Every time we start a new year, we can only hope the year brings nothing but good tidings. But let’s face it, no one knows what events will unfold or what curve ball life will throw at us in the new year. Our annual predictions which is now in its 5th year is our best shot at predicting the future. Regardless of our predictions, we all are taking a position (or making a bet) for or against a potential outcome consciously or unconsciously. Our predictions allow us the opportunity to carefully consider what may happen in the new year and ensure our position is in alignment with what we believe to be the best possible outcome.
Without much further ado, here’s a collection of our 2017 financial predictions:
Real estate
Real estate continues to be a solid investment vehicle for many decades now. In fact, more millionaires have been made in real estate than any other investment vehicle. Over the last few years, we have encouraged many people to invest in real estate even at the height of the foreclosure crisis, because we saw the depressed market as a temporary cycle which was bound to recover. The market has since recovered! During the foreclosure crisis, the median home price in Houston was $150k compared to $250k today.
However, local Houston real estate market has leveled off considerable and we may no longer see the typical appreciation we’ve experienced over the last few years partly due to the downturn in the oil industry. Let me be clear though: prices are not necessarily dropping. In fact in 2016, buyers and sellers of real estate went through a price tussle and while it remains unclear who won the battle, we observed that sellers were unwilling to budge resulting in a longer DOM (days on market) for most homes for sale. We expect the slowdown in the Houston market to remain through most of 2017. Outside of Houston though, there are other active markets worth considering. Cities such as Austin (TX), Seattle (WA), Tampa (FL), just to mention a few. If you continue to invest in our local market, you will require a different mindset and approach during this period. We encourage you to focus on creating equity through cash-flow and debt pay down.
Let me pause here and talk to the millennials, many of whom believe that homeownership is an “American nightmare” particularly after the housing crisis. I believe they ought to rethink their strategy. David Bach, a self-made millionaire, asserts that not prioritizing home ownership is the “single biggest mistake millennials are making”. According to him, buying a home is “an escalator to wealth” and young adults aren’t hopping on this escalator. Please understand that your first home does not have to be your residence, it can be a rental! Let’s think about it for a second, if you don’t buy a property as a millennial, your chances of actually accumulating wealth are little to none. Short of an invention, there is no other investment class that offers a decent return on investment than real estate. With a very low cost of borrowing (15 years mortgage currently sits at 3%) and the fact that the lender will take on 96.5% of the risk on your behalf (3.5% down on FHA loans), there isn’t a better investment vehicle.
Interest Rate
After enjoying over 8 years of low interest rate environment, rates are set to increase. In fact, they have already increased by over 0.50 % since November 2016, many thanks to the Trump effect. In light of these trends, we encourage everyone to review all debts particularly debts with variable or adjustable interest rates such as credit cards. As rate increases, interest on these debts will eat away at your wealth. It is better you understand the impact the increased rate environment will have on your finances. Additionally, if you are on the fence about purchasing real estate, now may be the time to take the leap before the train leaves the station.
Precious Metals
After enjoying over 8 years of low interest rate environment, rates are set to increase. In fact, they have already increased by over 0.50 % since November 2016, many thanks to the Trump effect. In light of these trends, we encourage everyone to review all debts particularly debts with variable or adjustable interest rates such as credit cards. As rate increases, interest on these debts will eat away at your wealth. It is better you understand the impact the increased rate environment will have on your finances. Additionally, if you are on the fence about purchasing real estate, now may be the time to take the leap before the train leaves the station.
Stock Market/Economy
If the last couple of weeks is any indication of what we might experience under the Trump administration, we believe the economy and the stock market would do well in general. The success of the market/economy is 80% based on emotions and 20% based on technical analysis. When people feel prosperous, they will spend, invest and do things they normally won’t do. Market participants i.e. individuals like you and I, generally view Trump as a successful businessman and by extension he has what it takes to make U.S. “great again.” To be honest, we ought to give credit where credit is due: Trump may turn out to be a master deal-maker for the U.S., notwithstanding his temperament. His background as a real estate deal-maker and his extensive experience working with top-level executives and world leaders may turn out to be an asset for this country but only time will tell. As a result, we predict that the stock market will be prosperous in 2017 and will shatter the 20,000 price point sometime in the first quarter of 2017. We also believe that financial, technology and e-commerce stocks like Bank of America, Facebook, Amazon, Microsoft and Netflix will do quite well.
Politics
Much is being said about the unexpected win of Donald Trump. Politically, we predict that his administration is likely to be unsteady and marred by conflicts (both within his party and internationally). Nonetheless, we believe the “TRUMP” effect is likely to have an overall positive effect on the economy of the country. We are beginning to feel the effect of the “TRUMP” card as companies have started committing to bring back jobs to the U.S. while some have promised to expand manufacturing facilities here. Aside from the economic success, we believe many of the main campaign promises made by PEOTUS are most likely unachievable in spite of his party’s control of the House and Senate. It will be interesting to see how the fight over OBAMACARE play out. The Republicans have had eight years to draft an alternative plan to OBAMACARE but so far it appears they have been unable to present an alternative plan. We also believe there is a strong likelihood that the honeymoon period between PEOTUS and Putin will be short lived. There isn’t much there except a potential war which Russia is very much interested in. PEOTUS will realize it soon enough.
These sums up our 2017 predictions. As we have expressed in the past, we encourage you all to continue to maintain a long term perspective as you invest. This is the surest way to win! 2017 promises to be a very auspicious year. Investment opportunities are many, both in stocks and property both within the U.S. and internationally.
Here is to being Financially Fit!
