Why You Might Not Want to Get Too Excited (or Nervous) About a Housing Crash

As mortgage rates continue their ascent toward 6%, more and more folks are talking housing market crash.

But high interest rates aren’t really a catalyst for a crash, especially if the high rates aren’t really high.

Emphasis on “real,” as in inflation-adjusted. Everything has gone up in price, and wages should also be rising.

This means a higher mortgage rate isn’t even a roadblock, or really as bad as it seems.

And because rates remain historically low, once you factor inflation, they could still be seen as a screaming deal.

High Mortgage Rates Don’t Crash Housing Markets

I’ve said it countless times, and I’ll repeat it again. Higher mortgage rates don’t automatically lower home prices. Or lower them at all.

If one goes up, the other doesn’t go down. And vice versa. It’s possible both can move in tandem, or opposite one another, based on many other factors.

So those who have been watching 30-year fixed mortgage rates absolutely surge from below 3% to nearly 6% must be beside themselves.

How could home prices not fall, or at the very least, not continue to rise? This makes no sense.

Why would home buyers continue to pay such outrageous prices now that interest rates aren’t at record lows?

Part of the answer is they want/need shelter, so they’re willing to pay “top dollar” for it.

Another reason is it’s still not that expensive once you factor in inflation and growing wages for these home buyers.

The other key factor continues to be a supply/demand imbalance, with way too little inventory available to satisfy demand.

Oh, and there are lots of buyers paying all-cash for their home purchase, which has nothing to do with mortgage rates.

All of these things have kept the housing market humming through spring, seemingly defying the expectations of housing bears and naysayers.

Don’t Compare Today’s Housing Market to the One Preceding the Great Recession

There’s a saying that history doesn’t repeat itself, but it rhymes. The origins of that quote or similar are hard to determine.

But the general idea is that we use the past to predict what will happen in the future. And we use a similar event for direction.

When it comes to the housing market, anyone who is skeptical of right now is looking back to the Great Recession.

Specifically, the housing market from around 2006 to 2008. Unfortunately, that’s a very extreme comparison, hence its name.

The Great Recession took place between 2007 and 2009, while the Great Depression occurred between 1929 and 1939.

These were both severe economic downturns, and as such, were spaced well apart from one another.

This means the chance of another event of that magnitude anytime soon is pretty low.

Still, we’ve enjoyed many fruitful years lately, so a recession or downturn of some kind is certainly in the cards.

The question is how bad will it be this time around?

Should We Look at the Late 1970s and Early 1980s for Future Guidance?

year over year mortgage rate change

Instead of comparing today’s housing market to the one that preceded the Great Recession, we might want to look back a bit further.

The housing market in 2006 was fueled by an abundance of stated income and no-doc adjustable-rate mortgages, tons of cash out mortgages, and zero down mortgages.

None of that is present today, though relatively harmless hybrid ARMs like the 5/1 ARM are beginning to make more of an appearance.

Now if we go back a lot further in history, we might find a better example for our history “rhyme.”

I’m talking about the late 1970s and early 1980s, when inflation was super high and mortgage rates spiked.

The old timers love talking about how high mortgage rates were back then. They scoff at your 6% mortgage rate today.

And they have good reason to scoff – the 30-year fixed climbed as high as 18.45% in October 1981, per Freddie Mac data.

Just a few years earlier, it was as low as 9.01%, so mortgage rates literally doubled. And did so at very high levels.

While our mortgage rates are still ridiculously low by comparison, they’ve nearly doubled as well in just a matter of months.

Additionally, demographics are very favorable for home buying, with 45 million Americans hitting the first-time home buyer age of 34 between 2017 and 2027.

This is similar to what was happening back then, as Bill McBride of Calculated Risk points out.

As you can see from his chart above, there’s been a very similar year-over-year change in mortgage rates on a percentage change basis.

The one big difference between then and now might be inventory. I say might because he doesn’t have the data, nor do I.

But we know housing inventory is at record lows today, so chances are today’s housing market is even more insulated than the late 70s/early 80s market.

So what will happen to home prices? Will we finally get our big, overdue crash?

Real Home Prices May Fall, But Nominal Prices May Not

real house prices

Okay, so it might be better to compare today’s housing market with the one seen in the late 70s/early 80s.

That makes sense given the inflation and interest rate environment, though remember history doesn’t repeat itself, it merely rhymes.

This provides us with clues as to what happens next, but nothing definitive.

McBride’s take, based on analyzing that time period, calls for a decline in both housing starts and new home sales.

We may also see an increase in housing inventory, though as mentioned, it’s currently at record low levels.

Here’s the kicker – nominal home prices might not even go down during the next “housing bust.”

By nominal, I mean prices that aren’t adjusted for inflation. So that overpriced $500,000 home might be worth $550,000 in a couple years.

That’s pretty wild when you look at how much home prices have already risen.

However, real home prices (those adjusted for inflation) may decline, as they did from 1979 (when they peaked) until 1982.

Back then, they fell 11% in real terms, but nominal prices “increased slightly” due to inflation.

In other words, you may want to temper your expectations with regard to a massive housing market crash.

Yes, home prices are “crazy high,” but so is the price of everything else.

And millions of Americans are enjoying very low, fixed housing payments that are only getting cheaper as prices and interest rates rise.

So a flood of distressed sales and foreclosures likely isn’t in the cards as it was a decade ago.

For those of you waiting on the sidelines looking for a fire sale, it may not happen.

And those who simply want to buy a home may also not see any major relief.

This isn’t to say you should panic-buy a house, but waiting for some big price cut might not be a great strategy either.

Source: thetruthaboutmortgage.com

The 15 Best Value Stocks to Buy Right Now

In 2022, the old rules of investing have mostly gone out the window, but one thing hasn’t changed: Wall Street’s best value stocks continue to be an attractive place for investors to plunk down their money for the long term.

The S&P 500 is down roughly 10% year-to-date. War continues to rage in Ukraine and disrupt energy markets. And significant changes in interest-rate policy continue to upend investment strategies that have been profitable for several years running.

But that’s the thing about investing. If you want to get ahead, it’s important to think beyond the obvious opportunities and consider a holistic approach that will generate returns even in even challenging environments. That involves looking beyond fashionable growth investments to value stocks that might been roughed up of late but still offer long-term upside.

In hopes of finding the best value stocks for investors right now, we looked for:

  • Companies with a minimum market value of about $1 billion
  • Those with forward price-to-earnings (P/E) ratios below the broader market (for reference, the S&P 500’s forward P/E is currently at 18.8)
  • Those with price/earnings-to-growth (PEG) ratios below 1 (PEG factors in future growth estimates, and anything under 1 is considered undervalued)
  • Strong analyst support, with at least 10 Wall Street experts covering the stock and the vast majority of those issuing ratings of Buy or Strong Buy

A few of these companies have admittedly seen trouble lately, hence their sagging stock prices, but even then, their underlying businesses are sound. And considering the broader challenges to every company on Wall Street, it’s important for investors to focus on high-quality picks over the latest flashy growth narrative, regardless of recent performance.

Here are 15 of the best value stocks to buy now.

Share prices and other market data as of April 25. Analyst ratings courtesy of S&P Global Market Intelligence. Stocks are listed by analysts’ consensus recommendation, from highest score (worst) to lowest (best).

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Boot Barn Holdings

rows of boots on shelvesrows of boots on shelves
  • Market value: $2.8 billion
  • Dividend yield: N/A
  • Forward P/E ratio: 16.8
  • Analysts’ ratings: 6 Strong Buy, 1 Buy, 4 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.82 (Buy)

Even if you’re the kind of person who wouldn’t be caught dead wearing a cowboy hat in public, don’t let your personal tastes get in the way of understanding the fundamentals that make Boot Barn Holdings (BOOT, $94.71) one of the most attractive value stocks in 2022.

Shares have soared roughly 800% over the past five years. That’s in response to a top line that has soared from just under $630 million in the fiscal year ended spring 2017 to what is projected to be nearly $1.5 billion at the end of this fiscal year.

Say what you want about cattleman hats, but you can’t disparage results like that.

But growth has become harder to come by in this niche retail model. More recently, that has weighed on shares, which are down about 30% from their 52-week highs in late 2021. With the worst of COVID-19 behind us, however, and given Boot Barn’s loyal customer base, there’s every reason to expect this retailer to keep putting up big numbers – including a stunning growth outlook of more than 60% revenue expansion this fiscal year.

That might make this recent pullback a chance to get in on one of Wall Street’s best value stocks, now that BOOT’s valuation is more in line with peer specialty retail stocks despite outsized growth projections.

It’s also worth noting that, unlike down-market goods, Western wear is a decidedly luxury category, despite what many might think. Quality boots and hats can run $500 or more. And history has shown that these kinds of purchases keep churning along even amid high inflation and other consumer pressures.

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Tempur Sealy International

a Tempur Sealy buildinga Tempur Sealy building
  • Market value: $5.1 billion
  • Dividend yield: 1.4%
  • Forward P/E ratio: 8.3
  • Analysts’ ratings: 6 Strong Buy, 1 Buy, 4 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.82 (Buy)

The pandemic changed many behaviors and expectations, and among those were many consumers thinking hard about housewares for the first time in a few years. Since nobody could travel and we were all spending so much time in our homes and apartments, it was natural to finally pull the trigger on furniture upgrades that hadn’t seemed particularly urgent before COVID-19.

Mattress leader Tempur Sealy International (TPX, $28.70) rode that wave in a big way, watching shares rise more than four-fold from March 2020 through fall of last year. However, many investors have abandoned the stock lately on the idea that the upgrade cycle is over; indeed, TPX has lost nearly half its value since September 2021.

That has created a big opportunity for value investors. The 2013 mash-up of some of the biggest mattress brands on the planet gives this company deeply entrenched relationships with retailers. And while many folks are buying mattresses online these days, there’s one thing that TPX has that these e-commerce brands don’t: a massive hospitality business, which continues to look very strong as hotels look to an important summer travel season after the pandemic.

In fact, even though TPX stock is down more than 40% on the year, Wall Street is actually anticipating double-digit revenue growth and continued earnings improvement. While perhaps things got a bit overheated in this stock thanks to the “stay at home” trade, continued growth coupled with a more reasonable price now makes this mattress leader look like one of 2022’s best value stocks to buy right now.

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A Carter's/OshKosh retail storeA Carter's/OshKosh retail store
  • Market value: $3.7 billion
  • Dividend yield: 3.3%
  • Forward P/E ratio: 9.9
  • Analysts’ ratings: 6 Strong Buy, 0 Buy, 4 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.80 (Buy)

When it comes to durable retail spending categories, it’s hard to find a store that is more reliable than Carter’s (CRI, $89.72). This go-to brand is focused on children’s clothing under its own nameplate, as well as under associated brands like iconic OshKosh overalls.

Kids keep growing and keep needing clothes no matter what, and upscale fashions make Carter’s stores a go-to destination for moms and grandmas everywhere.

Admittedly, the growth outlook is relatively modest here. Revenues are projected to expand by merely single digits both in 2022 and 2023. However, Carter’s is expected to squeeze plenty of blood from that stone, with earnings per share estimated to jump by 14% this fiscal year and another 11% in fiscal 2023 if current projections hold.

CRI has been investing heavily in e-commerce over the past few years, and in fact, its international segment posted an impressive growth rate of nearly 30% this last fiscal year in part because of digital successes.

OK, sure, international sales account for just 13% of total revenue. But this is exactly the kind of under-the-radar narrative that investors should look for in value stocks: outsized growth in a small business segment that will ensure strong operating results in the future, even if there’s no disruptive innovation on the horizon set to deliver instant gains.

Children’s wear is a durable spending category, and CRI remains one of the top brands in the space. With shares trading at a forward P/E of just about 10 right now, it might be worth looking at this retailer as a potential bargain stock.

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A Target store on a sunny dayA Target store on a sunny day
  • Market value: $111.7 billion
  • Dividend yield: 1.5%
  • Forward P/E ratio: 16.4
  • Analysts’ ratings: 15 Strong Buy, 7 Buy, 7 Hold, 1 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.80 (Buy)

Big-box shop Target (TGT, $241.66), at more than $110 billion in market value, is one of the largest U.S. retailers out there. But although Target takes great pains to offer higher-quality furnishings and more fashionable apparel than its down-market competitors, this big box giant is itself being discounted in 2022 – creating an ideal opportunity for those seeking out value stocks to buy right now.

Right now, Target’s market value is slightly below its projected revenue for next year, while competitors like Costco Wholesale (COST) are trading at a premium on this metric. TGT stock is also being discounted compared with earnings, with a forward P/E of 16.4 right now compared with a reading of almost 19 for the broader S&P 500 Index.

It’s also worth noting that while COVID-19 disruptions took their toll on many retailers, Target is actually riding a broader tailwind for its business thanks to the fact that is has adapted to the “omnichannel” approach of a digital age. Total sales are up almost $30 billion since 2019 thanks to a robust e-commerce presence, curbside pickup and an agile approach to compete in a digital age.

The dividend yield might not burn down the house – at 1.5%, it’s better than the broader S&P 500 but worse than 10-year T-note. But Target is a Dividend Aristocrat that has strung together half a century’s worth of uninterrupted payout growth – and with annual payouts just totaling $3.60 per share and earnings set to approach $16 per share next fiscal year, there’s more than enough headroom for increased dividends down the road.

And for those concerned with environmental, social and governance (ESG) traits, note that Target also has earned a place among our Kiplinger ESG 20.

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D.R. Horton

A D.R. Horton home is under constructionA D.R. Horton home is under construction
  • Market value: $26.3 billion
  • Dividend yield: 1.2%
  • Forward P/E ratio: 4.5
  • Analysts’ ratings: 11 Strong Buy, 4 Buy, 6 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.76 (Buy)

A $26 billion homebuilding company, D.R. Horton (DHI, $74.19) has a pretty easy-to-understand business. It acquires land, builds residential homes on the sites, then sells the finished houses for a hefty profit.

It operates under the D.R. Horton brand, as well as Express Homes, Emerald Homes and Freedom Homes. It also offers mortgage financing and related services to help put buyers in their new homes.

If you own a home or are shopping for a home right now, chances are you’re attuned to the ever-rising values in most markets. But to give newcomers an example, home prices in March surged 15% year-over-year to set yet another record, proving this red-hot sector is far from cooling off.

DHI, however, has rolled back as investors have gone “risk off” in 2022, with shares now off about 35% from 52-week highs set in November. Part of the reason is because folks are afraid that higher interest rates could result in higher mortgage costs and thus scare off potential homebuyers.

At least so far, that has not been the case. No small wonder. Consider that the National Association of Realtors estimated that in March the inventory of homes actively for sale on a typical day in March decreased by 19% compared with the prior year. There is simply not enough supply for the buyers that are out there, and interest rates aren’t rising enough to make enough of those buyers reconsider.

That adds up to a compelling story for DHI. Couple that with a bargain valuation, including a forward price-to-earnings ratio that is below 5 right now, and it’s worth considering staking your claim to one of today’s best value stocks in the housing space.

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worker spraying waterproof layer on concreteworker spraying waterproof layer on concrete
  • Market value: $7.3 billion
  • Dividend yield: 2.5%
  • Forward P/E ratio: 8.6
  • Analysts’ ratings: 10 Strong Buy, 3 Buy, 5 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.72 (Buy)

Chemicals company Huntsman (HUN, $34.19) produces products worldwide including polyurethanes, dyes, epoxies and other materials. It’s not a particularly glamorous business, making these raw materials for end-users to craft their own finished goods. However, Huntsman’s chemical operations are incredibly reliable, and they’re seeing strong demand across the board as the global economy recovers in the wake of the pandemic.

As proof: A few months ago, Huntsman posted Street-beating sales and earnings for the fourth quarter of 2021, and it provided strong guidance for 2022. That’s not just because of improving demand broadly, but also because of higher prices it can command as a result of the current inflationary environment.

Thanks in part to these strong results, HUN also has been blessed by a Standard & Poor’s upgrade to its credit rating in April that will help the chemicals company access financing at better rates going forward.

Value investors will be interested to learn that Huntsman is incredibly committed to its shareholders. It recently doubled its stock buyback program to $2 billion in the wake of recent success, and it has already bought up more than $100 million under that authorization. It also recently increased its dividend by 13%, to 21.25 cents per quarter – that’s 70% from the 12.5-cent quarterly payout it provided as recently as late 2017.

And with payouts at less than 20% of next year’s earnings, there is ample upside for future dividend increases, too.

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Glass similar to that made by CorningGlass similar to that made by Corning
  • Market value: $29.1 billion
  • Dividend yield: 3.1%
  • Forward P/E ratio: 14.4
  • Analysts’ ratings: 7 Strong Buy, 4 Buy, 3 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.71 (Buy)

Although it got its start as a specialty glass company was back in 1851, Corning (GLW, $34.42) has a long history of high-tech partnerships – from working with Thomas Edison on his early lightbulbs to leading the charge on cathode ray tubes that powered the first generation of televisions to modern fiber optic cable and touch-screen displays.

In fact, its chemically strengthened Gorilla Glass is currently the gold standard for mobile devices. It is designed to be thin, responsive and damage-resistant – all must-have characteristics for phones and tablets. 

Corning has been a slow-and-steady performer compared with some of the flashier names in technology. But there is definitely still growth here. GLW produced an outsized spurt in 2021, with revenues up nearly 25% year-over-year. Looking forward, estimates are still for mid- to high-single-digit sales improvement over the next couple years. And promisingly, Corning has largely sidestepped most of the supply-chain issues plaguing many manufacturers; indeed, CEO Wendell Weeks said earlier this year that its biggest problem wasn’t supplies or labor, but capacity to meet high demand!

On top of that, GLW offers a decent dividend north of 3%. That dividend is growing, too, up to 27 cents quarterly at present compared with 10 cents per quarter back in late 2014. And with annual earnings per share of more than $2.60 projected next fiscal year, that dividend isn’t just sustainable but also ripe for future increases down the road.

When looking for the best value stocks – those that can perform over the long run – a stock like Corning is a great example of taking an alternative approach to fashionable trends to avoid some of the volatility. Nobody thinks of this glass company first when plotting investments in tech, and that allows for moments like this when shares are more reasonably priced than some other assets out there.

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Wells Fargo

Wells Fargo bankWells Fargo bank
  • Market value: $173.7 billion
  • Dividend yield: 2.2%
  • Forward P/E ratio: 10.6
  • Analysts’ ratings: 13 Strong Buy, 8 Buy, 5 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.69 (Buy)

Among financial stocks, the $180 billion financial powerhouse Wells Fargo (WFC, $45.83) in many ways was, for a time, in a class by itself. However, the company has piled up a number of black marks on its corporate record in recent years that have caused many investors to think twice about putting their money behind WFC stock.

One of the biggest challenges started in late 2016, with news that some Wells employees were opening checking and savings accounts for clients without their consent. There was also word that Wells was misleading businesses on corporate credit card fees, followed by a 2018 move by the Federal Reserve announcing it would restrict the bank in response to “widespread consumer abuses and compliance breakdowns.”

Understandably, some folks have abandoned WFC stock in recent years – including even Warren Buffett, who exited almost all of his stake last year. And that’s not without cause. But as with so many things, the race for the exit has created a buying opportunity for value-minded investors.

WFC stock currently trades for a price-to-book ratio of just 1.1, compared with closer to 1.3 for Bank of America (BAC) and 1.5 for JPMorgan Chase (JPM), and 1.7 for “super-regional” U.S. Bancorp (USB). So while Wells remains one of the biggest banks in the U.S., it’s still treated as an also-ran compared to large peers.

But with interest rates on the rise, creating a tailwind for most lenders, it’s worth considering whether the negativity around past transgressions has turned Wells Fargo into one of the banking industry’s best value stocks to buy.

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deepwater oil rig for drillingdeepwater oil rig for drilling
  • Market value: $118.8 billion
  • Dividend yield: 1.6%
  • Forward P/E ratio: 8.9
  • Analysts’ ratings: 14 Strong Buy, 9 Buy, 3 Hold, 1 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.67 (Buy)

Everyone who has filled up their car with a tank of gas recently knows all too well how inflationary pressures have gripped the energy sector in a big way over the last year or so. And as a result, many oil and gas stocks have seen strong performance as well.

With crude oil prices at around $100 per barrel presently, that has created continued tailwinds for Big Oil names such as ConocoPhillips (COP, $91.66). It’s not the biggest firm in the oil patch, but it’s still a major player at nearly $120 billion in market value and a global energy business that explores, develops and produces oil and natural gas worldwide. And unlike the big integrated energy giants, COP mostly operates in “upstream” operations (exploration and production), meaning it’s uniquely positioned to make the most of the current environment.

Case in point: As a result of inflationary pressures across all energy commodities these days, the company is plotting revenue growth of more than 25% this fiscal year.

An investment in ConocoPhillips certainly carries risks, insofar that a significant rollback in oil prices would likely disrupt the stock the same way we saw rising prices create better performance. However, COP is making big structural moves lately that should ensure shareholder value for many years to come.

Specifically, COP plans to return 30% of operating cash to shareholders with a predicted outlay of $65 billion back to shareholders from 2022 through 2031. That follows a $1 billion boost to its stock buybacks last year.

These are significant figures that should make any value investor a believer in this stock.

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General Motors

General Motors' Hummer electric vehicle is built in a GM ZERO plantGeneral Motors' Hummer electric vehicle is built in a GM ZERO plant
  • Market value: $57.9 billion
  • Dividend yield: N/A
  • Forward P/E ratio: 6.0
  • Analysts’ ratings: 12 Strong Buy, 7 Buy, 4 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.65 (Buy)

Traditional automakers have struggled for a host of reasons in recent years.

For starters, younger generations of Americans simply aren’t as concerned with driving or car ownership. Then there’s the electric vehicle revolution that has put many legacy brands behind the 8-ball when it comes to innovation. And to top it all off, major disruptions to semiconductor supply chains have created bottlenecks, preventing car manufacturers from tapping into pent-up demand.

However, these circumstances have also scared off many investors who do not see the underlying value in car stocks such as General Motors (GM, $39.82).

GM currently trades for just six times earnings estimates – more than three times lower than the typical S&P 500 stock right now. Furthermore, it trades for a slight discount to book value and at half next year’s projected revenue. These kind of metrics are a value investor’s dream.

To be clear, GM’s bargain price isn’t because of, say, disturbing growth projections that warrant this discount. Rather, GM is projected to see an impressive 23% growth in the top line this year. And while earnings are set to take a hit in fiscal 2022, they are forecast to make up all the lost ground and then some in fiscal 2023.

The automotive market assuredly is full of risk and uncertainty. However, GM has a long history and strong brand recognition that should serve it well, especially as the company shows that it’s willing to be flexible.

At these prices, GM stock could be one of the sneakiest value stocks to buy now.

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Skechers shoes are shown behind the window of a storeSkechers shoes are shown behind the window of a store
  • Market value: $6.3 billion
  • Dividend yield: N/A
  • Forward P/E ratio: 13.6
  • Analysts’ ratings: 8 Strong Buy, 2 Buy, 3 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.62 (Buy)

Skechers U.S.A. (SKX, $39.24) is a roughly $6 billion footwear company that continues to connect with consumers and build on its already impressive brand.

But what really makes Sketchers one of the best value stocks to buy now is its direct sales operations that continue to boost margins and drive real results for shareholders. In February, for instance, Skechers reported that its direct-to-consumer segment posted more than 30% year-over-year gains during the fourth quarter.

And looking forward, the brand continues to explore new products via its “comfort technology” and predicts yet another record year in 2022 as it rides growth trends even higher.

SKX stock has struggled over the past year. Shares are off by about 25% over the past 12 months as some investors have questioned whether recent growth trends can continue. Well, the pros are projecting low-double-digit revenue growth in each of the next two years – and similar expansion on the bottom line next year before a 24% explosion in profits in 2023.

Meanwhile, Skechers is helping its own cause, authorizing a $500 million stock buyback program in February to help prop up its shares.

Despite all this, SKX stock still trades for a slight discount to annual sales and a forward price-to-earnings ratio of about 13 right now – significantly lower than both the S&P 500 as well as other top consumer discretionary stocks. With continued growth ahead and continued investment in the high margin direct-to-consumer arm of its business, there’s good reason to expect Skechers has what it takes to succeed going forward.

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Lowe's storeLowe's store
  • Market value: $132.5 billion
  • Dividend yield: 1.6%
  • Forward P/E ratio: 14.8
  • Analysts’ ratings: 18 Strong Buy, 4 Buy, 7 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.62 (Buy)

While Home Depot (HD) might be the go-to name in home improvement, investors would be wise to not sell short its competitor Lowe’s (LOW, $200.38). Consider that while Home Depot has roughly 2,300 locations in the U.S., Lowe’s commands roughly 2,000 locations of its own. However, HD is valued at $315 billion while Lowe’s market capitalization is almost a third of that, at $130 billion or so.

And as long as we’re comparing, Lowe’s boasts a forward price-to-earnings ratio of less than 15 and a price-to-sales of about 1.4 while HD has a forward price-to-earnings ratio of about 19 and a price-to-sales ratio of 2.1.

In other words, Home Depot might be the larger DIY chain, but that’s in part because investors are paying a significant premium for shares.

And this discount comes despite the fact that Lowe’s has delivered better returns across most timeframes, including a 159% total return (price plus dividends) over the past five years versus 124% for HD. Helping that total return is one of the most consistent dividends on Wall Street – Lowe’s is another Dividend Aristocrat, having raised its payout annually for 59 consecutive years.

If you’re looking for value stock picks, Lowe’s is the better buy among DIYs.

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Air Lease

An airplane like the ones Air Lease leases out to customersAn airplane like the ones Air Lease leases out to customers
  • Market value: $5.0 billion
  • Dividend yield: 1.7%
  • Forward P/E ratio: 9.5
  • Analysts’ ratings: 4 Strong Buy, 4 Buy, 0 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.50 (Strong Buy)

Air Lease (AL, $43.76) is an aircraft leasing company concerned with the purchase and leasing of aircraft worldwide. Right now, it owns just shy of 400 planes and is benefiting from a resurgence in air travel now that the coronavirus pandemic is on the wane.

The fundamentals of Air Lease are looking up thanks to improving air travel trends, as evidenced by a projection of 15% revenue growth this fiscal year and then roughly 18% growth the following year.

But despite this tailwind (pardon the pun), AL stock is still reasonably priced with a forward price-to-earnings ratio of about 9 right now. That’s less than half the S&P 500 average at present.

In February, Air Lease said that its lease utilization rate for both 2021’s fourth quarter and full year was an amazing 99.8%. There is no better metric of success for a company like this, proving that its existing resources are in high demand. Additionally, the triple-net lease model of Air Lease requires that the users of its planes pay for the taxes, insurance, and maintenance regardless of whether those planes are grounded or flying. All of this means a higher likelihood that money will continue to roll in for the foreseeable future.

With COVID-19 on the wane and an uptrend in air travel trends this year, the stage is set for AL stock to finally take off after years of stalling. But the time to buy should be soon, while it’s still one of Wall Street’s top value stocks.

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Signature Bank

Skyscrapers in a big citySkyscrapers in a big city
  • Market value: $16.4 billion
  • Dividend yield: 0.9%
  • Forward P/E ratio: 13.2
  • Analysts’ ratings: 10 Strong Buy, 7 Buy, 0 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.41 (Strong Buy)

Signature Bank (SBNY, $261.06), a roughly $16 billion regional bank stock, is riding the tailwind that has benefited most financial firms in the last several months: namely, higher interest rates that have lifted margins on loans. 

Signature boasts about $120 billion in assets under management, mostly in major metro areas including New York, Charlotte and San Francisco. The company primarily serves local consumers and businesses through conventional offerings including checking accounts, real estate loans and lines of credit. But beyond that, SBNY also is a major player in high-growth areas like cryptocurrency trading via its Signet platform, as well as slow-and-steady business lines such as insurance that help ensure strong long-term performance.

Thanks to the uptrend in operations lately, SBNY is projecting big-time increases in its operating metrics, including a nearly 45% jump in revenue this year. The bottom line is expected to expand by just as much.

Many segments of Wall Street that can wax and wane, and financials are no exception. But Signature Bank’s wide and sustainable footprint will serve it well in the current rising-rate environment. It’s not as large as other diversified financials, but it’s trading at levels that put it among the top value stocks to buy right now.

15 of 15

Micron Technology

  • Market value: $78.3 billion
  • Dividend yield: 0.6%
  • Forward P/E ratio: 6.1
  • Analysts’ ratings: 26 Strong Buy, 7 Buy, 4 Hold, 0 Sell, 0 Strong Sell
  • Analysts’ consensus recommendation: 1.41 (Strong Buy)

Data storage leader Micron Technology (MU, $70.12) is a company that has deep roots in the modern digital economy. Founded back in 1978 – in Idaho, of all places – Micron carved out a niche in semiconductor design that has ultimately kept it at the cutting edge of the tech sector for more than three decades.

Nowadays, Micron specializes in data storage technologies, including for graphics and servers, as well as mobile-focused solutions known as dynamic random-access memory (DRAM). And it’s this sustained growth in the memory market that looks to provide the biggest tailwind for MU stock in the years to come.

Just look at the numbers. Micron is projected to enjoy more than 20% revenue growth in both fiscal 2022 (the current year for MU) as well as 2023. And that will more than filter down to the bottom line. The pros are looking for 50%-plus growth in earnings per share this fiscal year, then another 30% growth in 2023.

Yes, semiconductor stocks are up against the ropes right now. And yes, there are perhaps more interesting stocks in the space than MU. However, with a forward price-to-earnings ratio of just over 7 right now and strong growth projections for the next two years, it might be worth looking to this unsung chip play at its current bargain valuation.

Source: kiplinger.com

Are Home Prices Falling? The Devil Is in the Details

How’s this for a dramatic headline: “Home prices are falling!”

But before you get too excited, assuming you’re a prospective home buyer, there are some strings.

What was almost unthinkable a month or two ago is now apparently becoming reality.

A new analysis from Realtor.com found that asking prices are actually down year-over-year in several large metropolitan areas nationwide.

Does this mean the seller’s market is finally coming to an end, driven by markedly higher mortgage rates? Let’s find out.

Where Home Prices Are Down the Most

The Realtor.com data team analyzed year-over-year median list prices in the 100 largest metros nationwide in the month of March.

They then limited their list to just one metro per state as a means to ensuring “geographic diversity.”

The result is a top-10 list of metros “where home prices are falling the most.”

The list is as follows:

1. Toledo, Ohio (-18.7%)
2. Rochester, New York (-17%)
3. Detroit, Michigan (-15.4%)
4. Pittsburgh, Pennsylvania (-13.7%)
5. Springfield, Massachusetts (-5.8%)
6. Tulsa, Oklahoma (-5%)
7. Los Angeles, California (-5%)
8. Memphis, Tennessee (-4.6%)
9. Chicago, Illinois (-3.7%)
10. Richmond, Virginia (-3.4%)

As you can see, there is quite a range in listing price drops among the top ten, with a high of -18.7% in hard-hit Toledo, to a mere 3.4% drop in Richmond, VA.

So what exactly is going on here? Weren’t home prices expected to keep rising, despite significantly higher mortgage rates?

Well, in Toledo specifically, the issue has been an elevated unemployment rate, coupled with an overheated housing market.

This has put a big strain on affordability as mortgage rates jumped from sub-3% levels in late 2021 to their current mid-5% range.

The same is largely true of the other four metros in the top five, which all happen to be located in the Rust Belt as well.

In these communities, home prices may have simply gotten way too ahead of themselves, and are simply falling back down to earth.

Of course, earth is relative because they’re likely still up tremendously from their lows seen a decade ago.

Is the Housing Market Simply Evolving?

home price forecast

They say real estate is local, in that you shouldn’t worry about the national trend as much as the neighborhood in which you’re looking to buy a home.

In other words, who cares if home prices are down in Toledo if you’re attempting to purchase a property in Phoenix?

That being said, there appears to be an emerging trend in the remaining five metros on the list that is more indicative of an evolving housing market.

In places like Chicago, Los Angeles, and Tulsa, it appears smaller properties are making their way to market.

As such, the median listing price is “down” from a year ago, but often times the price per square foot is up.

This is somewhat similar to your bag of Doritos still costing 99 cents but containing a few less chips.

For example, a prospective home buyer in Los Angeles may now be settling for a 1,500-square-foot cottage instead of say a 2,500-square foot home.

And in Chicago, there are apparently 6,000 condominium units on the market, which also drags the median list price lower.

Condos are always cheaper than single-family homes, so the -3.7% reduction in median listing price might be a bit deceiving.

Often times, condos begin to creep higher in price during the latter stages of a seller’s market as buyers look for more affordable options.

That could explain some of what we’re seeing in this early, seemingly negative data.

The other reason listing prices might be down is simply a marketing tactic. Real estate agents are listing lower to garner interest, instead of taking the risk of having to make a price cut.

This means the homes may sell for more than what they sold for a year ago when all is said and done.

On a national basis, home prices are still expected to rise a whopping 14.9% through March 2023, per Zillow.

That’s down slightly from the 16.5% year-over-year forecast made in February, as seen in the image above.

What’s incredible is this would be the highest home price growth ever recorded by Zillow prior to June 2021.

And the 6.09 million in expected existing home sales would be the second best calendar year since 2006.

So while there might be some signs of a slowdown in certain markets, don’t get your hopes up.

Home prices likely aren’t falling just yet, despite some cracks starting to show.

Lastly, if mortgage rates peak and begin to recover, we could see a new surge in buyer interest…

Source: thetruthaboutmortgage.com

What Are Subprime Mortgages and What Are Their Risks?

Subprime mortgages may allow borrowers with lower credit scores to obtain homeownership, but they will pay a steep price for the privilege, thanks to the higher risk to lenders.

There is hope for borrowers who raise their credit profiles through consistent, on-time payments: They can look into refinancing.

Here’s a deep dive into the subprime mortgage world.

What Is a Subprime Mortgage?

What constitutes a prime and subprime credit score can vary among lenders and organizations. A FICO® Score of 670 to 739 is considered prime, Experian says. The range of 660 to 719 is cited by the federal Consumer Financial Protection Bureau. In any case, borrowers in those ranges qualify for the lowest rates.

A subprime mortgage is a housing loan intended for borrowers who have a credit score lower than 670, in Experian’s view, and negative items on their credit reports. Experian regards subprime borrowers as those with a score of 580 to 669, or fair credit.

Borrowers with lower credit scores represent a greater risk to the lender; they are statistically more likely to have trouble paying on time. So subprime mortgages often come with higher interest rates and larger down payments to help protect the lender from the increased risk of default.

Subprime borrowers accept these terms because they cannot qualify for a conventional mortgage — one from a private lender like a bank, credit union, or mortgage company — with lower costs.

Subprime mortgages are different from government-backed loans for borrowers with low credit scores (such as FHA loans).

How Subprime Mortgages Work

The main difference between a mortgage loan offered to a prime borrower vs. a subprime borrower is cost. Borrowers go through the same rigorous underwriting process with a lender and must submit documentation to verify income, employment, and assets.

But in the end, a prime borrower is offered the best rates, while a subprime borrower with so-called bad credit has to put more money down, pay more in fees, and pay a much higher interest rate over the life of the loan. Subprime mortgages also are often adjustable-rate mortgages, which means the payment can go up based on market indices.

Subprime Mortgages and the 2008 Housing Market Crash

Subprime mortgages became popular in the 2000s as more high-risk mortgages were made available to subprime borrowers. In 2005, subprime mortgages accounted for 20% of all new mortgage loans.

It became possible for a lender to originate more of these high-risk mortgages because of a new financial product called private-label mortgage-backed securities, sold to investors to fund the mortgages. The investments masked the risk of the subprime mortgages within.

Home prices soared as more borrowers sought out the various subprime mortgages being offered. Rising home prices also protected the investors of mortgage-backed securities from losses.

When the housing market had passed its peak and borrowers had no viable option for selling or refinancing their homes, properties began to fall into default. In an attempt to reduce their risk exposure, lenders originated fewer loans and increased requirements for even good borrowers. This depressed the market further.

Financial institutions that had taken strong positions in mortgage-backed securities were also in trouble. Many of the largest banking institutions in the world filed for bankruptcy, and the world learned once again what stock market crashes are.

In response to the financial crisis, the Federal Reserve implemented low mortgage rates in an attempt to jumpstart the economy.

Subprime Mortgage Regulations

In the wake of the financial crisis, Congress passed the Dodd-Frank Act to reduce excessive risk-taking in the mortgage industry. It established rules for what qualified mortgages are, which gave lenders a set of rules to follow to ensure that borrowers had the ability to repay the loans they were applying for.

It also provided regulation of qualified mortgages, including:

•   Limiting mortgages to 30-year terms

•   Limiting the amount of debt a borrower can take on to 43%

•   Barring interest-only payments

•   Barring negative amortization

•   Barring balloon payments

•   Putting a cap on fees and points a borrower can be charged for a loan

Subprime mortgages are not qualified mortgages. Borrowers who seek non-qualified mortgage loans may include self-employed people who want a more flexible financial verification process, people who have high debt, and people who want an interest-only loan.

Types of Subprime Mortgages

The most common types of subprime mortgages are adjustable-rate mortgages (ARMs), extended-term mortgages, and interest-only mortgages.

•   ARMs. Adjustable-rate mortgages have an interest rate that will change over the life of the loan. They often come with a low introductory rate, which then changes to a rate tied to market indices.

•   Extended-term mortgages. A subprime mortgage may have a term of 40 or 50 years instead of the typical 30-year term. Add to this the higher interest rate, and borrowers pay much more for the mortgage over the life of the loan.

•   Interest-only mortgages. Interest-only loans offer borrowers the ability to only repay the interest part of the loan for the first part of the repayment period. Borrowers have the option of not repaying any principal for five to 10 years. The annual percentage rate is typically a half a point higher than for conventional loans. Origination fees may be higher as well.

The “dignity mortgage,” a new kind of subprime loan, could help borrowers who expect to redeem their creditworthiness. The borrower makes a down payment of about 10% and agrees to pay a higher rate of interest for a number of years, typically five. After that period of on-time payments, the amount paid toward interest goes toward reducing the mortgage balance, and the rate is lowered to the prime rate.

Subprime vs Prime Mortgages

Subprime mortgages have many of the same features as prime mortgages, but there are some key differences.

Subprime Mortgage Prime Mortgage
Higher interest rate Lower interest rate
Borrowers have fair credit, with scores generally between 580 and 669 Borrowers have good credit, with scores generally from 670 to 739
Larger down payment requirements Smaller down payment requirements
Smaller loan amounts Larger loan amounts
Higher fees Lower fees
Longer repayment periods Shorter repayment periods
Often an adjustable interest rate Fixed or adjustable rates

Because the lending institution is taking on more risk to lend to a subprime borrower, larger down payments are required, and they usually charge a higher interest rate.

Applying for Subprime Mortgages

Most conventional lenders require a minimum credit score of 620, but there are lenders out there that specialize in subprime mortgages.

Generally, applying for a subprime mortgage is much the same as applying for a traditional mortgage. Lenders will check your credit and analyze your finances. They will ask for proof of income, verification of employment, and documentation of assets (such as bank statements). They may also ask for documentation regarding your debts or negative items in your credit reports.

Mortgage rates for subprime loans will vary depending on the prime rate, lending institution, the home’s location, the loan amount, the down payment, credit score, the interest rate type, the loan term, and loan type. The rate is typically much higher than a prime mortgage’s.

A mortgage calculator can help you find out what your monthly payments will be with a subprime mortgage. Simply adjust your mortgage rate to the one quoted by a lender for your credit situation.

Alternatives to Subprime Mortgages

Subprime loans are not the only option for borrowers with fair credit scores. Borrowers with credit issues can also look at mortgages backed by the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).

FHA loans have more flexible standards for borrowers than conventional loans. Though borrowers can obtain a mortgage with a credit score as low as 500 (assuming they have a 10% down payment), FHA loans are not considered subprime mortgages. Instead, FHA loans are government-backed loans that provide mortgage insurance to FHA-approved lenders to use if the borrower defaults on the loan.

For many borrowers with good credit and a moderate down payment, FHA loans are more expensive and don’t make sense. However, for borrowers with lower credit scores and smaller down payments, an FHA loan could be the best option.

VA loans have no minimum credit requirement, but instead, lenders review the entire loan profile. The VA advises lenders to consider credit satisfactory if 12 months of payments have been made after the last derogatory credit item (in cases not involving bankruptcy).

The Takeaway

Subprime mortgages allow borrowers with impaired credit to unlock the door to a home, yet with unfavorable terms as a lender mitigates risk.

Borrowers who improve their credit and get on more substantial financial footing can look into refinancing the home loan with a conventional lender like SoFi. SoFi also offers home loans at competitive fixed rates and with flexible terms.

SoFi’s help center for mortgages is a great resource for all things financing. When you’re ready, take a deeper look at what SoFi offers.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

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Source: sofi.com

Now That We’ve Got 5% Mortgage Rates, Is the Seller’s Market Finally Over?

We’ve got 5% mortgage rates and record high home prices. Does this mean the seller’s market is finally over?

You would think so, given the massive increase in monthly housing payments since last year.

And the fact that the 30-year fixed now averages 5%, well above the sub-3% range seen six months ago.

Surely it’s time for home buyers to receive some concessions (literally and figuratively) in this overheated housing market?

Well, despite all that, it appears the housing market is still chugging along just fine, though some new trends are emerging.

It’s Never Been More Expensive to Buy a Home as Payments Increase 35% From Last Year

2022 mortgage payments

A new blog post from Redfin revealed that the median home sale price increased 17% year-over-year to a record high of $389,178 during the four-week period ending April 10th, 2022.

At the same time, the median asking price of newly-listed properties jumped 14% year-over-year to $397,747.

This is despite the fact that current 30-year fixed-rate mortgage rates are averaging 5%, up from 3.04% during the same period in 2021.

The typical home buyer’s monthly payment is now up 35% from a year ago to an all-time high of $2,288.

You’d think home sellers would need to take this into account and stop being so greedy, but so far it’s mostly business as usual.

In fact, 58% of homes under contract received an accepted offer within the first two weeks on the market, an all-time high (and up from 55% a year ago).

Additionally, 44% of homes under contract had an accepted offer within just one week, a new record and also above the 41% rate last year.

The homes that sold during this period were on the market for a median 18 days, also down from 26 days a year earlier.

Finally, 54% of homes sold above their list price, up from 42% a year ago, and just short of the all-time high set in July 2021.

What gives? How is this housing market continuing to defy expectations? Shouldn’t demand drop as prices reach record highs?

Here Come the Price Drops?

2022 price drops

Despite all the new records noted above, there are some slivers of hope for home buyers in the report.

This biggest is that price drops appear to be accelerating, which is unusual during the meat of the traditional spring home buying season.

Granted, it may have gotten off to an early start this year, but there are signs of slowing home price growth.

Redfin noted that on average, 3.2% of homes for sale each week had a price drop, with 13% dropping their list price in the past four weeks.

That number is up from 10% a month ago and 9% a year ago. Not massive by any means, but still moving in the right direction if you’re a prospective home buyer.

Additionally, the share of listings with price drops is increasing at the fastest rate during this time of year since at least 2015.

Typically, the share of listings with price drops moves slightly lower month-to-month as home sellers see the most foot traffic during spring.

But the surge in buyer interest may have occurred earlier in 2022, which means demand could be beginning to wane at the exact time mortgage rates hit their highest levels in over a decade.

While this sounds like a perfect recipe to end of the seller’s market, there’s just one little problem. Inventory.

There Still Isn’t Enough Inventory to Tip the Supply/Demand Imbalance

2022 active listings

Sure, we’re finally seeing an increase in price drops at an unusual time (during the peak spring home buying season).

These price decreases typically happen in fall and winter when there are fewer buyers circulating.

But we’ve got to keep things in perspective. How big are these price drops? And what was the original list price before the drop?

Ultimately, there’s still a massive supply/demand imbalance, with new listings down 7% from a year earlier, their 21st straight annual decline.

And active listings (the number of homes listed for sale at any point during the period) were off 23% year-over-year.

This might explain why the average sale-to-list price ratio hit a new all-time high of 102.4%.

Put another way, the average home sold for 2.4% above its asking price during this time period, up from 100.4% in 2021.

So despite the affordability crunch many home buyers are probably experiencing, sellers aren’t under immense pressure to lower prices, at least not significantly.

This lack of inventory is also buffering the housing market from crashing, especially with existing homeowners now locked-in by their 2-3% fixed mortgage rates.

As mortgage rates rise, they have less and less incentive to sell.

Further exacerbating all this is the mad rush by renters to get a 5% fixed mortgage rate before they increase to 6%, assuming they do.

However, there are early signs that home price appreciation is slowing. This means it’ll be harder for sellers to keep increasing prices at the rate seen in recent months.

But it doesn’t mean home prices are going to fall, at least not yet.

Source: thetruthaboutmortgage.com

Moving to San Jose: What All Renters Need to Know

San Jose is the largest city in northern California and is home to 1.013 million people.

Located in Santa Clara County and about 50 miles southeast of San Francisco, this city once was the capital of California. While Sacramento is now the state capital, San Jose is famous for being the capital of Silicon Valley.

Silicon Valley is known as the global innovation and tech headquarters, with tech giants like Facebook, Apple and Google calling the San Jose area home. It’s also full of start-ups hoping to become the next tech unicorn.

In addition to the tech scene, people love San Jose for its amazing climate, incredible hiking trails, ample job opportunities and a wide variety of neighborhoods. If you’re moving to San Jose, here’s everything you need to know to make your transition as easy as possible.

We’ll talk about the all good, the bad and the expensive things associated with living in the bay area.

San Jose

San Jose

What should I know before moving to San Jose?

Before moving to any city, it’s smart to research things like crime rates, rental costs, housing costs and median income. These things will help you understand if you can afford the average rent and make a life for yourself in San Jose.

We’ll dig into all the details about life in San Jose below, but here are some quick San Jose facts for you to consider upfront:

These are just some of the things to consider before moving to other major cities. Whether you’re moving to San Francisco, Santa Cruz or any other city in the surrounding bay area, it’s important to do your due diligence before signing a lease.

San Jose

San Jose

Is San Jose a good place to live?

Most people rave about life in San Jose, so if you’re thinking about moving here, chances are you’ll love it. San Jose is a large city but it has a good blend of buildings and rolling hills so you get the downtown vibe plus the beauty of nature. Compared to other cities, it doesn’t feel as crowded as Downtown New York, for example.

San Jose residents are typically young professionals, with 37 percent of the population in the 20-44 age range. It’s a city that values education, with 25 percent of people holding an associate’s or bachelor’s degree.

People flock to San Jose for high-paying jobs and the booming tech market. People will either love or loathe the competitive nature and hustle culture, so keep that in mind when considering a move to San Jose proper.

In general, San Jose is a great place to live. You’ve got mild weather, a diverse culture, close proximity to the San Francisco bay area and a variety of San Jose neighborhoods to pick a home or apartment to settle down.

If you’re still skeptical about moving to San Jose, keep reading and we’ll let the facts about San Jose speak for themselves.

Popular neighborhoods in San Jose

San Jose is a big city with lots of different areas to choose where to live. We’ve highlighted some of San Jose’s best neighborhoods and added a few fun facts about each of them. This should help you decide which San Jose neighborhood is best for you.

Blossom Valley

Blossom Valley

Blossom Valley

Source: Rent.com/One Pearl Place

Blossom Valley is a neighborhood located in the south part of the city, northeast of Almaden Valley and northwest of Santa Teresa. This neighborhood houses approximately 78,000 people, so it’s quite large. Residents of Blossom Valley pride themselves on their connectedness and community involvement. Residents host several community events and you’ll likely become friends with your neighbors. The Westfield Oakridge Mall is in this neighborhood, so you’ll have close access to shopping, specialty stores and restaurants. Apartments in Blossom Valley average $2,859 for a one-bedroom place.

Willow Glen

Willow Glen

Willow Glen

Source: Rent.com/Cedar Glen Apartments

The Willow Glen neighborhood is “San Jose’s Local Treasure.” Residents love the tree-lined streets and historic charm of Lincoln Avenue. This neighborhood is full of shops, boutiques, coffee shops, bakeries and restaurants. Residents can enjoy the year-round Farmer’s Market and other festivals that are often put on. You can find an apartment in Willow Glen and can expect to pay an average of $2,495 for a one-bedroom apartment.

North San Jose

North San Jose

North San Jose

North San Jose is one of the more expensive areas with a one-bedroom apartment renting for $2,967 a month, on average. This area has three districts — Alviso, Berryessa and Rincon – Golden Temple. North San Jose, or NSJ, is a great area and is famous for the San Jose Flea Market. You can find some hidden treasures at the antique shop and then enjoy some delicious food from some of the ethnic restaurants located here. You’ll also be near several parks, including the Guadalupe River, where you can trail walk and enjoy nature.

Morgan Hill

Morgan Hill

Morgan Hill

Morgan Hill is another area located in Santa Clara County at the southern tip of Silicon Valley. Frequently ranked as one of the safest cities in California, this neighborhood is sure to please residents who choose to live here. If you’re looking for a place to live that’s vibrant and full of outdoor activity, this is a great neighborhood to consider. You’ve got biking, golfing, swimming and boating almost year-round. Rent for a one-bedroom apartment in Morgan Hill averages $3,044, making it a more expensive place to live.

South San Jose

South San Jose

South San Jose

The neighborhood of South San Jose is home to many professionals and tech companies. If you’re looking for a place that’s close to work and affordable, consider this area of San Jose. You’ll have a shorter commute and can save money on transportation costs. After work, enjoy a variety of parks and walking trails in the neighborhood. You can also check out the Santa Teresa district, located in South San Jose. Renters pay approximately $2,255 for a one-bedroom in this part of the city.

Central San Jose

Central San Jose

Central San Jose

This neighborhood is the heart of Silicon Valley and the financial district. It houses a variety of people from young professionals to retirees. You can expect to pay about $2,688 for an apartment in Central San Jose. Residents in this San Jose neighborhood can enjoy the Municipal Rose Garden, where you can see over 3,500 roses and 189 varieties at any given time. The Rose Garden is a great tourist attraction, but it’s also great for residents who can meander through the flowers, for free, and literally stop to smell the roses.

Downtown San Jose

Downtown San Jose

What it’s like living in Downtown San Jose

If you want to live in the heart of the city, consider living in San Jose Downtown area. Here, residents will see historic buildings and apartments that date back to the 1870s. You’ll have plenty to do, as well. From delicious restaurants and bars to artsy theaters and museums, downtown San Jose seems to have it all.

Because it’s the city center, it’s usually more crowded and residents experience more traffic. Be prepared for a longer commute to work if you live here.

Residents like living in Downtown San Jose because they have easy access to almost all types of entertainment. And, you can easily get to parks or walking trails, too. Renters pay about $2,454 living here, which is actually less expensive than some other neighborhoods in San Jose.

West San Jose

West San Jose

Life in West San Jose

West San Jose is another part of the city that is highly desirable. It’s a highly populated residential area, but it also has lots of shopping. You’ve got the Westfield Valley Fair mall full of your typical chain stores, plus, Santana Row. Santana Row is a stretch of boutique shops and artisan restaurants. It’s pricier to shop on Santana Row, but you’ll come away with lots of unique goodies.

What salary do you need to live in San Jose?

As you’ve probably heard, San Jose is an expensive city. From the high cost of housing to the high costs of utilities and groceries, you need to earn a certain amount of money to afford San Jose’s cost of living.

Let’s do a little math to help you understand what salary you need to live in San Jose. Conventional wisdom states that only 30 percent of your income should go to rent. The average rent for a one-bedroom apartment in San Jose is $2,704 a month or $32,448 per year, which is 30 percent of $108,106. That means you’d need to have a salary of at least $108,106 to afford the average cost of a one-bedroom apartment. The median income in San Jose is right around $117,000, for additional context.

When considering San Jose’s costs, you’ll want to budget for the basics — rent, utilities, groceries, insurance and entertainment. While everyone’s budget is different, you do need to have an above-average salary to afford a comfortable life in Silicon Valley.

Gorgeous oak in San Jose

Gorgeous oak in San Jose

The pros of living in San Jose

A pros and cons list is one of the best ways to see all the facts about a city on paper. We’ve covered the top pros and illustrated all the benefits of life in San Jose.

Great weather

Most California cities have great weather but the San Jose climate is next level. It’s often called a Mediterranean climate as you’ll experience both wet and dry seasons. Overall, the temperature is mild and ranges between 40 and 80 degrees but it rarely gets too hot or too cold.

March is the rainiest and most humid month. June through August are the driest months. July is usually the warmest month with the longest days, so if you’re looking to enjoy some warm weather to get outside, your best bet is July. December sees the least amount of sunshine and the average temperature is around 43 degrees.

Overall, San Jose residents enjoy a mild climate year-round. If you’re looking for a place where the temperatures are not extreme, San Jose is the city for you.

Hot job market

San Jose city boasts of high-paying jobs above the national average and a low unemployment rate. With hundreds of start-ups and tech giants headquartered in Silicon Valley, you’re in good shape if you’re looking for a job in San Jose.

Santa Clara County saw a 5 percent increase in growth in the second half of 2021, despite Covid-19 surges. Workers enjoy being employed by companies like Airbnb, Slack, LinkedIn, Square and Dropbox, according to a report by Business Insider.

Young professionals are particularly eager to live and work in San Jose as it’s a great place with a hot job market.

Beautiful scenery

San Jose is a unique place because it has a perfect blend of downtown life and beautiful scenery. Full of rolling hills, parks, walking trails and other outdoor activities, residents can live in a suburban neighborhood, visit the city center and get their fix of city life and then enjoy nature and the surrounding scenery of San Jose. You can also get to the beach in under an hour and enjoy the ocean views in Santa Cruz.

Home prices are high in San Jose

Home prices are high in San Jose

The cons of living in San Jose

For every pro, there’s a con or downside to living in San Jose. The three cons we’ve highlighted are expensive housing prices, limited social scene and heavy traffic. Let us tell you why these are pain points for residents of San Jose.

Expensive housing prices

Housing is incredibly expensive, both for renters and homeowners alike. In fact, it’s 34 percent more expensive compared to the national average. Here’s a snapshot of rental prices for a few different apartment types:

  • The average cost of a studio apartment is $2,485
  • The cost of a one-bedroom apartment is $2,704
  • The average cost of a two-bedroom apartment is $3,444
  • The average cost of a three-bedroom apartment is $4,099

Only one percent of rentals cost less than $1,000 per month. Most places, 86 percent to be exact, will run you more than $2,000 per month.

Limited social scene

San Jose is not known for its nightlife. While you’ll find several restaurants, coffee shops and bars in the Downtown area, you’ll be disappointed in the social scene if you compare to places like Los Angeles or New York City.

It’s a big city in terms of size and population, but it doesn’t have a wild social scene for party-goers. However, you’ll be able to save money on social outings as it has limited offerings.

Heavy traffic

As with any big city these days, traffic is always a problem, especially during rush hour. The average commute time is anywhere from 15 to 30 minutes. While traffic is a pain point, it’s a fairly walkable city with a walk score of 62 and a bike score of 69. That means that you can get around fairly easily without a car. However, most locals still have a car and suggest keeping it when living in San Jose to make getting around easier.

San Jose does have public transportation. The VTA, or Valley Transit Authority, is the main public transportation system with busses, shuttles and light rails available for residents. With frequent routes and low fares, you can rely on public transportation to get around San Jose, especially when traffic is too heavy to drive.

Things to do in and near San Jose

When living in San Jose, you’ll have a plethora of things to do. Here are some of our favorite activities for both residents and tourists alike.

Stanford University

Stanford University

Visit Stanford University

Standford is one of the most famous universities and it’s well worth a day trip to visit the campus. Check out the different buildings, enjoy a snack on the quad and people watch as the students go to-and-from their research.

See a San Jose sharks game

San Jose residents love their hockey. When living or visiting San Jose, you must catch a San Jose Shark’s ice hockey game. You’ll enjoy the fierce competition and also get to check out the massive SAP center. Everyone loves an afternoon of sports, especially when cheering on the local team.

Go to the Rosicrucian Egyptian Museum

Are you fascinated by ancient Egypt and the secrets of the pyramids? You can explore the Rosicrucian Egyptian Museum in San Jose and see over 4,000 ancient Egyptian artifacts that are on display here.

Visit the Tech Interactive

San Jose is the tech hub of the U.S. so it’s only fitting that there’s a family-friendly tech and science center to get kids interested in STEM. Catch an IMAX movie and get hands-on tech experiences at this creative center focused on tech.

Hike in San Jose

Hike in San Jose

Take a hike or visit a park

Hiking is a must-do activity in San Jose. Some of the crowd favorite hikes are Los Gatos Creek Trail and Bridge, Calera County Park and Sierra Vista Open Space Preserve. Whether you’re a beginner or advanced hiker, San Jose offers something for you. The point is to get outside and explore!

If hiking isn’t your thing, you can spend the day exploring parks like Brigadoon Park or Hellyer County Park. These are full of green, grassy areas, walking trails and they even have a skate park.

Taste wine in Napa Valley

Less than two hours from San Jose, you can enjoy a day (or weekend) away in Napa Valley. Wine country is full of sprawling vineyards and amazing scenery. Visit one of the wineries located here and enjoy some of the finest wine in the U.S.

Santa Cruz beaches

If you want to enjoy a day at the beach, you can take a quick 45-minute drive to the ocean. Play in the water, soak in the sun and enjoy the feel of sand on your toes. This is the closest beach to San Jose.

Day trip to downtown Los Gatos

Another great day trip is visiting Downtown Los Gatos. You can eat, shop and explore the old town. Sometimes, it’s fun to tour your own state and visit other nearby cities for the day.

You may also consider a drive to visit the San Francisco bay area as it’s about an hour away. The bay area is always fun and you can bike across the Golden Gate Bridge or ride a trolley up and down the steep streets of the city.

San Jose street food

San Jose street food

Places to eat in San Jose

San Jose’s food scene is not lacking in taste. San Jose restaurants are diverse and delicious. You can have anything from Japanese food to French to American food. Some local favorites include District, Mosaic Restaurant, The Farmers Union and Elyse. Check them all out when you move to San Jose.

Schools in and near San Jose

San Jose is a great place for education. You’ve got great school systems from elementary aged-kids all the way up to advanced education. Here are some of the most notable San Jose schools and what they’re famous for.

  • San Jose State University — San Jose State is known for its business, management and marketing programs.
  • Santa Clara University — This is one of the most excellent schools for business programs.
  • Stanford University — Stanford is a famous research school known for its top programs in computer and information sciences and engineering.

San Jose

San Jose

San Jose compared to San Francisco

As you’re thinking about moving to the bay area, you’re probably wondering about San Jose versus San Francisco. Both are in the northern part of California and both are great cities to call home.

San Francisco is more expensive compared to San Jose with rent in San Francisco averaging $3,430 for a one-bedroom apartment. While rent is expensive in both cities, it’s more expensive in San Francisco.

Both cities boast of a great job market with lots of jobs for tech enthusiasts. Like San Jose, San Francisco has a diverse culture, great scenery and beautiful weather. San Francisco has a more diverse nightlife and cultural scene, so if you’re looking for a wide variety of things to do after work, San Francisco is a better option. San Jose is a better choice if you’re looking for a large city with ample opportunity but don’t mind a quieter social scene.

The good news is that both cities are within close proximity to each other. From the San Francisco international airport, you are in San Jose in under 40 minutes. You can have the best of both worlds by moving to San Jose and day-tripping to San Francisco.

How to move to San Jose

So, you’ve decided you’re moving to San Jose. You’ve researched which San Jose neighborhoods you like, you’ve checked your budget and can make ends meet and you’re ready to find an apartment. Now, it’s time to plan your move to San Jose itself. Check out the Rent.com moving center as it’s a great go-to resource for all things moving.

We think you’ll truly enjoy life in the Santa Clara Valley as you settle into your new home in San Jose. After all, it’s one of the top-rated places to live in the US and a global hub for tech and innovation. Whatever part of the city limits you settle down in, you’re sure to love it. Enjoy moving to San Jose!

The rent information included in this article is based on a median calculation of multifamily property inventory from Rent.com. The information does not constitute a pricing guarantee or financial advice related to the rental market.
Additional data came from the U.S. Census Bureau, coli.org and Redfin.com.

Source: rent.com

Are We Near the Peak of the Current Housing Cycle?

They say real estate is cyclical, much like the stock market and the wider economy.

It ebbs and flows, goes up and down, experiences booms and busts, can make us feel rich one day and poor the next.

It doesn’t follow a straight line up or down over time – instead, it can be rather erratic, thanks to, well, us.

We speculate, we get emotional, we create all sorts of creative financing to keep the party going, even if it doesn’t fundamentally “make sense.”

And it seems now the state of the housing market is being seriously questioned. So, are we finally peaking?

Housing Bubble Chatter Seems Positively Correlated with Higher Mortgage Rates

While I continue to argue that home prices and mortgage rates can be negatively correlated, it seems housing bubble fears and higher interest rates share a positive correlation.

In other words, with mortgage rates surging, housing bubble anxiety is also beginning to surface just about everywhere.

It’s not just a quiet side conversation anymore. Instead, you’re seeing it in the headlines daily, and even the Dallas Fed is weighing in.

The researchers and economists at the Federal Reserve Bank of Dallas released a new blog post titled, “Real-Time Market Monitoring Finds Signs of Brewing U.S. Housing Bubble.”

In it, they argue that housing “is in the primary expansionary phase of a bubble when price rises are out of step with market fundamentals.”

But they stop short of calling it a “bubble,” noting that there are valid reasons why home prices have surged since bottoming in 2012 and accelerated even more since 2020.

Some of those drivers include changes in disposable income, low mortgage rates, supply chain disruptions, and the rising cost of labor and raw construction materials.

The worry is that a “widespread belief that today’s robust price increases will continue,” driven by FOMO, will create explosively higher prices and an eventual bust.

That’s all pretty straightforward, but the question remains; when will this happen? Or is it already happening?

Keep an Eye Out for Exuberance

housing exuberance

The Dallas Fed bloggers refer to exuberance as “expectations-driven explosive appreciation,” which deviates from market fundamentals.

Put another way, home prices no longer rise for real reasons, but instead are climbing simply because we expect them to.

Throw in accommodative financing to foster this unhealthy environment and you’ve got a real problem on your hands, as we did back in 2006.

At that time, banks and mortgage lenders threw out all underwriting standards because they assumed property values would keep increasing.

So even if you gave someone a no money down mortgage, they’d accrue equity in short order via home price appreciation.

This made the underlying loans seemingly less risky, because the homeowner was expected to quickly gain skin in the game.

Of course, once home prices turned, these borrowers rapidly fell into underwater positions at startling rates.

And then we experienced the worst housing crisis in modern history.

Speaking of 2006, the chart above compares that time to now in terms of “real house price exuberance.”

“A test outcome above a 95 percent threshold signifies 95 percent confidence of abnormal explosive behavior, or housing market fever.”

So based on that chart, we are experiencing housing market fever! The good news is we only caught the fever recently!

If you look at the early 2000s, we had the fever for quite some time before things went badly.

It started just after the turn of the century, and lasted until around 2006-2007 before prices began to dive.

How Much Time Does the Hot Housing Market Have Left?

price to income ratio

The Dallas Fed’s exuberance meter has been flashing red for more than five consecutive quarters through the third quarter 2021.

And I think we all know it’s continued to do so thus far in 2022.

The one bright spot in their research was the price-to-income ratio, which is the ratio of house prices to disposable income.

If you look at affordability back in 2005-2006, price-to-incomes were off the charts. As of the third quarter of 2021, it was still below the 95 percent confidence upper bound.

Of course, that was then, and this is now. The average 30-year fixed mortgage rate has risen from around 3% to nearly 5%.

Clearly that will take a bite out of affordability, and would likely move that indicator into exuberant territory as well.

However, they do note that household balance sheets appear to be in a lot better shape than those in the early 2000s.

Simply put, Americans aren’t holding adjustable-rate mortgages en masse or taking out loans at 100% LTV. There also isn’t a supply glut of housing inventory as there was then.

And they add that “excessive borrowing doesn’t appear to be fueling the housing market boom.”

For me, that’s the biggie – if and when that does occur, that’s when I’d run, not walk.

But whether that happens remains to be seen, which tells me we are still pondering a bubble, not yet in one.

Read more: What will cause the next housing crash?

Source: thetruthaboutmortgage.com

Are the Housing Bears Being Too Rational?

Now that 30-year fixed mortgage rates are flirting with 5%, there’s been quite the uptick in housing bubble chatter.

The basic reasoning is because interest rates are higher, the balloon that is inflated home prices must certainly pop.

On the surface, it’s a seemingly logical argument. The financing cost has gone up substantially, so the price should come down.

But the cost of just about everything has gone up, and we’re still buying it, whether it’s bread, toothpaste, toilet paper, gas, you name it. Because we want and need it, similar to shelter!

Here I attempt to argue why the rates up, prices down theory might not be correct. And why we could be rushing the eventual downturn.

Do Higher Mortgage Rates Really Lower Home Prices?

I’ve already written an entire article on the supposed negative correlation between mortgage rates and home prices.

But to revisit, the simple argument is that if one goes down the other goes up. And vice versa.

For example, if interest rates go up (the cost of financing a home purchase), property values must go down to compensate.

In essence, nothing changes, the net price stays the same? You get a lower mortgage rate but a higher home price.

A higher mortgage rate but a lower home price? The cost of housing just stays constant no matter what?

Once you start to look beyond this apparent obvious correlation, it seems to make a lot less sense, at least to me.

My car didn’t go down in price because gas prices went up. Both rose in tandem! Now it’s more expensive to buy a vehicle and to operate the thing! What gives?

Well, because I want and need a car, as does everyone else. And there’s a limited supply. So prices go up, even if it costs more to own one.

Similarly, mortgage rates and home prices can rise or fall at the same exact time. There’s no special balance that must be adhered to in the universe.

Home Price Gains Can Moderate Due to Higher Mortgage Rates

I think folks often jumble falling home prices with moderating home price gains.

In other words, higher interest rates can be a headwind to home price appreciation, especially if it’s been super strong.

For example, over the past few years we’ve seen double-digit gains in home prices annually.

Now that we’ve enjoyed those massive gains AND mortgage rates are a lot higher, subsequent gains may be tougher to come by.

This is similar to higher mortgage rates going even higher – hopefully the recent big gains will make it more difficult for them to break even higher.

But that’s not even necessarily true…

Anyway, the new mortgage rate reality doesn’t mean home prices just plummet. But it could make it harder for property values to rise another 20% in 2022.

Of course, Zillow recently said it expects annual home value growth to continue accelerating through the spring, peaking at a whopping 22% in May.

Then to gradually slow down to a still remarkable 17.8% by February 2023.

Meanwhile, housing market experts and economists polled by Zillow between February 16th and March 2nd predicted home values to rise 9% (on average) in 2022.

Of course, most of those responses were made before mortgage rates jumped, and the much higher mortgage rates could dampen those estimates.

Either way, the 9% gain would be less than half the 19% home price appreciation seen in 2021, which means decelerating home prices, not falling home prices.

It also means the next housing market crash may not take place until 2024 or beyond.

Are Home Prices as High as Everyone Thinks?

home price chart

That same Zillow survey shows where home prices are, per the Zillow Home Value Index (ZHVI) and where housing experts expect them to be.

More notably to me, is the pre-bubble trend of home prices, which shows where they’d be without the bubble and bust in the early 2000s.

Interestingly, home prices today are only a few years ahead of this expected trend. And it wasn’t until recently that they even began to deviate from that course.

If you look back to around 2006, home prices got way ahead of themselves. Today, they’re only a few years ahead of themselves.

Still, even the most pessimistic quartile of respondents expects them to move higher from current levels, albeit not by much.

The basic explanation is that home prices underperformed for several years post-housing crisis, namely between 2008-2013, then eventually took off.

They’ve since made up for lost time, but when viewed through a wider lens, maybe aren’t as crazy high as everyone thinks.

And the lock-in effect of higher mortgage rates (for existing homeowners) makes the supply/demand imbalance even worse, which again supports even higher prices.

Don’t We Still Need a Few Years of Creative Financing Before Things Go Kaput?

The last thing I’ll mention is creative financing, which is typically what leads to bubbles in the first place.

The housing crisis in the early 2000s was caused by truly appalling mortgages, namely option ARMs with a 1% payment feature.

Today’s home loans are pretty much all 30-year fixed mortgages. Oh, and some 15-year fixed mortgages.

They’re also fully underwritten via the verification of income, assets, employment, and credit history.

The mortgages of yesteryear were mostly stated everything. AKA I’ll tell you what I do, what I make, how much money I have, etc. But don’t actually verify it. And we paid for that, big time.

Logic tells me banks and mortgage lenders are going to have to get creative now that volume has dried up seemingly overnight.

This means introducing and/or pitching more risky loan products such as adjustable-rate mortgages, interest-only mortgages, and so on.

As I noted the other day, the 5/1 ARM is now pricing about 1% below the prevailing rate on a comparable 30-year fixed.

Home buyers may choose to go with such loans to keep costs down. And while the 5/1 ARM is by no means a toxic option ARM, it does carry more risk than a 30-year fixed.

If lenders go even more risky, well, those products combined with even higher home prices could lead to the inevitable end we’ve all been worried about.

Still, that could take a couple of years to play out, at least…so while the housing bears will eventually be right, it might not be this year or even next.

Read more: What will cause the next housing market crash?

Source: thetruthaboutmortgage.com