion social-spending bill, although they were dropped on first contact with reality. MMTers mostly aren’t worried about  Biden’s spending plans causing inflation anyway. But MMT prescribes that if tax rises are needed to slow demand, billionaires wouldn’t be the target: The rest of us would.

“It makes more sense to have a broad-based tax that would reduce demand across the broader economy, especially people who have a propensity to spend of 98%, which is the majority of Americans,” Mr. Wray said.

Other MMT ideas have infiltrated their way into the heart of the establishment, but the idea that the government should raise taxes on ordinary Americans, let alone that it should do so to control inflation, is exceptionally unlikely to be accepted.

That is a bad thing, because MMT’s ideas encourage more spending, and if that results in more inflation in the longer run, MMT is right that higher taxes are the simplest way to reduce demand and prevent a surge in prices.

James Mackintosh

By: James Mackintosh / Senior columnist, markets, The Wall Street Journal

Source: Modern Monetary Theory Isn’t the Future. It’s Here Now. – WSJ

More Contents:

4 Budgeting Tips Every Real Estate Agent Should Follow


Whether you’re just starting out in real estate (congratulations!) or making the switch from another career, there’s a lot of excitement in store for you. You’re in a field with absolutely no financial ceiling and unlimited earning potential—but there are also many expenses that you’ll have to prepare for. I get asked a lot about how to set a budget, so I’ve put together a plan to guide you. Here are the four important expense categories to prepare for, and exactly how to prioritize them.

1. Taxes

From your very first commission check, start saving for taxes. This isn’t like your last job when you had a W-2 and taxes were already taken out of your paychecks—you are solely responsible for saving for and calculating what you owe the government each quarter. If you don’t have enough money for your taxes, the IRS won’t care that you spent it on shoes. Talk to your accountant and figure out an amount to use from every paycheck for your taxes. Transfer that money from your checking to savings account each month—and keep it there.

2. Living Expenses

With the money left over after you transfer over your tax budget, calculate what you need for your monthly living expenses. Figure out what you need for food, rent, transportation, and other essentials. For those just starting out, times might be a bit lean—my debit card was once declined when I tried to buy a yogurt—but it will get better. Get a roommate, cancel cable, cook at home, and do what you must to keep expenses low while you’re getting started.

3. Business Expenses

After your taxes and living expenses are accounted for, you’ll have to pay some business fees. Typically, that includes professional dues, state license fees, and required courses. It’s also very important to stay on top of news, stocks, and market trends, so I recommend adding a subscription to The Real Deal, The New York Times, or another news outlet to your budget. You never know what questions your clients will have, and chances are they’re reading up on the market and current events—so you need to be prepared with answers.

4. Marketing

Next, it’s time to spend money on marketing in order to grow your business. That includes things like social media ads, print and digital ads, signage, and events—as a real estate agent, you front the money for all of it. Down the road, when you start getting really busy, you’ll add someone else to your team; At that point, budget for a small base salary for that assistant, plus a percentage of commissions that you’ll give to him or her.

5. Investing

If you have anything left over after all of that (and if you’re just starting out in a high-cost city, you may not!) invest it. Aim to put 10 percent of your income away in a retirement fund. You can also use it to invest in cryptocurrency or stocks, or to buy some real estate of your own.

These budget tips will help you prioritize your expenses, prepare for the future, and ensure nothing catches you off-guard. Have more questions? Tweet them to me @RyanSerhant.

Follow me on Twitter or LinkedIn. Check out my website

Ryan is an American real estate mogul, entrepreneur, CEO, best-selling author, and reality star. He is best known as the star of Bravo’s two-time


More Contents:

“Fundrise Adds Big Name Investors Including Ratner, Elghanayan & Guggenheim: Funding Now at $38 Million”. 26 September 2014.

 “Renren-Backed Fundrise Bulks up in Real Estate Crowdfunding Sector”

 “Investing in Foreclosures For Beginners”. Distressed Real Estate Institute. Archived from the original on 2013-01-02. Retrieved 2012-12-31.

“Foreclosure causes heartache for renters”. Inman News. Retrieved 2008-02-24.

 “Housing Slowdown Unnerves the Fix-and-Flip Crowd

“Rados Sumrada: Modeling methodology for real estate transactions, 2005”. Retrieved 3 January 2012.

“Hess and Vaskovich: Ontology Engineering for Comparing Property Transactions, pp. 183 – 201, and Hess and Schlieder: Ontology-Based Development of Reference Processes, pp. 203- 219, both in: Real Property Transactions. Procedures, Transaction Costs and Models. Edited by: J. Zevenbergen, A. Frank and E. Stubkjær”. Iospress.nl. Retrieved 3 January 2012.

“Vitikainen: Transaction Costs Concerning Real Property – The Case of Finland, pp. 101 – 118 in: Real Property Transactions. Procedures, Transaction Costs and Models. Edited by: J. Zevenbergen, A. Frank and E. Stubkjær”. Iospress.nl. Retrieved 3 January 2012.

“Stubkjær: Accounting Costs of Transactions in Real Estate – The Case of Denmark. Nordic Journal of Surveying and Real Estate Research, 2:1 (2005) 11–36”. mts.fgi.fi. Archived from the original on 5 February 2009.

“Stubkjær, Lavrac and Gysting: Towards national real estate accounts: The case of Denmark and other European jurisdictions, pp. 119- 139 in: Real Property Transactions. Procedures, Transaction Costs and Models. Edited by: J. Zevenbergen, A. Frank and E. Stubkjær”. Iospress.nl. Retrieved 3 January 2012.

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“Property formation in the Nordic countries – Denmark. National Survey and Cadastre (2008)

Will Real Estate Ever Be Normal Again?

The third time Drew Mena’s manager asked him about relocating to Austin, Texas, he and his wife, Amena Sengal, began to seriously consider it. They had deliberated each time before, in 2017 and 2018, but landed on a hard no: Drew and Amena had lived in New York for more than 10 years, and they loved it. They owned a two-unit townhouse in the Bedford-Stuyvesant neighborhood of Brooklyn, and they felt lucky to have it, with its yard and the kind of close-knit neighbors who compete to shovel one another’s sidewalks after a snowfall.

But now it was August 2020, and the pandemic had changed their calculus. When the city shut down, their daughter, Edie, was 7 months old; Drew and Amena co-parented while working full time, one at the kitchen island, the other at the breakfast table. In May, they escaped to Drew’s family’s cottage in New Hampshire, and gradually their tether to the city began to fray. When the relocation offer came in from Drew’s employer, an asset-management company, they started browsing listings online, and it looked as if they could get a lot more space in Austin. They would certainly save money on everything else, like gas and groceries. The world is ending, they said to themselves. Why the hell not?

Amena, who was born and raised in Houston and attended the University of Texas at Austin, called her parents to solicit their opinion. They were so thrilled at the thought of her return that they suggested she consider buying, and offered to help with the down payment. They could all share the home as an investment property if Drew and Amena moved on. Amena crunched the numbers and quickly realized a truth about America: Thanks to persistently low interest rates and tax policies that favor the rich, you can almost always get more space with a mortgage than with the same amount in rent.

So she threw herself into the search with zeal. She mapped commutes to Drew’s new office downtown; she found a dozen preschools she liked, and video-toured more than half of them. In her mind’s eye, she drew a backward C around central Austin, cutting out downtown and the expensive west side. Their maximum budget was $550,000, $575,000 tops. They were looking for a house that was move-in ready, maybe around 1,500 square feet overall, with three to four bedrooms, two baths and a shed or office space for Amena in the backyard — she planned to keep her New York job in education policy and telecommute.

She reached out to John Gilchrist, a close friend from college who was now a real estate agent and, in January, he began taking her on up to four FaceTime tours a day. In the background, she could see other intent buyers, masked but often encroaching on one another. She could sense quality, but scale was harder to discern. “How many paces is that?” Amena would ask Gilchrist. “Can you put your hand in that sink? It looks tiny.”

The day that she and Drew were scheduled to fly to Austin for house-hunting, at the beginning of February, New York was buried in snow and flights were being canceled, so they opted to reschedule theirs. Feeling stranded and agitated, Amena began bidding on houses. There were two for sale in Johnston Terrace, on Emmitt Run, on the same block as Amena’s best friend from high school. Both were two stories and 1,700 square feet. One, listed for $437,700, was a bouquet of beiges — beige interior and exterior paint, beige carpets, beige linoleum floors and beige oak cabinets. The other, listed for $50,000 more, was being remodeled by its owner and his friends: modern gray paint, white cabinets, dark wood luxury vinyl plank. “We’re all putting lipstick on a pig trying to get our houses sold,” the owner told me.

Amena bid on the beige, imagining she’d use the extra money to do her own remodel. It went under contract for $45,800 over the asking price, or $43,500 more than her bid. A few days later, Amena bid on another home she’d been dying to see on their trip, a black-and-white ranch house in South Austin listed at $460,000. At the urging of Gilchrist, who told her how tight the market was, she bid more aggressively, offering $495,000, and was chagrined when she lost that house too.

For Amena and Drew, their Austin home-buying odyssey was just beginning — a monthslong ordeal that would teach them quite a bit about the cruel realities of America’s housing market, in which home prices nationwide have risen by an astonishing 24.8 percent since March 2020. And this first lesson, appropriately enough, demonstrated just one of many ways that the old, measured rules of home-buying no longer applied — that the cutthroat competitiveness that once defined only a few U.S. markets (San Francisco, New York, Los Angeles) had now become standard across the country, as the median home price in small- and medium-size metropolitan areas rose by jaw-dropping levels: Boise, Idaho, 46 percent; Phoenix, 36 percent; Austin, 35 percent; Salt Lake City, 33 percent; Sacramento, 28 percent.

By bidding on two properties she had never visited, in a city nearly 2,000 miles away, Amena joined the 63 percent of North American home buyers in 2020 who made at least one offer on a home that they had never stepped into. Homes had been one of the few things resistant to online shopping: We browsed online, but we didn’t buy. The pandemic changed that. The result was a market that moved much, much faster.

Drew Mena and Amena Sengal’s first 15 bids in Austin’s cutthroat home market were rejected. (Tap to cycle through the houses that got away.)

What Amena and Drew would ultimately learn about Covid-era real estate was not just the necessity of raising their budget and lowering their expectations. It was also that the whole mind-set required to buy a house, the most important purchase that most Americans will ever make, had undergone a fundamental transformation — possibly a long-term one, given the realities of both supply and demand. Freddie Mac estimated at the end of 2020 that the United States was 3.8 million housing units short of meeting the nation’s needs.

Combine that with the surge of millennials into the housing market — they represented more than half of all mortgage originations last year — as well as the insatiable appetite of investors, who now snatch up nearly one in six homes sold in America, and the contours of a new, lightning-fast, permanently desperate housing market come clearly into view.

“It’s so irresponsible,” Amena lamented, when discussing those first, remote bids they made, and Drew chimed in: “In a normal market you would never do that.” By “normal,” Drew meant a time when a home buyer could tour a house in person, mull it over, go back a second time with her parents or friends and then make an offer with time for an inspection and an appraisal. But there’s reason to fear that America’s real estate market, after passing through the pandemic madhouse, might never get back to that kind of normal again.

Several Austin real estate agents told me the same story about when the “flip switched” during Covid: a sale on Ephraim Road, in the suburb of Brushy Creek, on New Year’s Day 2021. The house was “well cared for,” a buyer’s agent told me, but “nothing out of the ordinary”: two stories in brick, with a large arched window — the sort of place one of Tony’s underlings might own in a Texas spinoff of “The Sopranos.” It was listed on Dec. 30, 2020, for $370,000, and it seemed like mere minutes until buyers and agents began lining up in the bitter rain to tour the house one by one, a process that took hours.

Agents texted Google Maps screenshots to one another, noting the red traffic jams around the property. By the 11 a.m. deadline on New Year’s Day, the house had received 96 offers, with the winning bid clocking in at $541,000 — a mind-boggling 46 percent above asking. “Just when you think you know a lot about real estate, you realize you don’t know anything,” the listing agent told me. “The market shifts and keeps shifting.”

Austin real estate has been hot for years. Over the last decade, an average of more than 100 people have moved into the area every day. But 2020 broke the levees. In July, Tesla announced it would build an auto plant in Austin. Facebook and Apple, meanwhile, were expanding their local campuses. All were attracted by Texas’ lower cost of living and business-friendly tax and regulatory environment.

In December, the database giant Oracle said it was moving its headquarters from California to Austin. That month, the median sales price for homes in the Austin metropolitan region was up 23.7 percent year-over-year. “Before the pandemic, you would see a line of 20 people standing outside a restaurant downtown,” Albert Saenz, who has been a real estate agent since 2003, told me at the time. “Now you drive downtown, there’s nothing happening. But out in the suburbs, you see lines of 20 people waiting to see a house.”

The last time U.S. housing saw such rampant price growth was in 2005, and the market corrected itself, infamously, in 2008. But the underlying reality today is different. Back then, a geyser of subprime adjustable-rate mortgages sputtered out as borrowers defaulted. (According to Bloomberg News, 60 percent of mortgages during the bubble years were adjustable rate; fewer than 0.1 percent of mortgages are now.)

The current boom is better compared to a river, one fed by streams that have long been visible on the horizon: high demand, low supply and a dysfunctional economy in which wages are stagnant while restrictive zoning and poor public policy have turned housing into an artificially scarce commodity. Historically low 30-year fixed mortgage interest rates, hovering between 2.68 and 3.08 for the last year, are narrowing the riverbed, quickening the current.

After a decade of too little development, the pandemic made the low inventory lower. Construction stopped. Sellers, afraid of inviting the virus into their homes or reluctant to move in uncertain times, didn’t list, and inventory declined by nearly a third from February 2020 to February 2021, falling to the lowest level relative to demand since the National Association of Realtors began record-keeping almost 40 years ago.

At one point in January 2021, the month the Ephraim Road sale broke everyone’s brains, Austin had just 311 homes listed for sale; in a normal month, the number would be 5,000. An estimated 65,000 starter homes were completed nationwide in 2020, less than a fifth of the number built annually in the late 1970s and early 1980s. A typical home listed for sale on Zillow was available for a median of 14 days in December 2020, compared with 33 days the year before. Now it’s nine.

As the pandemic made the poor poorer, meanwhile, it made the rich richer. Homeowners, already more than 40 times as wealthy as renters, were more likely to keep their jobs, profit from the stock market and have enough savings to take advantage of low interest rates.

Then there’s the role played by investors and speculators. Large corporate and Wall Street landlords, like Invitation Homes, American Homes 4 Rent, BlackRock and Blackstone, are arguably the most toxic players, driving up rents in the select markets they saturate, lobbying for corporate tax cuts and fighting tenant protections. But a majority of investment buyers are smaller companies and individuals: mom-and-pop landlords, tech workers looking to diversify their portfolios, teachers who supplement their paltry paychecks by Airbnb-ing properties on the side.

The ease with which they can access credit strains the market and drives up prices. Those effects are likely magnified when investors target homes in cities less expensive than the ones in which they live, whether they’re Chinese investors in California or Californian investors in Texas.

Perhaps the most important factor driving the new housing market is demographic inevitability. Millennials — the 72 million Americans born between 1981 and 1996, including Amena and Drew — are aging into their prime home-buying years and belatedly entering the market. This has been made possible in part by a recent rise in wages, after years of stagnation. Even so, millennials, many of whom came of age during the Great Recession, will probably never make up all those lost earnings from their early adulthood.

Now the largest living generation, they control just 4 percent of America’s real estate equity; in 1990, when baby boomers were a comparable age, they already controlled a third. What’s more, because of the financialization of housing, millennials need more savings or to take on greater debt to buy a house than previous generations did. The end result is that millennials buying their first home today are likely to spend far more, in real terms, than boomers who bought their first home in the ’80s.

Given these handicaps, they have to approach things differently, and that’s changing real estate, too. In a housing market riddled with speculators, the only way millennials can break in and compete is by acting like speculators themselves.

Back in 2012, Stephanie Douglass greeted a new East Austin neighbor in her usual manner, with a tin of pecan sandies. The woman who opened the door reminded Douglass of herself: cute and casual and blond. Except while Douglass was teaching fourth grade and bleeding away half her earnings on rent, this woman, just a few years older, had bought her house, and was building equity. As a math teacher, Douglass could crunch the numbers.

Shortly afterward, Douglass, who was 24 and had $35,000 worth of student loan debt, bid on nine houses in East Austin before winning one so far east it was almost outside the city: $180,000 with 5 percent down. Her friends thought she was nuts, planting roots at such a young age, but she fixed up the home herself; to cover half her mortgage, she rented the second bedroom to a friend from grade school in Houston.

When Douglass moved in with her boyfriend, she rented out her whole house, and when the relationship ended, in 2016, she told her mom that she didn’t want to waste money renting until her tenants left. They decided to buy a bungalow together and found one with popcorn ceilings and terrible wood paneling that would accept a 5 percent down payment. They spent July and August sharing a mattress on the floor and fixing up the place themselves.

Douglass loved her fourth graders, but not the way she loved her houses. At the end of summer, she dreaded returning to school, dreaded waking at 6 a.m. to work from 7 a.m. to 5 p.m. “Remodeling this house was the first time I had been passionate about anything,” Douglass told me. She was a high achiever, but she had fumbled through college looking for a sense of purpose. With real estate, “I’d figured out how to take control of my life, and it was insanely exciting. I thought, This is cool, and everyone needs to know there’s another way.”

That same year, she got her real estate license and moonlighted as a sales associate, soon earning more than $100,000 annually in commissions. Her closest friends, who once thought she was crazy, now saw her as their financial guru. They began to follow in her footsteps — using her as their real estate agent, of course. Six of them now own homes within a mile and a half of her in East Austin; four of those friends, all under age 35, own at least two properties.

“We wouldn’t be able to stay in the city if we hadn’t bought,” Douglass told me. She has invested in 13 properties around Austin, often adding additional units. Her mother, Meshelle Smith, oversees 10 of them as Airbnbs. (Smith quit her teaching job to found an Airbnb management company, which has 51 listings.) Douglass’s passive net cash flow is $14,000 a month, and her net worth exceeds $3 million.

In 2017, Douglass had what she calls “the best first date ever” with Kristina Modares, a real estate licensee and investor who messaged Douglass on Instagram after following her home-renovation posts. They talked for seven hours and over the next few months decided to found an agency focused on the clientele they were already serving, clients most Austin agents don’t want to touch: first-time buyers looking at homes under $200,000 or $300,000.

Douglass quit teaching, and in June 2019, they opened their agency, Open House Austin, with a party at their office, a once-derelict commercial property on the east side that they (of course) bought and renovated themselves. In 2020, Douglass and Modares started offering Homeschool, a self-directed, six-week course (“The Surprisingly Simple Path to Buying Your First Home With an Investor Mind-Set — Even if You Know Nothing About Real Estate”), which quickly sold out. Amid the economic turmoil of 2020, Open House sold 101 homes to millennials and earned a million dollars in net profits.

On a recent Wednesday evening, Douglass and Modares logged on to a video chat to answer questions from their third Homeschool class, a group of 30 students from across the country, almost entirely millennials and younger. It was the first meeting, which called for an icebreaker. “What is your first item you want to buy in your new house?” Kristina Modares asked. “Or first renovation,” Douglass added.

“I live in the Washington, D.C., area, in the suburbs, in Maryland, currently at my childhood home,” a young woman said. “Hopefully temporarily, but then we had a pandemic, so I was sort of stuck here. I’ve been looking to buy for a long time, looking to stay in my area and just find a house and a yard. The first thing I want to get is a dog.”

Another woman said that she and her husband lived in San Francisco but were originally from Fort Worth; they were torn about whether to buy in the Bay Area or in Texas near most of their friends and family. “We are in a super, super small apartment in San Francisco, so I imagine we’ll have to buy a lot of furniture.”

Another attendee, a local, said, “I’ve always dreamed of building a little ‘catio’ for my cat, so that she can just go outside safely whenever.”

Most of the students found Open House through word of mouth or social media, and they signed up for the class ($979 for the homeowner track, $1,697 for investors) because they were intimidated by the market. Open House has more than 8,600 Instagram followers and 41,800 on TikTok. In one TikTok post with 1.1 million views, Modares acts out “Your parents buying a house VS You buying a house”:

MOM [Modares in ’80s glasses and a gray blazer]: Well, you’re definitely going to have to save 20 percent for your down payment.

DAUGHTER [Modares in a black tank]: I don’t think so. I talked to my lender, and they said actually I could put 3 percent down.

MOM: Me and your father have been living there for 30 years. It’s a big commitment.

DAUGHTER: Yeah, wow, so I’m actually going to live here for maybe two, three years tops, and then I’ll probably rent this out on Airbnb.

MOM: Well, don’t you think you should be married before you buy your first house?

DAUGHTER: No, I got preapproved on my own. I’m actually going to house-hack, and my whole mortgage payment will be covered by someone else.

MOM: [Looks puzzled at the phrase “house hack”]

DAUGHTER: [holds up a sticker that reads, “Houses before spouses”]

Joking aside, the skit encapsulates a truth: Much of Open House’s messaging nudges buyers to think beyond the traditional path of homeownership, built on long-term investment in one home. Instead, they encourage first-time home buyers to start as early as possible with whatever they can afford, typically small or farther-out homes chosen primarily for their investment potential. Open House advises buyers to use credit to leverage whatever they have to bet on appreciation and swiftly vault themselves into better and better homes in different budget brackets.

House hacking, cash flow, passive income, financial independence: These are the buzzwords, but they aren’t new concepts. This is the natural culmination of the way in which housing has been transformed into an investment vehicle over the last 50 years — and it’s a recognition of the economy younger generations have inherited.

When Amena and Drew finally made it to Austin on Thursday, Feb. 11, they brought Snowmaggedon with them: sleet, snow, freezing temperatures and statewide power failures that amounted to one of the costliest disasters in Texas history. “We thought: We’re rugged New Yorkers. No one else wants to drive on this ice, but we’ll do it as a competitive advantage,” Drew told me. Gilchrist had scheduled more than 20 showings, and so on that first weekend, as the state froze, they saw as much as they could, including trendy new houses and the Emmitt Run home being remodeled by its owner and his friends. It was weirder in person. Drew said they built the base of one vanity out of two-by-fours. “And then just like slapped the sink on top of it. It wasn’t even sanded.”

But by Sunday, much of the city lost power, including the friends they were staying with. They moved in with friends at a different house — which lost power an hour later. Everyone slept in the dark, and the next day they trucked over to a third friend’s house. The kitchen was being renovated, and they were washing dishes in the tub, but it had a hot plate and heat.

One of the last homes Amena and Drew were able to visit was a powder blue condo on a street crammed full of identical homes. It retained power because it was on the same grid as a major hospital. Driving up to the address, Malvina Reynolds’s “Little Boxes” played in Amena’s head: “Little boxes on the hillside,/Little boxes made of ticky tacky,/Little boxes on the hillside,/Little boxes all the same.” “It was just like, Oh, my God, they’re all the same! But it was fully done, had the backyard, had all of the space and the rooms that we wanted, had a loft upstairs for me to have an office plus a guest bedroom and a room for the baby and the master,” Amena told me.

As night fell, Amena submitted three offers on her phone: on the powder blue little box; on a 2005 home that felt too far south but was across from a good Montessori school; and on an East Austin condo from 2006 with concrete floors that reminded Drew of the Greenpoint loft apartment they once rented in a former pencil factory. Doing three at once “felt so reckless,” Amena told me. But they weren’t the only ones submitting simultaneous offers — a taboo during “normal” times.

The highest offer on the first house they bid on, the black-and-white ranch house in South Austin, fell through within an hour of execution, because the buyers learned they were also the highest bidders on another home that they liked better. “People kind of just started losing their minds: ‘I’ll offer whatever it takes,’” the listing agent, Ashley Tullis, told me. “We learned some big lessons about the buyer’s remorse.” As a consequence of backing out, the buyers lost their option fee, a sizable $3,000 (before 2020, a typical option fee was $500 or less). But such was the price of playing in this market.

On their simultaneous bids, Amena and Drew never went more than 8 percent over asking price, and they returned to New York having lost out on all three. Amena began to panic. The second house they considered on Emmitt Run, the one with the homemade vanity, erupted in flames during its inspection, injuring the inspector. The buyers pulled out, and it was taken off the market and re-listed, a month later, for nearly $50,000 more. It was hard to imagine a better metaphor for their search: Austin real estate was literally on fire. (The house sold above listing price, after again receiving multiple offers.)

By the end of February, Amena and Drew realized that if their budget was $550,000, they had to look at houses listed for $400,000. “Turnkey” — move-in ready — properties in central Austin were out of reach. For a brief moment, they sought homes needing a gut renovation. But anything less than $300,000 was inevitably being hoovered up by some investor paying all cash. Frenzied buyers were waiving their inspection periods and their appraisal contingencies, meaning they were contractually committing to buying homes even if their lender wouldn’t cover the full price.

And the market was moving so fast that this had become a real risk: Prices from a month before — generally the most recent data available to appraisers — were already outdated, leaving buyers scrambling to make up gaps of as much as $100,000. Others buyers were offering absurdly large option fees (say, $10,000) that they wouldn’t get back if they canceled the contract.

Amena began bidding on any house that seemed acceptable, click-click-clicking through DocuSign at 11 p.m., exhausted, right before falling asleep. Homes blended together. A 1949 bungalow, totally renovated, in East Austin. A fixer-upper owned by a professor of Russian literature at U.T. A handful of other 1950s ranch houses in Windsor Park. Amena was offering between $40,000 and $95,000 over asking. A squat yellow home from 1977 stood out because of its location on Duval Street, walkable to the coffee shops and vintage stores of North Loop.

But the one that most seized Amena’s imagination was a 1955 home on Westmoor Street, brick and wood that was painted purple, green and blue, like a preschool. “It was a mess of a place — we would have to do everything over — but it was huge and beautiful in terms of its potential,” Amena told me. It was listed at $375,000, and she bid $400,000, needing to reserve cash for renovations. In her love letter to the seller, she wrote, “You will probably be offered all cash by someone, but please don’t take it.” Amena and Drew couldn’t bail on Austin. Drew had signed a contract, and they’d rented out their New York apartment.

“More bad news, my friends,” Gilchrist texted. “We got passed over for Duval and Westmoor. Westmoor acknowledged how brutal the market is with an apology, and Duval said they got 28 offers.” Westmoor got 27.

“This is market is no fun,” the Westmoor listing agent told me. “People think that realtors are making money hand over fist, but that means 26 realtors didn’t get to feed their families.

“My client had a big heart and was sentimentally attached, but the less risky bids for her were cash and no contingencies,” the listing agent continued. “This was her nest egg.” She chose an all-cash bid from a buyer planning to tear down her house and rebuild. At this point Amena and Drew were on their 10th failed bid. “It’s like a danceathon,” Drew told me. “Last person standing wins.”

Often, the person still standing was that most hated figure in the Austin real-estate market, the California investor. The winning bidder for Ephraim Road, for example, was Michael Galli, a Silicon Valley real estate agent. “Here’s the interesting truth,” he told me. “I’ve never been to Austin.” He toured the Ephraim Road house on FaceTime.

In 2019, Galli decided he wanted to diversify, so he spent eight months studying cities online and kept coming back to Austin. It had high-income job growth and an influx of venture capital, the very things that had made Bay Area real estate so lucrative. Galli bought a large map of Austin and mounted it on the wall, studying it in the evenings with a glass of red wine in hand. He stuck Post-its onto points of interest: Apple, Samsung, Tesla, new transit lines.

He believed he understood what tech workers wanted: spacious feng shui- and Vastu-compliant homes, with a bedroom on the first floor to accommodate foreign parents on long visits. And most important, good school districts. He resolved to acquire 10 homes within a 12-minute drive of Apple. For $1 million down, he’d own $5 million in assets that he would rent out for top dollar and that he believed would double in value in five years and double again by 12 years.

Then there was a 35-year-old tech worker in Long Beach, Calif., who bought a house in Round Rock for $300,000 last October. By January 2021, it was worth roughly $400,000; in February, he bought two more. His winning bids were two of dozens that his real estate agent, a former equities trader who now works primarily with individual investors, made sight unseen, all of them for at least $40,000 over the asking price. “I’m part of the problem,” the buyer acknowledged to me, though he was not your stereotypical speculator: Despite earning six figures, he drives a 2005 Honda Civic and, when I spoke to him, was renting a room for $900 a month, preferring to save and invest. (Scarred by graduating into the Great Recession, he aligns with the Financial Independence, Retire Early movement popular on Reddit.)

He marveled at how FaceTime, DocuSign and electronic transfers made everything seamless, but because real estate money can now move so easily, it meant what he had liked about real estate investing in the first place — its stability and relative slowness — no longer held true. “We’re gamifying real estate investment to the point that it’s almost like throwing money at the stock market,” he told me.

Some Austin real estate agents have positioned themselves to capitalize on all this out-of-town money. On a steamy 95-degree day in late June, Matt Holm lifted the winged door of his Tesla Model X so that I could hop in the back seat behind his client, Jon, a man who worked in commercial real estate financing in Santa Monica. (Jon asked that I withhold his last name because he hasn’t shared his relocation plans with his friends and family.) During the pandemic, Jon, originally from Madison, Wis., began to rethink what was keeping him in California. “I’m getting a little anxiety about making a longer-term commitment to L.A., just given the political climate, the tax climate, the homelessness problem,” he told me.

Jon had traveled to Austin three times in as many months and was getting a handle on the “resi” market. He was looking for a home where he could declare residency to take advantage of Texas’ lack of income tax — but he also wanted to live elsewhere half the year, and so he was looking for a place he could easily rent out and make money on. And he wanted guaranteed appreciation. “I mean everything’s an investment, right?” he told me. A friend of his who had just relocated to Austin introduced him to Holm, whose dirty-blond hair was pulled into a sleek ponytail.

He founded the Tesla Owners Club of Austin in 2013 and proudly referred to himself as the “Tesla realtor” in town. When Jon slipped in to look at a short-term rental, Matt told me that Jon would like to spend $500,000 to $700,000, “but he’s going to spend 1.3 to 1.5 by the time he’s done.”

“There’s nine million square feet of office being built,” Holm said, as we drove through downtown, cranes and glass skyscrapers glinting above stalky yellow-limestone and red-granite buildings. (The Austin Chamber of Commerce gave a lower but still shocking figure, 6.2 million square feet.) “And it’s being built, like, it’s not occupied. So those jobs are coming. People are telling me, like, Oh, you know, we peaked. … As far as the metrics, the Texodus is not slowing down. We’re about to get a tidal wave.”

“People haven’t even factored in the Elon effect,” he continued, “I can’t tell you the number of people that are saying, Oh, Elon’s building a factory. Like, no, Elon’s not building a factory — this is headquarters for everything Elon. He hasn’t officially announced it, and I don’t know anything behind the scenes, but I can see very clearly the people that are moving here, and they’re not factory workers.” (Indeed, in October, Musk made it official.)

Holm and Jon spoke the same language. They analyzed every parcel for how to maximize profits and shared tips for minimizing taxes. Walking through a cavernous tiled-and-carpeted two-story in Travis Heights, Holm suggested that with its many bedrooms, it would make an excellent Airbnb. Although Austin and the state stipulated that owners could rent only their homestead and only for a maximum of six months a year, “that could be every weekend,” Holm said.

“The investor I know that’s killing it right now is a systems guy,” he continued. “And I told him for four years that he had to get into the Airbnb business and he thought I was B.S.ing him on the numbers. And finally, he believed me, and now he has 13 Airbnbs.”

“How does he do that?”

“Because he’s bought them all in the ETJ” — the Extraterritorial Jurisdiction, a broad swath of unincorporated land bordering Austin that isn’t subject to the city’s short-term rental restrictions. “Dripping Springs is about 30 minutes west of here, and it’s the wedding capital of Texas,” Holm said. “You see these people getting married with cowboy boots on and a wedding dress, and they’re on top of a hill and all that [expletive]. That’s where they are. But there’s like no hotels out there. … Well, if you can get a big-ass house out there where the entire wedding party can stay together, jump in the pool after the wedding … there’s almost a completely unlimited market. … He doesn’t take any Airbnb bookings that don’t gross rent $30,000 a month.”

“I like this place,” Jon said of the house. At 3,000 square feet and $1.2 million, this home was over Jon’s budget. The question was how much was he willing to live in his investment. “I don’t need so much house unless I was really going to take on the project you describe,” he said. “But that puts me in a bit of a conundrum, because I am living here six months a year. You don’t want it to be a complete party house either.”

Next up was a condo with clean white walls, black fixtures and gray oak floors. At $1 million, it didn’t offer the same opportunities for monetization: He couldn’t build, and there were fewer rooms to rent.

“Everybody is from San Francisco today,” the seller’s agent said when we got there. “What about you guys?”

Despite the competitive market, despite having to work double the hours and write triple the offers, Open House’s agents were moving cash-strapped millennials and some Gen Z’ers into houses in record numbers: 130 so far this year, 88 percent of them first-time home buyers, at an average price ($369,000) far below the Austin metro median of $450,000. Because they were encouraging clients to think of property first and foremost as an investment, their young charges were going after what they could, buying new homes in neighborhoods with homeowners’ associations, older condos with perhaps-less-than-ideal natural light and suburban fixer-uppers that reeked of cigarette smoke. Anything to break in and start building equity.

At those price points, Open House clients were inevitably snapping up stock in once-affordable neighborhoods. For the last decade, East Austin, the historically Black and Latino neighborhood atop the city’s less-desirable clay soil, has been among the city’s hottest destinations. It began with a couple of fun dive bars and an excellent Japanese fried chicken truck and exploded into the site of award-winning restaurants, a hipster honky-tonk, a Whole Foods and, now, some of the highest-price-per-square-foot real estate in Austin. Gut-renovated bungalows and new homes in moody shades of midnight blue, hunter green or white were rapidly multiplying, squeezing out the weathered old houses with pit bulls and barbacoa pits, the piñata shop, the tire-repair place.

In the spring, Douglass, Smith and Douglass’s uncle, Moose Mau, took out a hard-money loan to buy their fifth property together (and Douglass’s eighth property in East Austin), a run-down 1,614-square-foot home on the floodplain, along with a vacant lot next door. The cost for both was $550,000. As usual with Douglass, one project spawned another: The empty lot came with a shipping container filled with junk, and she decided to turn it into an Airbnb. For $20,000 she was going to carve out some windows, add a kitchen and bathroom and insulate it from the inside. For another $78,000, she ordered a tiny house to put in back. (During one drive, I saw three such miniature homes traveling the Texas highways.)

The Latino family that sold the two lots was using the profits to purchase a larger parcel of land outside the city, a move common among people of color selling their homes on the east side. Gentrification has different effects in different geographies, as research by Virginia Tech’s Hyojung Lee and Georgetown’s Kristin L. Perkins has shown. In New York, where the cost of living is high for miles and miles, it tends to lead to densification — doubling and tripling up. But in Texas, where the sprawl is decidedly more affordable, it spurs suburban migration. The proportion of the Austin population that is Black has been declining for decades. Many of those selling homes in the city were moving to the parched suburbs of Pflugerville, Buda and Bastrop. Or they were moving on to the next phase of life, aging into retirement or nursing homes.

In the late spring, Mau flew in from Southern California, where he works as a mortgage broker, to help with the renovation. He was clearing trash in the front yard when a young man walked by and asked if he needed help. As they worked alongside each other, the man mentioned that his girlfriend was helping the woman next door. The woman said she’d sell her home for between $200,000 and $250,000, he said.

“We’re like, ‘Whoa, that’s supercheap,’” Smith told me. So she went over to the run-down yellow house, which seemed to be made of little more than splinters and asbestos. The owner, Maria Saldaña, was in her late 60s and partially blind and spoke little English. An orange Home Depot five-gallon bucket with a toilet seat on top sat beside her bed, because the toilet didn’t work. She was eager to sell and asked for $210,000. Smith agreed. Micah Domingues — Smith’s employee at her Airbnb management company and her middle daughter’s 28-year-old boyfriend — was interested.

Before the sale closed, one of Saldaña’s sons moved her into an affordable senior living facility. He vaguely described where it was located so that Smith and Domingues could visit her and finalize the sales contract. After studying the map, Domingues and Smith drove to the most likely complex, but the receptionist didn’t think Saldaña had arrived. So the two started knocking on doors there, rapping, rapping, rapping as instructed by Saldaña’s son, who told them to continue to knock so that she could follow the sound. She opened the third door they tried. She was alone and unfamiliar with her surroundings, so Smith and Domingues led her by the hand around the room.

“You have a new couch, and it’s over here,” Smith said, helping her grasp the cushions. “Here’s your table, and there’s a box of cereal on top of it.”

“There’s cereal?” Saldaña said. “I have a little milk.”

Smith poured milk and cereal into a bowl, and Saldaña dug in as if she hadn’t eaten all day. The air-conditioning was too cold for Saldaña, and so before leaving they led her out onto the patio she didn’t know she had and brought out a chair so she could sit in the sun.

In the end, the sale fell through. There was a cloud on the title. Saldaña had been married, and although her husband was dead, he had grandchildren from a previous marriage who potentially could claim a share of the property, and two of them wouldn’t sign off. Micah, who had been so excited to purchase his first property, told me that by the end, “I had no more emotions.” Given his budget — $300,000 was his upper limit — he worried he’d have to wait a long time before stumbling upon another off-market house.

Real estate agents have a saying: “There’s a buyer for every house, but there might not be a house for every buyer.” That’s the definition of a seller’s market — and a pithy indictment of the way America subsidizes homeownership, in an era when a majority of Americans are utterly shut out of it. All the changes that Covid brought to the market have only made things worse.

It doesn’t exclude just those who can’t muster all-cash offers, or those without the financial cushion to take on the risk of losing a large option fee or forgoing an inspection. It also disadvantages those who are unable to drop everything to make a play for properties. In the Covid-era Austin market, there was seldom a house for anyone who couldn’t house-hunt full time.

In keeping with seasonal trends, September 2021 brought an easing in the market, both in Austin and nationwide — but the city’s median sale price was still its highest on record for a September. The Case-Shiller home price index reported that the August 2021 year-over-year appreciation was 19.8 percent nationwide: “That’s just an astronomical pace of price appreciation,” Jeff Tucker, a senior economist at Zillow, told me. “The only remotely comparable points in time in the modern era of low inflation were late 2005, when price appreciation peaked in the 14 percent range for many months, and 2013,” when prices finally began to rebound after the Great Recession. “And again, there it didn’t quite crack 11 percent,” Tucker said.

As for Drew and Amena, things were still dire a month before Drew had to report to work in Austin. Amena began flirting with the idea of renting, but friends of hers were having as much difficulty finding a rental in Austin as she was with buying. Renters were offering $500 more than the monthly asking price and signing two-year contracts. Some were offering an entire year up front. Amena applied to four or five, and was rejected on all of them.

But two days later, miraculously, she and Drew were under contract to buy. The home had taken extra clicks to be located on Zillow because it was for sale by owner. It was smaller than they had wanted — 1,200 square feet, about the same size as their unit in Bed-Stuy. But it had a guest room for Amena’s parents, and the master bedroom was at the back of the house looking onto a huge backyard with a mature fig tree. They could build a home office, they figured — or a home gym or a rentable backhouse.

It was also in Windsor Park, a sleepy community of ranch houses that they’d come to love. The neighborhood was so close to so many major highways that it was no more than 20 minutes away from almost all of the major tech campuses. At $525,000, it was listed higher than comparable homes, but Drew and Amena had learned their lesson. They bid $50,000 over asking with an expedited five-day option period.

“I think, maybe, it’s looking good,” Gilchrist said shortly after they submitted. “The guy is currently asking whether or not you will water and harvest the potatoes in their backyard for them once you close and then share the potato harvest.”

“We will take a potato-cultivating class if that’s what he wants us to do,” Amena said.

Amena and Drew went under contract, having seen only photos of the house online and a video shot by Gilchrist. The backyard was recently added to the flood zone, meaning they’d have to pay for a FEMA-approved flood-insurance policy. While talking to their lender, they also learned that the city wouldn’t let them add anything to the backyard — a heartbreaker.

With two days left on her option period, Amena flew to Austin for 24 hours. Gilchrist picked her up at the airport and drove her directly to the home. She walked through the low-slung rooms with their boxy windows and opened every drawer, closet and cabinet. She FaceTimed Drew: The living and dining area was cramped, but the owners, who were moving with their two children 30 minutes south of Austin to Niederwald, where they could afford more square footage and more outdoor space, had large furniture. Most important, the house didn’t smell, and it was theirs if they wanted it. They would redo the bathroom and reconfigure the kitchen. It would work.

The home was still under renovation when they moved in, in July. And it would be for quite some time, because houses weren’t the only thing in short supply during the pandemic: The same was true of appliances, cabinets, vanities, sinks and shower heads. In October, they still didn’t have kitchen counters. They were creatively laying cardboard and cutting boards atop the open cabinets. “It’s actually convenient from the standpoint of the silverware drawer,” Drew told me. “You don’t have to open anything,” Amena said. “You just reach in and grab.”

But even before they were settled in, Amena couldn’t see staying in Austin long term. The problem with Austin wasn’t that housing deals sometimes hinged on potatoes. (The owners harvested them and left Amena and Drew a small bounty, which was reportedly delicious.) The problem, they felt, was that the city seemed too staid, too homogeneous, too white — and each sale in this crazy real estate market seemed to be making it even more that way. When it came time to celebrate Drew’s 40th birthday, they considered a number of destinations: Mexico, Cuba, Portugal. But in the end, the place they most wanted to go was New York.

“I still miss Brooklyn — I kind of want to move back,” Amena said, her voice echoing off the bare walls and hardwood floors of her empty new home. “To be honest, the Austin housing market was a little demoralizing.”

Francesca Mari is a journalist based in Providence, R.I., and a national fellow at New America. She has written about housing, inequality and con men for The New Yorker, The Atlantic and The New York Review of Books, in addition to the magazine. Dan Winters is a photographer and portraitist based in Austin, Texas. He is widely recognized for his celebrity portraits, scientific photography, photo illustrations and drawings.

Source: Will Real Estate Ever Be Normal Again? – The New York Times


More Contents:

Shiller, Robert (June 20, 2005). “The Bubble’s New Home”. Barron’s. The home-price bubble feels like the stock-market mania in the fall of 1999, just before the stock bubble burst in early 2000, with all the hype, herd investing and absolute confidence in the inevitability of continuing price appreciation. My blood ran slightly cold at a cocktail party the other night when a recent Yale Medical School graduate told me that she was buying a condo to live in Boston during her year-long internship, so that she could flip it for a profit next year. Tulipmania reigns. Plot of inflation-adjusted home price appreciation in several U.S. cities, 1990–2005:

Plot of inflation-adjusted home price appreciation in several U.S. cities, 1990–2005.

“Sources and Uses of Equity Extracted from Homes”

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