A combination of factors has led to the worst housing affordability in decades. During the pandemic, there was a surge in real estate prices as many moved out of urban locations to the suburbs due to the rise of remote and hybrid work arrangements. 

This increase in demand also coincided with a tight supply-demand dynamic as new home construction has lagged population growth ever since the Great Recession and subprime mortgage crisis. Another factor supporting demand is that Millennials are entering their peak consumption years in their 30s and 40s. 

Additionally, after more than a decade of low rates, current monetary policy is at its most restrictive in decades. Thus, mortgage rates are now hovering above 7%, while they were at 3% for most of 2020. 

According to Andy Walden, the VP of enterprise research for ICE Mortgage Technology, household incomes will have to increase by 55%, home prices decline by 35% with mortgage rates back to 3%, for affordability to revert back to historical norms, or some combination of these factors. 

Of course, such dramatic developments are unlikely. Walden believes that inventories are a key leading indicator for home prices. In recent months, there has been a modest bump in listings, but nothing significant enough to affect affordability. 

Finsum: A combination of factors has led to housing becoming unaffordable for many prospective buyers, creating a major challenge for the real estate market.

JPMorgan shared its outlook for fixed income in Q4. Its two base case scenarios, each with 50% probability, are below-trend growth and a recession. The bank also cut the odds of a crisis to zero due to inflation pressures moderating. 

They believe the economy is on a soft-landing trajectory but warn that there are many similarities between a ‘soft landing’ and the early stages of a recession, meaning that investors should remain vigilant despite recent constructive developments. 

The major risk to the outlook is inflation re-igniting which could result in more hikes and extend the duration of hawkish monetary policy. The next few months may be a challenge due to the headwinds from a slowing economy and high rates. Therefore, JPMorgan recommends short-duration, securitized credit to take advantage of generous yields while minimizing duration and default risk.    

From a longer-term perspective, they see an opportunity to buy the dip in fixed income as both recessions and sub-trend growth environments are bullish for the asset class. There is uncertainty with regards to timing given that the Fed is in a ‘wait and see’ mode. Yet, history is clear that bonds will catch a strong bid once it’s evident that the Fed is done hiking. 

Finsum: JPMorgan shared its Q4 fixed income outlook. Its two base-case scenarios are a recession and a period of below-trend growth. 

The fixed income complex saw further losses following the September jobs report which showed that the US economy added nearly twice as many jobs than consensus expectations. Additionally, July and August payrolls were revised higher by a cumulative 119,000. In concert, this data refutes the notion that the jobs market is losing momentum.

The heaviest losses were felt in longer duration bonds, while shorter duration notes had mild weakness. This is a continuation of the major trend of the last couple of months which has seen the yield curve flatten due to a breakout in longer-term yields to the highest levels in 16 years. The major impetus for this move is the market reducing the odds of a recession and rate cuts in 2024 given that the economy has performed better than expected, while inflation has seemingly plateaued at high levels. 

The bullish case for fixed income rests on the economy or inflation rolling over. In terms of the economy, there certainly is evidence of decelaration but nothing to indicate sufficient contraction that would cause the Fed to pivot. Regarding inflation, there are some positives with moderation in wage growth and rents, however this has been offset by rising energy prices and concerns that the autoworkers strike will lead to an increase in used and new vehicle prices. 

Finsum: Fixed income was down following the September jobs report which was surprisingly positive further reducing the odds of a recession in the first half of 2024.

Many advisors aspire to work with high net worth clients. However, this is certainly a competitive market since these clients will have more assets and require more sophisticated strategies and advice. Additionally, high net worth clients will be more demanding in terms of time and the type of services provided. And, it will be more difficult to retain these clients as other advisors may look to poach them.

Yet, there are some methods that you can apply to increase your chances of success. The first step is to have a specialized niche such as estate planning or tax management or even focusing on a particular profession such as doctors or lawyers. Offering specific and specialized services and advice is likely to appeal to high net worth clients and increase your chances of referrals.

Once you’ve picked a niche, the next step is to refine your message and brand. In part, this is about figuring out your unique value proposition relative to other advisors. This includes how you do business, and how you communicate with clients. Often, high net worth clients value regular communication, appreciate being offered a variety of options, and want to gain a deeper understanding of the reasoning behind advice offered.

Finsum: Many advisors aspire to work with high net worth clients. Here are some tips to increase your chances of success.

A lot of conventional wisdom regarding investing and wealth management has been questioned over the past couple of years. The best example is the traditional 60/40 portfolio. In the last couple of decades, this mix has been sufficient for returns and diversification. 

However, this is clearly not the case in the current environment of high inflation and rates, as both delivered poor returns in 2022. In recent months, long-duration bonds have added to their losses, while equity performance has been mixed. The idea that a portfolio of just bonds and equities can deliver proper diversification is no longer valid. 

Given that we have ostensibly entered a new era, advisors and investors have to be willing to rethink their assumptions and challenge conventional wisdom. One potential solution is the use of model portfolios. 

Model portfolios can be used to add exposure to more asset classes which are truly non-correlated. These include commodities, foreign currencies, real estate, quant strategies, alternative investments, private credit, etc. 

Allocations to these areas can lead to a truly diversified portfolio that can sustain performance in all types of environments with the appropriate level of risk. Additionally, advisors can offer more personalized products for their clients that are suitable for a wide variety of goals and needs.    

Finsum: For decades, 60/40 has worked in terms of diversification and returns. This may no longer be the case if we are in a period of entrenched inflation and higher rates.