I started working with a client a couple years ago whose incoming portfolio was 20% Starbucks. That’s a lat(te) in one stock. I’ll see myself out.
For comparison, Starbucks comprises 0.20% of the S&P 500. The S&P 500 should only be a portion of an individual’s stock holdings, which are only a portion of an overall portfolio (with bonds, alternatives, real estate, whatever). 20% is way too much Starbucks.
When I started explaining this thought process, the client protested. “Jesse – there’s a Starbucks on every corner in America. Why would we sell it?”
This logic is very understandable. After all, there is a Starbucks on every corner in America. The premise is true. But this client’s conclusion—“Therefore, why sell Starbucks?!”—doesn’t follow his premise.
That’s the logical misstep we’ll dive into today. A “good company” doesn’t always make a “good investment.”
Lessons from History
My hometown pride, Kodak, was once one of the most visible companies in the world.
It would have been easy to sit there in 1985 and think,
“Kodak is everywhere. They own the global film market the same way GE owns consumer electronics and Sears owns department stores. Why would I ever diversify out of Kodak?”
A seemingly logical investor
Well…
That’s a share price going from ~$90 per share to zero in about 17 years. The stock market and economic history are littered with “good companies” going broke. It’s called “creative destruction” and is an essential part of a healthy economy.
But it’s terrible if you happen to own those specific stocks.
It’s Not About Popularity or Frequency
Investor Peter Lynch is known for many quips, perhaps none more famous than:
“Invest in what you know. Know what you own and know why you own it.”
Unfortunately, many investors interpret that quote as:
“Invest in what you’ve heard of, and own it because you’ve heard of it.”
…and what they’ve heard of, naturally, are popular consumer brands and companies with a “high frequency” in society e.g. those with many stores, many products, long histories, etc.
But what Lynch actually meant in his quote is: “The more familiar you are with a company, and the better you understand its business and competitive environment, the better your chances of finding a good ‘story’ that will actually come true.”
You can’t just “know” Starbucks because you enjoy its coffee or because you see it on every corner. You must “know” its business fundamentals, competitors, potential future paths, etc. The market does not care about popularity or frequency alone. It only cares about popularity and frequency insofar as those factors positively or negatively affect the objective fundamentals of the business.
Past vs. Future
Riffing off the previous stanza, concepts like “popularity” and “frequency” are both hallmarks of a company’s past. The stores you see, the brand’s standing in our culture, and the company’s heretofore investment returns are all a function of what the company has done in the past.
But the stock market is forward-looking. The thousands of investors who buy and sell stocks and determine their daily prices don’t care about the past. They are, quite literally, trying to predict a company’s future. They are pricing in that anticipated future into today’s fair value.
Quite understandably, most investors don’t do this. They either shape their opinions based on the past (popularity, frequency, past investment returns, etc.) or they react to current-day news. These are both mistakes.
The intelligent investor thinks about the future. But any statement akin to, “Company ABC will be great in the future,” is a challenging statement to make accurately.
Wonderful Company? Fair Price?
Nothing against Peter Lynch, but most of you know I’m a fan of Uncle Warren, who is famous for saying:
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Even if Starbucks is one of Buffett’s “wonderful companies,” is it trading at a “fair price”? Most people – including many investment professionals – are terrible at determining what a “fair price” truly is. Price is a defining feature of any investment!
I frequently use the “Honda Civic” example to explain this idea.
Is a Honda Civic a fair car? Sure. A good to great car? Quite possibly! Would you be happy owning a new Honda Civic? Many of you would say, “Sure, why not?”
But would you pay $100,000 for that new Honda Civic? No way.
It’s not enough to say, “Starbucks is a good company. Perhaps a great company.” That’s challenging enough on its own. But we must go further and ask ourselves if Starbucks is trading for a “fair price.” And quite simply, most of us are terrible at determining what “fair price” truly means – at least when it comes to stocks.
Needles
I’m biased, but I’m a big fan of this article I wrote in May 2023. I won’t rehash it too much here, but I encourage you to read it right now.
Most stocks perform worse than simple Treasury bonds
Only ~4% of stocks (or 1 in 25) account for all historical stock market outperformance over bonds
Anytime your odds are 1 in 25, you should think hard about your actions.
Sizing and Allocation
Play along with me. Let’s assume, for the sake of argument, the client was correct. Because Starbucks is everywhere, it must be a good stock to own, and it’s trading at a good price.
If that’s true, does it necessitate Starbucks should comprise 20% of our portfolio? Put another way: are there only ~5 good companies in America?
Any way you cut the biscotti, a 20% position is severely overweight. In financial planning, we want to reduce our range of potential outcomes. That’s why we diversify. Having 20% of your money tied to one single stock leads to a wide range of potential outcomes.
Closing the Cafe
For what it’s worth, the client did listen to our counsel and has been divesting out of Starbucks (as tax efficiently as possible). This past week’s ~17% drop in Starbucks’ stock price hurts, but not as much as it would have two years ago.
I’m sure there are more reasons not to own a few single stocks, not to own Starbucks specifically, and not to have too many eggs in any basket. What do you think? If I’ve missed some low-hanging fruit (salad) in terms of my reasoning, please leave me a Comment below!
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-Jesse
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After formally endorsing plans for an ambitious new Bay Area City in Solano County this week, Vacaville’s vice mayor is in the hot seat after it was revealed that he had earlier sought to associate his home loan business with the developer’s campaign for the project known as California Forever.
Through his real estate license, Vice Mayor Greg Ritchie and owner of Citizens Financial Home Loans filed two fictitious business names or “Doing Business As” titles as “California Forever Home Loans” and “California Forever Homes,” in January, according to The Mercury News.
Ritchie has faced some backlash over his support of the project on social media. Members of the California ForNever Facebook group advised in a post that Vacaville residents should reach out to their City Council representatives to voice concerns over Ritchie’s affiliation with the project.
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In an attempt to address the filings, Ritchie’s informational website, California Forever Home Loans, now redirects inquiries to a personal message from the vice mayor acknowledging the filings by saying he was “energized … by the forward thinking proposal by California Forever to supply $400M in downpayment assistance specifically for Solano and Travis families as part of their East Solano Plan. It is an unprecedented benefit for working families across Solano County.”
The original content on the website was removed because Ritchie said it caused confusion since “the project is still a few years from building homes.”
“I want to make one thing crystal clear — neither my company nor myself have any economic relationship or interest in California Forever,” Ritchie goes on to say in his online message. “I have also not received any donations or political contributions for my endorsement. My endorsement was given purely based on my professional and personal belief that this is a good project that will help thousands of Solano families reach the dream of homeownership.”
Ritchie could not be reached for comment by The Times.
On Tuesday, the Bay Area tech leaders behind the California Forever campaign held a news conference to announce that they had turned over more than 20,000 voter signatures to the Solano County registrar in support of putting the issue before local voters. If the county validates at least 13,062 of those signatures, the measure would go before voters in November, seeking to amend zoning codes to allow the residential project to be built on agricultural land.
Backers tout the project as an innovative way to create more affordable housing in close proximity to the Bay Area. The designs calls for transforming 18,000 acres now dedicated to ranching and wind farms into a community of 50,000 residents that would grow, over time, to as many as 400,000. The project promises 15,000 higher-paying jobs in manufacturing and technology, as well as parks, bike lanes and a solar farm.
“Solano voters have made their first decision, and they have made it loud and clear,” said Jan Sramek, a former Goldman Sachs trader who is chief executive of California Forever. “People from all walks of life, all parts of the county are all saying the same thing. They are saying, ‘Yes, we want to have a say in the future of this place that we love.’”
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Along with Sramek, backers of the project include LinkedIn co-founder Reid Hoffman, venture capitalist Marc Andreessen, and Patrick and John Collison, who founded the payment-processing company Stripe.
Even if the measure is certified for the November ballot and voters approve it, the project faces a number of challenges and regulatory hurdles. Chief among those are additional approvals, including from the federal government, and the specter of lawsuits from environmental groups that have signaled they intend to take the nascent effort to court.
Americans are in limbo about where the housing market could go next, but they are resolute about the conditions for buying right now.
Nearly 80% of Americans think it’s a bad time to buy a house, according to the Fannie Mae Home Purchase Sentiment Index (HPSI), a survey gauging homebuying and selling confidence. The index stayed flat in April compared to the previous month as consumers adjust to elevated mortgage rates that show little promise of easing. The average rate on a 30-year loan stood at 7.22% last week. Consumer confidence is still up 8% year over year.
In addition, fewer Americans believe mortgage rates will decline over the next 12 months, sidelining buyers awaiting affordability improvement.
“Housing sentiment increased from November through February, driven largely by consumer belief that mortgage rates would move lower,” said Doug Duncan, Fannie Mae senior vice president and chief economist. “However, recent data showing stickier-than-expected inflation, rising mortgage rates, and continued home price appreciation appear to have given consumers pause regarding the market’s direction.”
A closer look at mortgage rates
Waning expectations of a rate drop are becoming a common trend.
In the latest survey, only about 1 in 4 Americans believed rates would drop over the next 12 months, a decline from nearly 1 in 3 a month prior. In comparison, at the beginning of the year, almost 40% of survey respondents said they expected rates to fall.
“[Strong economic and job market data] will keep mortgage rates at elevated levels for the near future, sidelining some prospective buyers from entering the housing market,” said Edward Seiler, Mortgage Bankers Association’s (MBA) associate vice president.
With rates hovering around 7% for a 30-year loan over the last few months, monthly mortgage costs have risen. The national median payment rose past $2,200 in March from $2,184 in February, according to the MBA. Payments could become even more expensive going forward as average 30-year loan rates surpassed 7% over the last three weeks, with no signs of falling.
Read more: Mortgage rates top 7% — is this a good time to buy a house?
Home sellers remain optimistic
Contrasting homebuyers’ woes, an increasing number of Americans think now is a good time to sell. The share of survey respondents confident in selling reached nearly 70% in April, up from 60% at the beginning of the year and 62% in the same month last year.
Home sellers’ growing optimism could be attributed to the continual growth in home prices nationwide. The latest national housing price index gained 6.4% in February, according to the S&P CoreLogic Case-Shiller US National Home Price.
“As interest rates go up, people’s purchasing power goes down, and thus, so should home prices. But that hasn’t happened in this latest correction cycle,” Jon Grauman, founder of Grauman Rosenfeld, a real estate firm in Los Angeles, told Yahoo Finance.
Consumers are braced for high prices — more than 40% of Fannie Mae’s survey participants expect home prices to increase over the next 12 months, compared to 37% earlier this year.
“We think consumers’ generally improved sense of home-selling conditions bodes well for listings and housing activity, particularly for the segment of the population who may need to move for lifestyle reasons and have already begun adjusting their financial expectations to the current mortgage rate and price environment,” Duncan said.
Correction: A previous version of this article listed the incorrect firm name for Grauman Rosenfeld. We regret the error.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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“I would say that anything is theoretically possible. We learned that lesson when the pandemic started, but I’d say this is an election year and the odds of the Fed actually hiking rates at this point, and this year, are probably highly unlikely,” she said. Expectations of a summer rate cut rapidly faded amid a … [Read more…]
U. SAUCON TWP., Pa. – Phillies, Eagles, Flyers and 76ers fans will soon have a new spot to stock up on jerseys, hats and other gear in Lehigh County.
Rally House, a specialty sports store chain offering an expansive selection of apparel, gifts, home decor and other types of merchandise representing local NCAA, NFL, NBA, MLB, NHL and MLS teams, is planning to open a new retail location this summer at Promenade Saucon Valley in Upper Saucon Township, according to a news release.
The new 5,903-square-foot Rally House will be located between Barnes & Noble and J.Crew Factory.
“We are excited to welcome Rally House to our fast-growing retail lineup,” said Jaclyn Palmeri, vice president of leasing for the shopping center. “And we know our Steelers, Eagles, Penguins, Pirates, Phillies and other fans will appreciate the ease with which they can now support their favorite teams.”
Rally House has one of the largest selections of officially licensed team gear and local gifts, with its product assortment including fan favorites like jerseys, headwear, drinkware, home decor, collectibles and more.
The popular retailer also provides customers with a way to show their local support with an array of exclusive products celebrating beloved area destinations and landmarks featured on items like apparel, drinkware and hats.
In March, Rally House opened its 15th store in the Philadelphia region and its first location in the Quakertown area at 244 N. West End Blvd. in Richland Township.
The new store fills the space previously occupied by Tuesday Morning, a home goods retailer, in the Trainer’s Corner shopping center.
Rally House traces its origins to 1989, when Tim and Mabel “Peg” Liebert started “Mabel’s Kitchen,” a catalog featuring Kansas-related apparel, gifts and other merchandise.
Mabel’s Kitchen evolved into another business, “Kansas Sampler,” which featured five Kansas City area stores selling Kansas Jayhawks, Kansas State Wildcats, Kansas City Chiefs and Kansas City Royals gear.
The company experienced great success, and the Lieberts eventually decided to expand the business to other markets under the “Rally House” name in 2008, according to a company description.
Today, the Kansas-based Rally House has more than 200 locations across 19 states.
In addition to the new Quakertown area store and the forthcoming Upper Saucon store, there are more than a dozen other regional locations, including a Lehigh Valley shop in Lower Macungie Township, two other Bucks County stores and several locations in Montgomery County.
Rally House stays true to its roots by providing “an impeccable selection of local and team-related apparel and gifts, including exclusive designs available only at Rally House,” according to the company’s website.
Regional stores offer a wide array of merchandise, including clothing, blankets, glassware and signs, featuring logos and designs of local NCAA, NFL, MLB, NBA, NHL, and MLS teams in addition to locally inspired apparel, gifts and food.
Customers can browse apparel such as T-shirts, sweatshirts, coats and shorts, along with footwear and fashion accessories such as slippers, hats, scarves and jewelry.
A wide variety of other gifts and home decor include items such as coasters, stickers, magnets, wall plaques, license plate frames, plush toys, socks and baby items.
No two Rally House stores are identical.
“They each carry merchandise customized and tailored to the specific collegiate and professional teams in that area,” a message on the company’s website reads.
Joining a growing retail lineup
Promenade Saucon Valley, which debuted in 2006 with more than 70 tenants, last month announced a “brand refresh” that included changing its name from its original moniker, “The Promenade Shops at Saucon Valley.”
The new name drops the word ‘Shops’ from its moniker to reflect the center’s expanding tenant mix and evolving focus on becoming an increasingly popular community hub and gathering place, according to a news release.
The brand refresh also comes with a new color palette as well as a series of upgrades that include new soft seating in Town Square and at The Patio and breezeway; an upgrade to the gazebo; a freshly painted star at the pop jet fountain; shades over the outdoor amphitheater seating; and new property-wide signage upgrades coming in the fall.
The tenant lineup at Promenade Saucon Valley continues to grow, with its most recent addition, J.Crew Factory, opening on April 11.
Other tenants joining the shopping center’s roster in 2024 include Fulton Bank, offering a broad array of financial products and services in Pennsylvania, New Jersey, Maryland, Delaware and Virginia; and Slime Time II, a family-friendly entertainment venue allowing children of all ages to make their own slime.
These businesses join a string of other new Promenade Saucon Valley tenants, including 2023 additions such as Club Champion, a custom golf club fitting company; Turning Point, a breakfast and lunch restaurant; FD Market, a sustainable-goods and refillery store; Batch Microcreamery, offering super premium, hand-crafted ice cream; Handmade Mystic, offering healing crystals, hand-crafted jewelry and unique gifts; and Love Obsessed, offering women’s clothing, jewelry, accessories and unique gifts.
Additionally, The Great Greek Mediterranean Grill – dishing out gyros, souvlaki, spanakopita and other Greek specialties – is preparing to open its first Pennsylvania location this summer in a 2,550-square-foot space between Lashes by Gab and Komé Fine Japanese Cuisine; Five Guys Burgers & Fries, a family-owned and operated franchise restaurant group known for its hand-crafted hamburgers made from never-frozen beef and fresh-cut, boardwalk-style fries cooked in 100% peanut oil, is expected to open in the fall in a 2,407-square-foot space between European Wax Center and uBreakiFix.
The center has also been incubating entrepreneurial new retailers through two creative programs both introduced in 2023: the Promenade Pop-Up Shop and Candy Cane Lane.
During the 2023 holiday season, Promenade Saucon Valley debuted Candy Cane Lane, a series of outdoor candy cane-themed sheds where local entrepreneurs can introduce the public to their brands for low-risk, short-term engagements ranging from a four-day weekend to the entire holiday season.
Local winery Tolino Vineyards took advantage of this opportunity over the 2023 holiday season and will move to a longer-term engagement inside the Promenade Pop-Up Shop next month.
Through the Promenade Pop-Up Shop, a dedicated 1,500-square-foot space that encourages local entrepreneurs and established online brands to try out the brick-and-mortar world with a short-term lease, the center offers tenants a second low-cost, low-risk way to test the waters in a physical location while simultaneously expanding their brand awareness.
The pop-up program also gives shoppers an ever-changing lineup of exclusive local retail brands and eclectic merchandise offered alongside their more traditional favorites.
The center’s very first pop-up tenant, Sweet Diehl Boutique, a women’s fashion boutique founded by a local entrepreneur, had such success that it significantly extended its stay at Promenade Saucon Valley. To learn more about the Promenade Pop-Up Shop or the holiday Candy Cane Lane program, click here.
It was an action-packed week for the housing and mortgage market. Wednesday’s Fed announcement was the highlight, but we also got several economic reports that caused rate volatility. Thankfully, it was mostly the good kind.
The week got off to a slightly stronger start with Monday’s only major rate news being updated borrowing estimates from the Treasury Department. Why would such a thing matter?
Treasuries largely dictate day to day interest rate momentum in the U.S. because they are abundant, simple, and as close to risk-free as it gets. As such, Treasuries are the universal yardstick for all other debt in the U.S., including MBS, the mortgage-backed securities that have the most direct impact on mortgage rates. This is why Treasury yields and mortgage rates correlate so well over time.
Treasuries can take cues from several sources. One of the biggest is the change in the outright level of supply. In other words, how much more debt is the U.S. government issuing in the upcoming quarter? If that number is higher than expected, it puts upward pressure on rates. Monday’s news from Treasury was fairly palatable and roughly in line with market expectations, which allowed rates to stay steady.
Things changed on Tuesday when the Employment Cost Index (ECI) data came out. This is one of several reports that the Fed has mentioned as being important to the rate outlook recently. Higher numbers mean higher rates, all other things being equal. This week’s installment showed Q1 costs at 1.2, up from 0.9 in Q4 and well above the market consensus of 1.0. Rates hit the highest levels of the week as a result, both in terms of Treasury yields and mortgage rates.
Things changed on Wednesday. The morning economic data did no harm, but didn’t necessarily deserve much credit for turning things around. Those honors went to the Fed Announcement in the afternoon–specifically: Fed Chair Powell’s press conference.
Markets already knew the Fed wouldn’t change rates at this meeting, so the focus was likely to be on Powell anyway. Expectations were more varied as to how he might address the recent inflation data, but we knew he’d have to be less convinced than last time when it comes to 2024 rate cut prospects.
Unsurprisingly, Powell acknowledged that what had looked like one month of noise earlier in the year was now an undeniable and unwelcome shift in progress toward lower inflation. Nonetheless, he expects progress to get back on track in the coming months and for the Fed’s next move to be a cut instead of a hike.
Markets also appreciated his clarification on political matters. Many analysts have suggested the Fed won’t be able to cut rates until December because it risks looking like a political move if it happens before November’s election. But Powell was clear in saying the Fed would take whatever monetary policy action it deemed appropriate whenever the data suggested it. In other words, if inflation were to begin falling in a more meaningful way in the next several months and if the economy began to falter, we would not have to wait several more months for the Fed to deliver some rate relief.
With that, momentum had shifted in favor of lower rates for the week. There was some follow-through on Thursday, but even better gains on Friday after the latest monthly jobs report came out weaker than expected. Job creation fell to its lowest level since October, and that’s in line with the lowest since covid lockdowns. It was also well below the forecast consensus (175k versus 243k).
Historically, 175k is a solid number, but everything’s relative. Rates typically fall when the job count undershoots the forecast by that much and Friday was no exception. 10yr Treasury yields and mortgage rates ended the week at the lowest levels since April 9th. Traders further lowered their outlook for the end-of-year Fed Funds Rate, once again pricing in at least one full cut this year.
On the housing data front, the week’s most notable releases were the two leading national price indices from FHFA and Case Shiller. Both were much higher than forecast for the month of February, showing annual growth of 7.0% and 7.3% respectively.
From here, the calendar is comparatively much more quiet until the biggest economic report of the month on April 15: the Consumer Price Index (CPI). This is the broad inflation index that has been at the scene of many crimes against the world of interest rates. Reactions have been big enough that it’s not uncommon to see rate momentum fizzle sideways as traders wait for the next inflationary shoe to drop.
I recently got the bug to refresh and update my dining room, whose furniture dates back to the 1990s. So, I asked Los Angeles designer Christopher Grubb to consult. That is, I would send him photos. He’d provide decorating direction. I’d do the legwork. This arrangement saved us both hours of indigestion.
Technically, it’s an alcove located directly off the entryway, but because it’s the first room you see when you come in the front door, I want it to shine. Grubb gave me a to-do list: add a pair of long mirrors, put black lampshades on the chandelier and wallpaper the back feature wall and the ceiling with a rich, medium-blue grasscloth to distinguish the dining area from the entry.
I requested six wallpaper samples, lived with them for a few days, chose one and hired my handyman to prepare the wall and ceiling, filling in the textured surfaces to make them smooth.
Orlando wallpaper installer Catie Skelton, who runs Element Wallcoverings with her brother Tim said, “Wallpaper used to be just for high-end homes. But now, thanks to social media and more brand competition, it’s accessible to the middle class. Plus, customers are realizing that wallpaper doesn’t have to have little flowers and strawberries. You can choose from thousands of bold patterns, textures and contemporary prints.”
Indeed. Even my daughter and her husband, on-trend millennials, recently hung wallpaper in the nursery they are preparing for their baby, due next month(!).
“We looked at a lot of inspiration photos,” my daughter said. “Almost all the nurseries had accent walls either painted a fun color or wallpapered.” They chose a peel-and-stick paper featuring soft illustrations of woodland creatures, which my son-in-law put up himself.
Though more expensive than paint and more work, when it’s done right, adding wallpaper to a room adds richness and interest that paint alone simply can’t. “Updating a room with a paint color is an easy change,” Grubb said, “but if you truly want to elevate a room, wallcovering is the way to go.”
The wallpaper went up this weekend. It’s a lovely improvement. So now that I am up with the times, I asked Grubb and the Skeltons to tell me more about the wallpaper comeback and what more homeowners should know:
Be unexpected. Wallpaper isn’t just for living rooms and powder baths. For one Los Angeles couple, Grubb covered the laundry room walls with a lively graphic paper. “It completely changed the feeling of this utility space.”
Float don’t line. Many homes have textured walls, which prevent wallpaper from being smooth, so Tim Skelton recommends “floating” the walls: skim coat them with drywall mud to fill in the recesses.
Don’t skimp on installation. If your paper has a tricky repeat that needs special alignment or your room has lots of angles, hire a pro to install it, Grubb said, and get more than one bid: “I’ve had clients try to save money by hiring someone inexperienced or by doing the job themselves, and they ran into alignment issues that got more attention than the beauty of the material.”
Consider the new vinyl. Today’s vinyl wallpaper often looks like grasscloth or silk, but is a lot less fragile, more durable and easy to clean with soap and water.
Enjoy the sound effects. Wallpaper will dampen outside noises a bit, but wallcoverings made of linen, silk, cotton or grasscloth are especially good at buffering sounds, so they’re good choices for home offices and bedrooms.
All eyes will once again turn to the Federal Reserve this week as they meet to discuss the next steps with interest rates and economic policy. Specifically, will they raise rates above their current 23-year high? Or will they keep them steady following a series of disappointing inflation reports at the start of 2024? After all, rate cuts that seemed promising at the beginning of the year now seem off the table, possibly for the rest of the year.
And while the Fed doesn’t directly dictate rates for loans like mortgages, personal loans and other borrowing products, what they ultimately decide will greatly affect what rate lenders are willing to offer. Homebuyers will then follow this week’s meeting carefully. After coping with the highest mortgage rates since 2000, buyers are looking for relief — or signs of rate relief to come.
To that point, many are wondering if mortgage rates will rise after this week’s Fed meeting. That’s what we will break down below.
See what mortgage rate you could lock in before a potential increase here now.
Will mortgage rates rise after this week’s Fed meeting?
While no one knows with certainty what will happen after the Fed meeting, set for April 30 and May 1, the chances of a rate cut are minimal. Thanks to sticky inflation and a target inflation rate goal of 2%, more work must be done (the current inflation rate is 3.5%). So rate cuts look out for this week. While a rate hike is possible, it’s also unlikely to happen until more data about the fight against inflation becomes available.
With those scenarios accounted for, then, it’s likely that the Fed will keep its benchmark interest rate unchanged at a range between 5.25% and 5.50%. But what will that mean for mortgage rates?
It won’t be particularly positive. While a rate pause is better than a rate hike, even a hint at an extended pause — or the potential for rate hikes in the months to come — could cause mortgage rates to rise in anticipation. So what Fed chairman Jerome Powell says this week will go a long way toward cooling rates — or making them rise further. However, if homebuyers were hoping for a rate cut, as some were predicting at the end of 2023, that’s not likely to happen, at least for now.
See what mortgage rate you could secure before the Fed announces its rate decision.
How to get a lower mortgage rate now
While the sub-3% mortgage rates of 2020 are unlikely to return anytime soon (or ever again), that doesn’t mean homebuyers still can’t get a lower mortgage rate now. It will just require a bit more work and strategic planning. Here are three ways buyers can get a lower mortgage rate now:
Buy mortgage points:Mortgage points can potentially help you secure a rate half a percentage point or lower than average. By paying points (or a fee) to a lender at closing (or by having it rolled into your overall mortgage loan), you can potentially save hundreds of dollars each month with a lower rate. That said, the amount of points you can typically buy will be limited and will vary from lender to lender.
Get an adjustable-rate mortgage: An adjustable-rate mortgage (ARM) works as it sounds. It’s a mortgage in which the rate will adjust over time, typically starting at a below-average rate before rising after a predetermined period has concluded. That said, it’s important to crunch the savings here before acting because when the rate does adjust, it could become costly for many buyers.
Shop around: While you’re unlikely to find one mortgage lender that offers a rate a full point lower than another, you can, potentially, find one that offers a slightly lower rate than others. And in today’s rate climate, every basis point counts. So shop around for lenders to find one offering the best rates and terms (and be sure to compare fees and closing costs, too, to ensure that the lower rate won’t be canceled out by fees paid elsewhere).
The bottom line
The strong potential for mortgage rates to rise again this week, even if the Fed keeps rates unchanged, could be a motivating factor for buyers to lock in a rate now. That said, there are still effective ways to get a below-average rate, ranging from buying mortgage points to adjustable-rate mortgages to simply shopping around for the best rates and terms. None of these strategies will bring back the record-low mortgage rates of recent years, but they are all worth carefully considering until the Fed finally starts cutting rates again.
Matt Richardson
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
As the sun shines brighter and the temperatures rise, it’s time to bring the vibrant spirit of summer indoors. From breezy beach vibes to lush tropical hues, infusing your home with summer-inspired decor can instantly lift your spirits and create a refreshing oasis. Incorporating these aesthetic decor ideas into your home can transform it into a cool and inviting retreat that celebrates the essence of the season. So, unleash your creativity and let your home reflect the sunny optimism of the season ahead. Here are five simple yet impactful ideas to transform your living space into a cool and inviting retreat this summer.
Bright and Breezy Fabrics
Swap out heavy curtains and drapes for lightweight, airy fabrics like linen or sheer curtains. Opt for cheerful colours such as aqua blue, sunny yellow, or crisp white to evoke a sense of freshness and openness. Not only do these fabrics allow natural light to filter through, but they also create a relaxed atmosphere reminiscent of lazy summer days.
Tropical Greenery
Bring the lushness of tropical foliage indoors by incorporating potted plants or leafy green accents into your décour. Choose low-maintenance varieties like palms, ferns, or snake plants to add a touch of greenery to any room. You can also display vibrant floral arrangements or hang botanical prints on the walls to infuse your space with the vibrant colours of summer.
Nautical Touches
Embrace coastal charm by integrating nautical elements into your home décour. Decorative accents such as striped throw pillows, rope-wrapped accessories, or weathered wooden accents can instantly evoke a seaside vibe. Incorporate ocean-inspired hues like navy blue, seafoam green, and sandy beige to create a serene coastal ambiance that’s perfect for summer.
Outdoor-Inspired Textures
Introduce natural textures and materials into your interior design to mimic the feel of the great outdoors. Wicker baskets, rattan furniture, and jute rugs add a touch of rustic warmth to any space while creating visual interest. These earthy elements not only complement summer-inspired décour but also bring a sense of casual elegance to your home.
Refreshing Citrus Accents
Add a pop of citrus-inspired colours like lemon yellow, lime green, or tangerine orange to brighten up your home for summer. Incorporate these vibrant hues through decorative accessories such as throw blankets, accent pillows, or ceramic vases. Citrus-scented candles or diffusers can also fill your home with the uplifting aroma of summer fruits, creating a sensory experience that delights the senses.
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There haven’t been many appealing options for borrowers in the last two years.
With inflation problematic, interest rates were elevated to help rein it in. And while that caused inflation to drop from a decades-high in June 2022, interest rates have been stuck at their highest level in 23 years. On Wednesday, the Federal Reserve elected to maintain that level, keeping the benchmark interest rate range unchanged between 5.25% and 5.50%. This has resulted in higher borrowing costs for everything from mortgages and auto loans to personal loans and credit cards.
One alternative that has remained cost-effective, however, has been home equity. By tapping into their equity via a home equity loan or home equity line of credit (HELOC), homeowners have gained access to large sums of money, often at much lower interest rates compared to the alternatives. But an even lower interest rate is always preferable, leading some to wonder if home equity loan rates will drop further this month. Below, we’ll break down what to expect now.
See what home equity loan rate you could secure online today.
Will home equity loan rates drop in May?
While the Federal Reserve kept interest rates unchanged this week, the implication that higher rates may be staying high for longer was clear. Even absent a formal increase in rates, rates on borrowing products like home equity loans and HELOCs may rise slightly if lenders believe that a rate hike is imminent.
So not only is it unlikely for home equity loan rates to fall in May — they may actually rise. That possibility could become more pronounced if the next inflation report, scheduled to be released on May 15, shows inflation rising yet again. If that happens, an interest rate hike becomes more likely — and rates on home equity products could rise.
Against this backdrop, then, homeowners may want to be proactive. Home equity loan rates are fixed (unlike HELOCs, which are variable). So by pursuing a home equity loan today, owners can lock in today’s low rate before it potentially rises further. And, if rates somehow drop in the months to come, owners could refinance their loan then. What they shouldn’t do, however, is rate for a better rate climate. Instead, get started now and lock in the lowest rate you can find.
Explore your home equity loan options here to learn more.
Why you should get a home equity loan now
A lower interest rate isn’t the only selling point for home equity loans now. Here are two other reasons why you may want to pursue this option today:
Access to large sums of money: The average amount of home equity is high right now, with owners potentially able to access $190,000 or more right now. Compared to the limits you can borrow with credit cards or personal loans, this substantial amount of money is an attractive feature for many, particularly when accessed at a lower rate than those alternatives.
Potential tax deductions: Using your home equity to make some summer home repairs, improvements or renovations? Then you may be eligible to deduct the interest you pay on the loan from your taxes next year. Just make sure you understand which projects qualify to secure this unique benefit.
The bottom line
Home equity loan rates are unlikely to fall in May and they could even rise as the month goes on. But because of that likelihood, and because of the low rate borrowers can secure now, it may be beneficial to act promptly. Combined with beneficial features like access to large sums of money and potential tax deductions for qualifying uses, a home equity loan can be your go-to credit option now. As with all financial products, however, be sure to weigh the pros and cons of this unique loan, as you could risk losing your home in the process if you can’t pay back what you borrow.
Matt Richardson
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.