By CHUCK GREEN
Where should you stow at least some of your hard-earned cash this year?
Under the mattress? Hmm…. you might want to consult your financial advisor first.
Of course, there are lots of options. Despite a landscape rife with unpredictability, perhaps real estate’s your cup of Java. Or maybe the stock market, for all its maddening ups and downs, floats your boat.
The choice isn’t exactly as simple as deciding on one or two Splendas with your Latte, so The Mortgage Note set out to find out where experts expect to see the most returns in 2024.
Taylor Kovar, CEO and founder of Kovar Wealth Management in Lufkin, Texas, doesn’t think people can go wrong investing in both. “I’m never a fan of going ‘all in’ on one asset class, it’s hard to beat a mix of physical and more liquid investments,” he said.
Brandon Steele, CEO, founder, and director of business development at Mainsail Financial Group in Bellevue, Washington, said that compared to real estate, returns in the stock market might be higher even though he does expect home prices to increase at a moderate pace.
“As the saying goes, ‘Location, location, location.’ This adage will ring true in 2024 (in terms of) how real estate returns may compare to the stock market,” Steele said.
Although he expects the stock market to perform better than real estate, Steele noted there might be “a narrower gap between stock market and real estate returns.”
“While I expect we might have a good year in the stock market, it’s likely the returns will be more muted than what we saw in 2023,” Steele said.
Meanwhile, Jamie Battmer, chief investment officer at Creative Planning in Overland Park, Kansas, is big on real estate.
“We absolutely believe real estate deserves a position within an investment portfolio,” Battmer told The Mortgage Note. “Currently, one benefit for real estate investing’s the fact that we’ve moved off of recent highs — as seen at the end of October — with interest rates.”
Battmer continued: “It’s human nature to measure things from the bottoms and tops. What was previously a ‘I wish I would have locked that in at 2.85%,’ has now been more recently replaced with the ‘I’m not paying as much as 7% like I could have recently’ behavioral effect. Funny how much impact these things can have on the animal spirits of markets.”
Then there’s new home construction, where Kathy Fettke, co-founder, RealWealth in Malibu, California, sees opportunity. “It’s no surprise that Warren Buffet has invested in builder stocks. The shortage of housing is severe and new supply is desperately needed.”
Fettke also sees opportunities for people who want to take on commercial real estate.
“There will be many distressed commercial assets in 2024 that could bring opportunity to private equity firms,” she added.
So let’s break it down.
For a little perspective, in 1973, the U.S. median home price was $33,500. By today’s standards, it’s parachuted to $431,000 – an uptick that represents a 5.24% average annual return, according to entrepreneur.com.
The same year, if you’d placed a similar $33,500 in the S&P, the value of your investment today: a formidable $5.1 million. That’s a 10.59% annual return.
While that implies that over the past 50 years stocks have ponied up a larger chunk of returns than real estate, other factors must be kept in mind. Battmer explained that for direct real estate investments, such as homeownership, the forced savings is like a 401k.
“You’re just depositing into it slowly day after day, week after week, year after year without really noticing it. Owning a home lets the laws of inertia work in your favor.” Battmer said.
Interest rates loom large in this conversation as well.
“Right now, given the cost of financing on a new home purchase, it’s difficult for those with mortgages to make a change in housing. If rates come down, more buyers might come back into the mix, and we might see prices increase again in 2024,” Steele said.
Given lower interest rates often lead to better market returns, interest rate changes also reverberate in the stock market, Steele continued.
“It’ll be important to watch this closely in 2024; cutting rates too fast may bring inflation right back to the table and create challenges for the stock market as the year progresses,” Steele said.
What about outside influences?
Kovar thinks health and economic concerns, as well as political events, could influence what happens.
“We’re three years post-Covid, but it’s fresh enough that even this past flu season there were concerns of the economy shutting down again. We’re coming off record inflation, so even though prices are coming down, it’s still really fresh in people’s minds,” Kovar said.
“Throw in all of the drama surrounding an election and you get the ingredients for investments to swing one way or the other very quickly.”
Fettke said the fortunately most of the negative influences on investments can now be seen in the rearview mirror.
“2023 saw the biggest challenges with interest rates and 2022 saw the largest challenges with inflation, supply chain and labor shortages. 2024 will hold more opportunities as the cost of money will be reduced while the opportunities will rise. The economy appears to be avoiding a recession while inflation hits the Fed target growth rate of 2%, without a job loss recession,” Fettke said.
“The stock market is poised to take off, as will real estate. Both offer wonderful opportunities in 2024.”
Read More Articles:
Listen To Our Podcast:
Sign up for our free newsletter.