Managing Your Credit During Coronavirus

This post can be found en Español here.

This content is for the first stimulus relief package, The Coronavirus Aid, Relief and Economic Security Act (The CARES Act), which was signed into law in March 2020. For information on the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, the stimulus relief package currently pending legislation, please visit the “New Coronavirus Relief Package: What Does it Mean for You and a Second Stimulus Check” blog post

In response to the Coronavirus (COVID-19), the government – and many banks and credit unions – have temporarily adjusted their lending policies. These changes can impact your credit.

Given the uncertainty of the economic environment, you may be thinking about shoring up your credit. Or if your income has already taken a hit, you may find yourself using your credit card more or looking for a loan to bridge the gap. There are ways to manage your credit – and maybe even get ahead financially – during these tough times.

This article will walk you through:

  • What good credit looks like
  • How to maintain your credit during COVID-19
  • How student loan and mortgage forbearance can impact your credit
  • What to watch out for if you modify your loans
  • How you could actually get ahead right now, financially

Now let’s break this down.

What does good credit look like?

There are 5 major factors that impact your credit score, in order of importance:

  1. Payment history
  2. Amounts owed
  3. Length of credit history
  4. Types of credit
  5. New credit accounts

While times are changing, so far these things haven’t.

In a nutshell, the keys to good credit are paying your bills on time, paying down debt and spending carefully where possible, keeping old credit accounts open and not opening too many new credit accounts at once. 

How to maintain your credit during COVID-19

In addition to the general credit guidelines above, here are a few more specific ways to maintain your credit score in the time of Coronavirus, based on two different situations.

1 – If money is tight

If money is a problem right now, take advantage of the financial resources and alternative payment options lenders and other organizations are currently providing to help people through this crisis, such as:

  • Student loan, rent and mortgage forbearance
  • Expanded unemployment benefits
  • Alternative utility payment plans
  • Increased credit limits

That way you don’t miss payments, make late payments, run up your credit usage, or negatively impact other factors that make up your credit score.

2 – If your income is stable

If your income is steady, consider using this time to get ahead by paying down your debt, saving for the future, or meeting other financial goals.

We’ll get into specifics about how to do this in a bit, but for now, try to:

  • Pay off your credit card balances completely each month. This keeps you from getting charged interest. Bonus if you earn credit card rewards while you’re at it.
  • Keep your max credit usage low. Your credit usage is how much of your total credit limits (both from card-to-card and across all cards) you use. Many experts recommend you keep this below 30%. If you want to reach an “expert” level with your credit, try keeping it under 10%. That would mean only using $1,000 of a $10,000 credit limit, for example.
  • Make all your payments on time. As the largest factor that impacts your credit score, according to FICO®, missing payments or paying late could negatively impact your credit score for years to come. This carries a lot of weight in credit-scoring models because lenders want to know that you can keep your financial commitments and will pay them back on time and in full. As a result, paying on time can help you build credit.
  • Start or grow your emergency savings fund. That way, if you do wind up in an emergency situation, you won’t necessarily have to rack up credit card debt or borrow more money to cover that unexpected expense. Increasing the amounts you owe can reduce your credit score temporarily.

Worst case scenario? If you’ve exhausted other options and need to lean on credit right now (and your credit score is suffering as a result), there are many tools to help you recover financially and rebuild your credit later if you need to. Damaged credit doesn’t have to be a permanent situation, though perseverance is required as it may take months – or in some cases, years – to recover.

Will loan modifications impact your credit?

Whether you need or want to forbear on your student loans or mortgage right now, the Coronavirus Aid, Relief and Economic Security (CARES) Act has put extra protections in place for borrowers on federal loans.

For federal student loans:

  • You can stop paying through September 30, 2020 (effective March 2020)
  • You will not be charged interest
  • All payments you do make will go toward your principal

For more on managing student loans during COVID-19, read this.

For federally-backed mortgages:

  • Your lender cannot foreclose on you for 60 days after March 18, 2020
  • You have a right to request forbearance for up to 180 days, plus one extension of an additional 180 days

Many private lenders are also working with borrowers to modify loans.

According to the Credit Union National Association, 92% of credit unions surveyed are offering loan modifications to help consumers be more financially resilient during the pandemic. These modifications include:

  • Loan extensions
  • Line of credit increases
  • Interest-only loan repayment
  • Reduced or no interest

Many other commercial banks have created coronavirus information centers that you may find helpful. Talk to your specific lender about your options.

So what does this mean for your credit?

According to the Consumer Financial Protection Bureau, if your mortgage is backed by Fannie Mae or Freddie Mac and you are granted forbearance to delay making monthly payments:

  • You won’t be charged late fees
  • No delinquencies will be reported to the credit bureaus
  • Foreclosure and other legal proceedings will be suspended

So your credit won’t be hurt by opting-in to forbearance.

According to credit bureau Experian:

“Deferring your loan payments doesn’t have a direct impact on your credit scores —

 and it could be a good option if you’re having trouble making payments.”

What to watch out for if you modify your loans

If you take advantage of forbearance or alternative payment options, realize that once it’s over, lenders may require either a lump-sum payment, an increase in monthly payments, or a plan to pay back accrued principal and interest.

Another option is to just move the year of forbearance (or however long the loan payments are delayed) to the end of the mortgage or loan.

Either way, make sure you understand how forbearance can alter the loan so you can build it into your financial plan. Otherwise, you could end up with a bill you can’t afford to pay that could cause damage to your credit (if you are late paying it, or can’t pay it at all).

Have a preferred repayment option? Try to negotiate that with your lender, and make sure you get everything in writing.

How to get ahead financially (and credit-wise) during COVID-19

In this time of record-high unemployment and uncertain health outcomes, it’s never too early to have a plan in place to protect and improve your credit. 

Here are some ideas to help you get started.

1 – Put your student loan payments to work

Since federal student loan payments can be put on hold for a while, you have some choices for how best to use that money.

You can:

Continue to make your student loan payments and pay them down faster (since everything goes to principal, not interest). If you can, consider paying extra while the 0% interest lasts to make even more progress. This can help your credit score as it reduces the “amounts owed” factor mentioned previously.


Take the money you would normally put toward those federal student loan payments and use it to pay down higher-interest debt, such as credit card debt. 

By paying extra each month, you could pay down your credit card balance faster, save money on interest, and reduce the amounts you owe, which again could help boost your credit score.

At the very least, try to pay more than the minimum balance due each month.

2 – Be smart about how you use your COVID-19 relief money

If you have a check headed your way and don’t need the money for immediate necessities, consider putting it toward building your credit. Whether that means paying down existing loans or credit cards or opening a secured card or credit-builder loan.

Think of your credit score as an insurance policy for your finances – build or improve it now in case you need to borrow money in the future. That way, you could qualify for lower interest rates and better terms if and when you need them. 

3 – Hope for the best, plan for the worst

Since staying healthy is top of mind right now, make sure you have enough money set aside to pay your healthcare deductible, should the need arise.

Medical bills won’t necessarily hurt your credit. But if medical costs cause you to get behind on other bills, have debts sent to collections or even declare bankruptcy, that could hurt your credit.

You probably don’t want to have to worry about finances in the midst of a medical issue either.

Being financially prepared will help reduce the stress that is likely to come from a medical situation.

4 – Use money from optional expenses on hold due to COVID-19

Let’s say, for example, you used to regularly buy tickets to concerts, sporting events, or other types of entertainment that are now canceled because of the coronavirus. Since you’re no longer spending money on those items, use it to pay down debt (improving the amounts owed factor) or reallocate those funds toward other financial goals.

If you had been planning to buy a house or car, you could save for a future down payment faster, build emergency savings, or set the money aside to help loved ones whose income is hurt by coronavirus.

If live shows don’t apply to you, think of other things you spend money on that are no longer an option right now (like travel) and reallocate that money.

And finally:

5 – Make a spending plan and track expenses

Make a budget or spending plan, using a tool such as Mint, so you can track expenses and make sure your money is going toward the things you truly value.

You’d be surprised how much money you can find itemizing your expenses that could instead go toward building financial resilience with things like savings, retirement, paying down credit card debt, getting ahead on your mortgage or otherwise building your credit.

Bottom line

Making smart moves with your money is a good idea during the best of times – and absolutely essential when times are tough. While the main focus in the media now is on physical health, remember your financial health is critical and plays a role in your overall physical and mental wellbeing.

Don’t forget to take care of yourself and your credit right now.

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Today’s Mortgage Rates in Massachusetts

Massachusetts has some of the highest housing prices in the nation, especially in the popular Boston area. This state has an average overall home value of $464,000, which is much higher than the nationwide average of about $263,000. These high home prices are due, in part, to the central location of the state, the easy access to major metro areas and the many other perks that this state offers.

Despite the high home prices in Massachusetts, this could be the perfect time to buy a home in the state. Not only are the nationwide mortgage loan interest rates low across the board, but the Massachusetts mortgage rates are also at some of the lowest points ever.

Those rates, along with the state’s housing prices, are expected to rise in the next year. If you’re looking to move to Massachusetts, or if you’re a resident of this state and are ready to buy or refinance a home, here’s what you need to know.

Mortgage Rates in Massachusets

The mortgage interest rate table below is updated daily to reflect the most current mortgage rates available in the market. According to Bankrate’s latest survey of the nation’s largest mortgage lenders, these are the current average rates for a 30-year fixed, 15-year fixed, FHA and VA mortgage rates.

Product Rate Rate Last Week
30-Year Fixed Rate 3.170% 3.180%
20-Year Fixed Rate 2.960% 3.040%
15-Year Fixed Rate 2.500% 2.570%
10-Year Fixed Rate 2.390% 2.440%
30-Year FHA Rate 3.100% 3.100%
30-Year VA Rate 3.240% 3.240%

Rates data based on Boston, Massachusetts as of 3/5/2021

Mortgage Rates Trends

In this graph: On , the APR was for the 30-year fixed rate, for the 15-year fixed rate, and for the 5/1 adjustable-rate mortgage rate. These rates are updated almost every day based on Bankrate’s national survey of mortgage lenders.Toggle between the three rates on the graph and compare today’s rates to what they looked like in the past days.

Mortgage rates around the nation have reached their lowest levels ever over the last year due in major part to the COVID-19 pandemic and the actions the Fed took to lower rates during the coronavirus pandemic. Rates began falling in March at the start of the pandemic and have consistently dropped since that time, remaining low into the new year.

Massachusetts buyers may have access to mortgage rates that are even lower than the national average. Though these rates won’t exactly offset the high housing prices, they can help make homeownership a bit more affordable. In the second week of January 2021, the average rate on a 30-year fixed-rate mortgage in Massachusetts was 2.89%. During that time, the average 15-year fixed-rate mortgage loan in Massachusetts had a rate of 2.42%. The average rate for a 5/1 ARM was 2.80%, and the average rate on a 30-year fixed refinance in Massachusetts was just 2.95%.

There’s no way to know how rates will trend in the future, so it’s unclear whether the rates in this state will stay as low as they currently are. That said, many experts expect that rates will increase in early 2021.

[ Read: How to Calculate Your Mortgage ]

Massachusetts mortgage rates overview

The state of Massachusetts has the fourth-highest housing prices in the nation, especially in the Boston area. Prices in this state have increased dramatically over the past decade. The state’s average home price has increased more than $100,000 in just the past five years along.

The bad news for homebuyers is that prices are only expected to increase. Luckily, the state also has some of the most competitive mortgage rates.

Massachusetts homebuyers have plenty of options to choose from when it comes to financing a home. Common mortgage types include:

  • Conventional mortgage: Conventional mortgages are available with either fixed or adjustable rates with terms ranging from 15 to 30 years.
  • FHA loan: These loans are backed by the Federal Housing Administration to help low and moderate-income buyers get a mortgage.
  • VA loan: Backed by the U.S. Department of Veterans Affairs, these loans are meant to help current and former military members buy a no-down-payment home at a low interest rate.
  • USDA loan: Backed by the U.S. Department of Agriculture, these loans are used to help rural residents buy a home.

First time home buyer programs in the state of Massachusetts

The state of Massachusetts doesn’t directly offer any first-home homebuyer programs, but other organizations within the state do. MassHousing is an independent agency in the state that helps homebuyers find affordable housing solutions. MassHousing’s offerings include:

  • The MassHousing Mortgage — This program helps low and moderate-income borrowers buy a home as long as they meet certain income and credit requirements. The mortgage is available through more than 100 lenders in Massachusetts.
  • MassHousing Down Payment Assistance — This program provides buyers with down payment assistance for up to 5% of a home’s value. The maximum benefits vary depending on where in the state you are located.

[ Read: First-Time Home Buyer Programs and Grants ]

Most and least expensive places to live in Massachusetts

The average housing price in Massachusetts is well above the national average, but prices vary quite a bit depending on where you go. There’s a difference of more than $800,000 between the most affordable and most expensive cities in the state — showcasing just how wide of a price gap there is between areas in this state.

Least expensive places to buy real estate in Massachusetts

The areas below are based on Zillow’s Home Value Index, which was used to find the most affordable cities to buy real estate in Massachusetts. The numbers below reflect the typical home value for homes in the 35th to 65th percentile range.

Massachusetts has some of the highest housing prices in the nation, but there are a handful of cities that offer housing prices below (in some cases far below) the national average.

  • Springfield, MA: Average home price of $142,100
  • Worcester, MA: Average home price of $214,100
  • New Bedford, MA: Average home price of $223,400
  • Fall River, MA: Average home price of $234,300
  • Lawrence, MA: Average home price of $236,800

Most expensive places to buy real estate in Massachusetts

The average home prices below reflect the typical home value for homes in the 35th to 65th percentile range. A quick glance at a map will show you that each of the most expensive cities in Massachusetts are neighbors.

The top five most expensive places to buy real estate in Massachusetts includes the city of Boston, as well as its four neighbors to the west.

  • Newton, MA: Average home price of $982,600
  • Brookline, MA: Average home price of $822,900
  • Cambridge, MA: Average home price of $726,000
  • Somerville, MA: Average home price of $605,100
  • Boston, MA: Average home price $554,600

Massachusetts mortgage rates compared to the national average 

As noted, Massachusetts has the fourth-highest home prices in the nation, following only California, Washington, D.C. and Hawaii. One reason for the high home values is that the household income in Massachusetts is $20,000 above the national average. Housing prices in the state have also increased since the pandemic began, which is a trend spotted in many states.

Luckily, Massachusetts home buyers currently have access to lower mortgage rates than much of the nation. The nationwide average interest rate in the second week of January was 2.94% on a 30-year fixed-rate mortgage, while the average for the same loan in Massachusetts was 2.89%.

Already own a home and want to refinance?

Historically low interest rates make 2021 an excellent time to buy a home, and current homeowners can take advantage of the low rates as well. The refinance rates in this state were 0.06% below the national average as of the second week of January.

If you’re considering refinancing your mortgage, be sure to shop around for the best rate. Your raate will depend on factors, such as your credit score, overall financial picture and current home equity, but rates can also vary quite a bit from one lender to the next.

[ Read: How to Refinance Your Mortgage ]


Senate Passes $3,000 Child Tax Credit for 2021

An expanded child tax credit for 2021 is about to become law. After some procedural wrangling, the Senate narrowly approved President Biden’s stimulus package to help tackle the coronavirus pandemic and stimulate the economy. Because the Senate made some changes to the House-crafted bill, titled the American Rescue Plan Act of 2021 (“American Rescue Plan”), the House will have to revote on the revised bill before sending it to Biden’s desk for his signature. We expect that will happen next week. One provision in the American Rescue Plan would, for one year, expand the child tax credit and make it fully refundable.

Presently, the child tax credit is worth $2,000 per kid under the age of 17 whom you claim as a dependent and who has a Social Security number. To qualify, the child must be related to you and generally live with you for at least six months during the year. The credit begins to phase out if your adjusted gross income (AGI) is above $400,000 on a joint return, or over $200,000 on a single or head-of-household return. Up to $1,400 of the child credit is refundable for some lower-income individuals with children, but these people must also have earned income of at least $2,500 to get a refund.

The American Rescue Plan would temporarily expand the child tax credit for 2021. First, the plan would allow 17-year-old children to qualify. Second, it would increase the credit to $3,000 per child ($3,600 per child under age 6) for many families. Third, it would remove the $2,500 earnings floor. Fourth, it would make the credit fully refundable. And fifth, it would allow half of the credit to be paid in advance by having the IRS send periodic payments to families from July 2021 to December 2021.

[Stay on top of all the new stimulus bill developments – Sign up for the Kiplinger Today E-Newsletter. It’s FREE!]

Phase-Out for Wealthier Parents

Not all families with children would get the higher child credit. The enhanced tax break would begin to phase out at AGIs of $75,000 on single returns, $112,500 on head-of-household returns and $150,000 on joint returns. Under the proposal, the IRS would look to the 2020 return to determine eligibility for the credit. If a 2020 return has not yet been filed, the IRS would look to 2019 returns. Families who aren’t eligible for the higher child credit would claim the regular credit of $2,000 per child, less the amount of any monthly payments they got, provided their AGI is below the current thresholds of $400,000 on joint returns and $200,000 on other returns.

Periodic Payments in 2021

Regarding the advance payments, the plan calls for the IRS to send out a check (mainly in the form of direct deposits) periodically from July through December to families. These periodic payments would account for half of the family’s 2021 child tax credit. For example, if monthly payments were made, this would result in payments of up to $250 per child ($300 per child under age 6) for six months and would be a nice windfall for many families. Take a family of five with three children ages 12, 7 and 5. Assuming the family qualifies for the higher child credit and doesn’t opt out of the advance payments, they could get $800 per month from the IRS from July through December, for a total of $4,800. They would then claim the additional $4,800 in child tax credits when they file their 2021 return next year. (Use our 2021 Child Tax Credit Calculator to see how much you would get per month under the current plan.)

Democratic lawmakers want the IRS to start making the payments to eligible Americans in July, giving the agency just a few months’ lead time to set up its computer systems to handle such a massive, but temporary, new payment program. The American Rescue Plan also calls for the IRS to develop an online portal so that individuals could update their income, marital status and the number of qualifying children. People who want to opt out of the advance payments and instead take the full child credit on their 2021 return could do so through the portal.

Some Overpayments Would Not Have to Be Paid Back

With advanced payments of the child tax credit, there will sure to be instances in which families receive more in advanced child tax credit payments from the IRS than they are otherwise entitled to. And the American Rescue Plan contemplates this by providing a safe harbor for lower- and moderate-income taxpayers.

Families with 2021 adjusted gross income below $40,000 on a single return, $50,000 on a head-of-household return and $60,000 on a joint return would not have to repay any credit overpayments that they get. On the other hand, families with 2021 adjusted gross incomes of at least $80,000 on a single return, $100,000 on a head-of-household return and $120,000 on a joint return would need to repay the entire amount of any overpayment when they file their 2021 tax return next year. And families with 2021 adjusted gross incomes between these thresholds would need to repay a portion of the overpayment.

Is the IRS Up for the Challenge?

Many tax experts and some lawmakers question whether the IRS, with its out-of-date computer systems, shrunken work force and its myriad of other duties, would be fully able to deliver periodic child credit payments, especially if the expanded child tax credit and advance payments are eventually made permanent, which could very well happen. Some Senate and House Democrats are already talking about making this permanent, touting the potential impact that a fully refundable, expanded child tax credit would have on reducing child poverty.

Setting up a new program to deliver regular payments to taxpayers who must meet complex eligibility requirements to qualify for the child credit will be a challenge for an agency that is not used to sending out periodic payments. The IRS would need more funding for such a big undertaking. The House bill authorizes an additional $400 million for the IRS to take on the additional work, but some experts question whether this is enough. The IRS says that to facilitate advanced payments of the credit, it would have to build a system to compute and recompute payments as taxpayers provide new information. Such a system must also be able to issue and track payments, as well as to reconcile all payments sent out to each taxpayer during the year with the taxpayer’s credit taken on the tax return. The agency would also need to develop a program that would flag returns that don’t accurately include all advance payments received during the year.

Another issue that the IRS will have to deal with is how to minimize the potential for fraud when it comes to refundable child tax credits. For example, the IRS estimates that in 2019 it improperly paid $7.2 billion in such refundable credits.


Investing in Treasury Inflation-Protected Securities (TIPS)

The Federal Reserve aims for an average annual inflation rate of 2%. But they don’t directly control the value of the dollar or the price of goods and services, and inflation sometimes leaps unexpectedly. Inflation dilutes the value of your retirement savings, and all other savings for that matter.

That’s precisely why you shouldn’t leave all your money sitting in a savings account. Instead, you can protect against inflation by investing money to earn a return higher than the pace of inflation. In the wake of the COVID-19 pandemic and the massive “printing” of new money to spend on stimulus measures, many investors have looked for inflation-proof investments to avoid a post-pandemic drop in the dollar’s value.

One of these strategies includes unique U.S. Treasury bonds called Treasury inflation-protected securities, otherwise known as TIPS.

How Do TIPS Work?

Treasury inflation-protected securities fluctuate in value specifically based on inflation rates. The Treasury ties their value directly to the Consumer Price Index (CPI), which measures inflation.

These bonds pay interest (coupon payments) twice per year based on a fixed rate declared when the Treasury first sells each bond. Investors receive an interest payment based on that interest percentage of the principal amount — the value of the bond. However because the principal amount changes along with inflation, so too do the semiannual payments.

The higher the inflation rate, the greater the jump in the value of the bond. But these adjustments work both ways: your principal and interest payments both fall during deflationary periods. If the CPI falls before your term is up, you are guaranteed to get your principal back, but will not benefit from any growth.

Because TIPS adjust in principal value — unlike normal bonds — they generally pay less in interest than normal Treasury bonds.

The Treasury issues TIPS at five-, 10-, and 30-year maturities. You can buy them new, directly from the Treasury, in increments of $100. Or you can buy them from other investors on the secondary market through a brokerage account like SoFi Invest.

For that matter, you can also buy them securitized as exchange-traded funds (ETFs) or mutual funds. These funds make TIPS easy to buy or sell instantly, but prices gyrate based on the market.

Example TIPS Investment

Confused yet? Don’t fret — TIPS work differently than normal bonds, which makes them hard for many investors to wrap their head around. An example helps clarify how they work.

Say you buy $1,000 in TIPS that pay 1% interest. In the first year, you receive $10 in interest (1% of $1,000), split into two semiannual payments of $5 apiece.

Over the course of that first year, inflation runs at 2%. So the face value — the principal amount — of your TIPS adjusts upward from $1,000 to $1,020 at the end of that year.

In the second year of ownership, you collect 1% of the new principal amount of $1,020. That comes to $10.20, again split into two semiannual payments, this time of $5.10 apiece.

At the end of that second year of ownership, the principal amount adjusts again, based on the inflation rate that year. If inflation jumps by 4% that second year, your principal amount adjusts upward to $1,060.80. For the following year, you collect interest payments equal to 1% of $1,060.80, or $10.61 total.

And so on, until the bond matures.

You can sell your TIPS bonds on the secondary market if you like. Or you could keep them until maturity, and receive the final adjusted principal amount back.

Advantages of TIPS

To begin with, TIPS are as risk-free as investments get. They come with the full backing of the U.S. government, they protect against inflation, pay a predetermined interest rate, and guarantee that you won’t lose your initial investment.

Upon maturity, you receive back more than you paid, in direct proportion to inflation since you purchased — assuming that inflation was positive during your period of ownership.

Your interest payments also rise over the course of your TIPS ownership, as the principal value rises. That adds another layer to your protection against inflation.

In short, TIPS offer straightforward protection against inflation, plus a small return.

Downsides of TIPS

That last point deserves special emphasis: a very small return. Investors don’t get rich form TIPS; they serve as more defensive investments.

As noted above, TIPS usually pay lower interest rates than traditional Treasury bonds. That’s the tradeoff for the upward mobility of the principal amount.

In a period of slow or no inflation, you earn a low return. Periods of zero growth do happen, especially with the Federal Reserve’s dovish stance in recent years keeping interest rates low, which hasn’t seen an accompanying rise in inflation. When Japan instituted similar policies in the late 1990s, a period of zero growth lasted for about a decade.

During periods of deflation, your interest payments actually fall since they are calculated off of the downwardly-adjusted principal.

Speaking of interest payments, you pay regular income taxes on them. The IRS taxes them like dividends, rather than capital gains, because you earn them as income within the same year.

How Do TIPS Differ From Regular Bonds?

Traditional bonds pay a predetermined interest rate for their entire lifespan. You earn interest each year, and when they mature, you get back your original principal amount (purchase price). The principal amount never changes.

The principal amount on TIPS does change, adjusting every year based on the inflation rate that year.

Imagine you purchased a traditional 10-year treasury bond paying 4% on a $1,000 investment. You would earn $40 in income every year, regardless of any changes in the economy, and then you’d receive the principal $1,000 back at the end of the 10-year period.

High inflation would eat into your returns because your $1,000 would be worth less when you got it back than when you invested it. And if the inflation rate surpasses your 4% interest rate, then your real return would in fact be negative.

If you instead invested in 10-year TIPS that started at only 3.5% with that same $1,000, your interest payments would start out lower at around $35. Then, the inflation adjustment would increase or decrease your principal on a monthly basis, which would in turn impact your interest payment.

If the rise in the inflation index increased your principal to $1,250, then your new interest payment would be $43.75. As inflation continues to rise, so do your regular payments.

Moreover, as long as the economy doesn’t experience deflation, you will also benefit from the upwardly-adjusted principal amount you receive back once the bonds mature.

Where Do TIPS Fit Into Your Portfolio?

Treasury inflation-protected securities offer a valuable hedging tool for your personal investment portfolio. They protect you against inflation without the heightened risk of commodities or precious metals.

That makes them low-risk, low-return investments — a safe-haven investment for playing defense, particularly if you worry a rise in inflation is coming. As low-risk investments, they make for a good short-term investment to simply avoid losing money to inflation.

I keep some of my capital in an ETF that holds TIPS to avoid losses from inflation while parking money. As a real estate investor, I typically set aside money for upcoming property purchases, but I don’t always know when I’ll need that money. A deal might come along next month, or I may need to wait a year for the right deal.

As safe as TIPS are, however, the majority of your money should probably work harder for you, earning a higher long-term return. Speak with an investment advisor about the ideal asset allocation for your age and long-term goals.

Final Word

If you suspect higher inflation lurks in the near future, TIPS can make a great addition to your portfolio.

With virtually no risk of losses and easy liquidity, they offer more security than other inflationary hedges. The federal government guarantees that you won’t lose money on them.

But that doesn’t mean they pay well. You could easily find yourself earning one-tenth the long-term average return of stocks. As you structure your portfolio, consider TIPS as a conservative backstop reserve, rather than the main force of your investment dollars out working to earn you money.


Planting Roots: LoKey Designs Opens Storefront in St. Louis’ Shaw Neighborhood – Ladue News

“If not now, when?” That was the question Laura Dooley asked herself before ultimately deciding to push forward to open a studio for her home goods and plant business, LoKey Designs, last June.

It was a serendipitous journey to get the Shaw storefront to where it is now – a retail space showcasing a range of plants, pots, home décor and more, as well as one for hosting by-appointment shopping and virtual consultations and bathing in the peacefulness of the lush greenery stocked from floor to ceiling.

“The biggest deciding factor was whether it will get enough light to keep plants happy and healthy,” Dooley says. “I was so fortunate this space has a gorgeous amount of natural light.”

Dooley was fortunate, as well, in finding the studio itself. The space had been special to her for a few years. “A friend of mine had a retail store in this space, and when she was moving out, I remember wishing silently that I could move my business in there,” she says. “I just felt connected to it somehow.”

However, taking it over solo wasn’t possible at the time. But here’s where things got weird: A completely unrelated friend asked if Dooley would be interested in co-using an available space, and lo and behold, it was the one her other friend was leaving.

By October 2019, Dooley was operating LoKey Designs from the shared retail space, but after the coronaviral pandemic shut it down, she moved her business online. There, orders and collaborations flourished, but Dooley knew she needed a space to work with clients and couldn’t keep running things from her home. By late spring, with the decision looming of whether to let the physical space go, Dooley decided to push ahead and take it over on her own.

“Each time I walk into my studio, I am instantly filled with so much joy and excitement – it’s truly become my happy place,” she says. “It’s an undeniable tranquil, plant-love vibe.”

With the brick-and-mortar in St. Louis’ Shaw neighborhood, Dooley can carry a wider selection of plants and pots, and she has added to LoKey’s offerings local, hand-poured candles, plant-related books and seasonal gift boxes curated with other local makers. Her top-selling items are low-maintenance, low-light sansevieria and pothos snake plants and DIY succulent kits, which are popular for beginners and make a great gift that can be shipped across the country.

Currently, shopping at the studio is done only by appointments, which can be booked in 30-minute increments online. Dooley also recently started offering virtual plant consultations via email, phone or videoconference. Most often, clients are searching for plants that will work with specific spaces in their home or office, especially with spending more time in these spaces due to remote work.

“We cover the light, water and soil conditions, and from there, I make suggestions on next steps and care,” she says. “It’s always been a goal to make plants approachable and bring practical plant knowledge to clients so they can have the confidence to care for them on their own.”

Virtual consultation pricing starts at $15 for 30 minutes. Some clients bring photos of their space or show Dooley a specific pot or plant they need to find a fit for. The biggest myth she hears is that people wish they were good with plants.

“Just about every client who walks into my studio or I chat with virtually says this,” Dooley says. “The aspiration to be a good plant parent is not unattainable. It’s not crazy either. I try to bridge the gap of information on houseplants so my clients can have the tools, info and confidence to keep their plants lush and happy.”

Moving forward, LoKey will be offering video tutorials on plant care and more nationwide shipping on items, as well as hosting more virtual planting parties in lieu of the in-person ones that gained popularity before the COVID-19 pandemic. Overall, Dooley hopes to hone in on the creative adaptability she admires in her plants and continue instilling that in others.

“With the studio, I have the opportunity to take my business in a lot of new directions,” she says. “I can showcase my plant love and passion for home décor in a way that inspires people.” 

LoKey Designs, 2207 S. 39th St., St. Louis,

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Home Prices vs. COVID-19: Will They Go Up or Down?

Posted on May 7th, 2020

It’s time to take a look at how COVID-19 could impact home prices given the massive disruption to the local, state, national, and global economy.

On the one hand, inflation is expected due to all the government spending, which could lead to a price increase since real estate often acts as an inflation hedge.

Conversely, if tons of borrowers lose their homes due to unemployment, we could see properties flood the market. And when combined with fewer eligible buyers, it could lead to a supply glut.

Consider the Lack of Housing Supply and Mortgage Quality

  • The housing market has three great things working in its favor right now
  • Housing supply is low enough even if buyer demand wavers during this uncertain time
  • The quality of today’s mortgages is excellent any many homeowners have lots of equity
  • Mortgage rates are at record lows, which further increases home buyer appetite

First, let’s compare today’s housing market to the one in 2006. They really couldn’t be any different, both from an inventory standpoint and from a mortgage perspective.

Simply put, back then there were way too many homes being built, and not enough demand to meet that supply.

At the same time, banks and lenders were doling out home loans to anyone with a pulse, knowing they could quickly bundle the underlying mortgages and sell them to Wall Street shortly after origination.

Taken together, it was a recipe for disaster. Homeowners had massive mortgages they couldn’t truly afford that were often set to adjust higher just months after they took them out.

They also had no skin in the game, aka home equity, so there wasn’t much incentive to stick around and try in vain to keep a sinking ship afloat.

Today, Americans are sitting on the most home equity in history, and very little of it is being tapped thanks to tighter underwriting guidelines that have only become more restrictive since COVID-19 reared its ugly head.

Meanwhile, there’s an inventory shortage that has likely only worsened as fewer existing homeowners list their properties, and mortgage rates are at record lows.

In short, homeowners today have tons of equity and historically cheap mortgages, and home buyers have fewer properties to choose from and ridiculously low mortgage rates at their disposal.

The Great Unknown Ahead

  • Ultimately nobody knows what the future holds or how we recover post-coronavirus
  • 1 in 5 Americans have already filed for first-time unemployment benefits since mid-March
  • That will likely worsen over time and lead to increased mortgage forbearance requests
  • The big question – is this income hit temporary for most homeowners or permanent?

Now it’s wonderful that today’s mortgages are mostly pristine, and that homeowners have tons of equity to serve as a cushion if forced to sell.

But we’re living in a very fluid and strange environment at the moment that could change in no time at all.

For example, one in five Americans have filed for unemployment since mid-March, and that’s likely only going to get worse.

So even if many of these homeowners had super affordable mortgages, a lack of income and the inability to tap their equity could put them at risk quickly.

To counter that we’ve got the mortgage forbearance offered via the CARES Act, which is great for struggling homeowners but only lasts for 12 months.

What happens after that? At best, if they simply have to resume making normal payments, there’s a decent chance not everyone will be re-employed and able to do so.

The world has changed and may not go back to “normal,” and thus not everyone will have the realistic ability to return to making monthly mortgage payments.

Even if they’re offered a loan modification to lower their payment, it still might not be enough if they can’t find work.

The same goes for investment properties such as those offered by Airbnb and other short-term vacation companies, or kiddie condos owned by parents in college towns, which might remain vacant.

If this is the case, we could see a flood of new properties hit the market similar to what we saw back in 2008, 2009, etc.

That’s where these two very different housing markets could begin to intersect. The good news is we didn’t have a supply glut before COVID-19 came around.

Back in 2006, we had a massive oversupply that was further exacerbated by a financial bubble, so it was a one-two punch.

Additionally, one could argue that both homeowners and lenders were to blame for what happened back then.

Sure, lenders offered high-risk products, but borrowers happily pulled out billions in cash out along the way to spend on who knows what.

Today, you can’t really blame a homeowner who is unable to make their mortgage payment due to the coronavirus epidemic.

And it’d look really bad to foreclose on this type of homeowner, which could limit the damage and keep inventory tight.

But here’s the thing – no one can sit here today and say they know what’s going to happen with COVID-19. And data models can’t forecast properly in this environment.

So really anything right now is a guess.

What Are We Seeing So Far in the Housing Market?

homebuyer demand

  • Home sellers mostly haven’t budged on listing prices
  • Prospective sellers are ready to go once stay-at-home orders are lifted
  • Amenities like big yards and home offices are becoming more important to buyers
  • Home buying demand is recovering and listing prices are up from a year ago

Everyone seems to want to call this event temporary – a moment in time that will magically fix itself once the economy opens up.

I don’t subscribe to that, as much as I wish it were true. You can’t simply erase what’s happened the past several months, nor what lies ahead in the aftermath.

Speaking of, are we even “after” yet, or is this still in the early innings. While that too can be debated all day long, again no one really knows.

But we can look at early impact to get some sort of a clue.

The MBA reported that seasonally adjusted home purchase applications increased 6% from a week earlier, with even bigger gains seen in California and New York.

The ever-cheerful National Association of Realtors reported that home sellers have not lowered their listing prices as a result of COVID-19.

In the latest week, 73% of Realtors said their clients did not reduce listing prices to attract home buyers.

That’s been pretty steady for the past few weeks since NAR began reporting on it.

Additionally, they said today that 77% of prospective sellers “are preparing to sell their homes following the end of stay-at-home orders.”

In other words, once this blows over it’s going to be real estate business as usual, sans discount!

Interestingly, buyer needs might have changed – they now want a big backyard to play in and grow their own food, along with a home office and possibly a home gym too.

The less is more thing may no longer be a hot trend, nor is urban living possibly as popular. The Burbs are back!

Over at Redfin, it’s also good news with nearly 53,000 homes hitting the market during the week ending April 24th, compared to just over 48,000 for the week ended April 13th.

Additionally, pending home sales have increased from less than 31,000 to more than 32,500 during those same periods.

Despite the rise in new listings, there were less than 700,000 homes for sale in Redfin markets nationwide, the lowest amount the real estate brokerage has seen during the past five years.

That might explain why the median listing price was $308,000 for the week ending April 24th, up 1% compared to the same period last year.

Home buyer demand has also begun to climb back after taking a hit in March, a sign potential buyers are unfazed and ready to move forward.

A Home Price Projection from Zillow

Zillow scenarios

  • Company sees home prices falling just 2-3% by the end of 2020
  • With a recovery in home prices throughout 2021
  • Their pessimistic model sees a 3-4% decline in prices and no recovery in 2021
  • Home sales are expected to fall 50-60% in all their models before rebounding at varying speeds

Now let’s take a look at a projection from Zillow, the creator of the Zestimate that should know a thing or two about home prices.

They have forecast a mere 2-3% drop in home prices through the end of 2020, which will be followed by a recovery in prices throughout 2021.

That means a small drop this year that is recovered next year could mean no material change for home prices due to COVID-19.

So they appear to be on the “this is temporary” wagon. Prior to the coronavirus outbreak, home prices were expected to rise 3.3% on average in 2020, and 2.7% in 2021, per the Zillow Home Price Expectations Survey, which includes a panel of more than 100 economists and experts.

But again, their “proprietary macroeconomic and housing data” might not be well-equipped to take into account a pandemic.

They have three different scenarios for home prices, including an optimistic, medium, and pessimistic outlook.

At best, they drop only 1-2% this year, at worse they fall 3-4% and “remain depressed through 2021.”

In all cases, home sales are expected to take a big hit of 50-60%, though when they recover varies.

That might hurt real estate agents and mortgage lenders if mortgage refinance volume begins to waver.

The good news, despite all the horrible news, is that homeowners are a lot better off today than they were in 2006, which means more of them should be able to get through this crisis without losing their home.

And that should bode well for home prices.


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