Of the $844 million in production volume in Q1 2023, refis accounted for $70 million and purchases loans accounted for $774 million. Better.com’s funded loan volume in Q1 2023 declined from $7 billion during the same period in 2022.
“We decreased our funded loan volume by approximately 80% year-over-year from $58 billion in the year ended December 31, 2021 to $11.4 billion in the year ended December 31, 2022,” according to the filing.
Better’s financial performance began to deteriorate in the second half of 2021 and continued through the first quarter of 2023 as a result of numerous factors, including elevated mortgage rates, damage to its reputation from negative media coverage and continued investments in its business, the disclosure states.
“Decreased productivity resulting from the reorganization of its sales and operations teams in the third quarter of 2021 and subsequent reversion in 2022 to accommodate Better’s reduced workforce and reduced demand for home loans in an elevated interest rate environment,” the filing states.
As of June 8, Better.com had about 950 team members, a 91% drop from its peak of about 10,400 employees in Q4 2021.
In June, the digital mortgage lender decided to shift its real estate strategy, pivoting to a partner agent model where Better.com will partner with outside agents as referral partners.
As part of the shift from its operating model of in-house licensed professionals, Better.com laid off the agents in its real estate brokerage subsidiary Better Real Estate LLC.
About 90 employees worked in Better Plus business lines as of June 8, primarily as real estate and insurance agents. This is a decline from 1,800 team members in Better Plus business lines during the fourth quarter of 2021.
Filings show Better.com has three different warehouse lines of credit with a combined amount of $1 billion. Two warehouse lines of credit – $250 million each – expire on June 6 and the other $500 million line has a maturity date of July 10.
Gain on sale margin was 1.89% for the three months ending on March 31, 2023, compared to a gain on sale margin of 1.11% and 2.88% for the first quarters in 2022 and 2021, respectively.
Better.com expects gain on sale margins to remain “compressed on substantially lower funded loan volume relative to the levels of 2020 and Q1 2021,” the filing states.
The mortgage lender’s total market share of 0.3% in Q1 2023 decreased by about 67% from 0.9% in Q1 2022. Better.com ranks as the 59th largest mortgage lender in the country, per Inside Mortgage Finance.
The company announced to go public via a special purpose acquisition company (SPAC) in May 2021, and the blank-check firm Aurora has since extended the deadline to complete its merger three times.
A handful of nonbank mortgage lenders went public via a SPAC during the pandemic years, but a combination of rising redemption rates – which point to how many investors are exchanging their shares for their money back – and sharp interest rate increases made it an unfavorable environment for SPACs.
If Aurora is unable to complete the merger by the deadline of September 30, 2023, and is unable to complete another business combination by that date, Aurora will dissolve and redeem public shares.
The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Learn how checking your bills can prevent you from overspending, how to manage a raise and how to build wealth early.
This Week in Your Money: Sean Pyles and Liz Weston discuss how you can prevent overspending by double-checking all your bills and share how doing so saved Sean more than $100 on just a single bill. They also discuss some surprising ways bills can demonstrate that you’re getting shortchanged.
Today’s First Money Question: Smart Money co-host Sara Rathner helps Sean and Liz answer a listener’s question about how to prioritize spending and saving after a significant salary increase. The hosts dive into the 50/30/20 budget, how to combat the temptation of “lifestyle creep” that comes with entering a new income bracket, and methods for setting financial goals and establishing a path to meet them. They also look at how to prioritize debt repayment and retirement savings when you’re in your 40s or 50s and your budget may be more stretched.
Today’s Second Money Question: Personal finance Nerd Kim Palmer joins Sean and Liz to answer a question from a 16-year-old listener about how to get an early start on setting up a bright financial future. Kim discusses options for starting to save early, the time value of money and when it may be worth considering switching banks.
Check out this episode on your favorite podcast platform, including:
NerdWallet stories related to this episode:
Episode transcript
Liz Weston: Hey, Sean. When you were 16, what were you doing to build wealth?
Sean Pyles: I can confidently say that I was doing nothing at all to build wealth.
Liz Weston: Well, today we’ll give a 16-year-old listener some ideas for how they can start to build wealth early. You’ll also learn why you should double-check all your bills and how to prioritize your spending and saving when your income increases from a pay bump.
Sean Pyles: Welcome to NerdWallet’s Smart Money podcast. I’m Sean Pyles.
Liz Weston: And I’m Liz Weston.
Sean Pyles: This month, we’re bringing back some of our most popular money tips from the last couple years, so if they sound familiar, no, it’s not just you.
Liz Weston: Today, you’ll actually hear two terrific money questions from listeners. The first one is how to manage a change in your income, and the second is about how to build wealth while you’re young. But first, here’s a story we did about why you should always double-check your bills. And, yes, that means all of them.
Sean Pyles: And listener, if you changed any of your money habits around checking your bills after you heard the story the first time we ran it, then please let us know. We’d love to hear your story. Leave us a voicemail or text us on the Nerd hotline at 901-730-6373. That’s 901-730-NERD or email a voice memo to [email protected]
Liz Weston: OK, on with the show. For medical bills, restaurant tabs and even your insurance, it’s worth giving everything you’re expected to pay a little more scrutiny. Sean, this was inspired by a recent bill you received. You want to tell us about that?
Sean Pyles: I recently received a bill for $100 more than it should have been, and that inspired me to dig into what was going on and realize that I’m actually being charged for more things than I really should be. So let’s start with this bill. Basically, I have the same medical appointment every four months. It’s pretty standard. And every time I have it, it’s covered by my insurance even though I have a high-deductible health care plan.
For the latest appointment that I had, I received this bill that was for over $100, and I looked into it a little bit. I called the billing department, I called my insurance company. I had a lot of back and forth. It turns out that they coded the wrong appointment. The code that they used was one number off from what they typically use, and after talking with them for a long time, took over two hours to get this whole thing sorted out between all of the phone calls, they ended up reissuing the bill to my insurance company and it was covered. And if I hadn’t done that, if I had just accepted the bill and thought, “Oh, bummer, got to pay this bill,” I would’ve been out over 100 bucks that I really didn’t have to pay at all.
Liz Weston: Medical bills are notorious for being incorrect, for charging you things they shouldn’t have charged you.
Sean Pyles: It’s worth being pretty punctual about this as well. The moment I got the bill, I knew it was not right and so I called and I dug into it and it was resolved within a day, which is great, but it also can be a lot more of a lengthy process for those who aren’t as well-versed in how to do this. Anytime you get a bill for any sort of medical expense, it’s worth asking a couple questions, just making sure that the billing code is correct and that you are being charged what you’re supposed to be.
Liz Weston: And I’m a huge fan of automatic payments. I have almost everything on autopay, but the downside of that is you can let things slide. Cable bills, internet and satellite radio are really notorious for jacking up the price after they’ve given you some kind of teaser intro rates. That can wind up being hundreds of dollars that you don’t need to spend.
Sean Pyles: And somewhat similar to my experience with the medical bill, I also recently had a prescription that, because I’m on this high-deductible plan, was not covered by my insurance. So I talked with my medical office and they said, “Oh, just charge it through GoodRx. Here’s the price that I’m seeing.” I’ve talked about GoodRx before, but I’d never actually used it. So I finally signed up, and I was able to save half off what the pharmacy was originally asking me to pay.
Liz Weston: That’s something about those high-deductible plans. They really inspire you to look around for some savings.
Sean Pyles: But that’s where the health savings account comes in pretty handy. So I could have just expensed it, but again, I’m trying to have as much money in there as possible so I can invest it.
Liz Weston: One of the things you can do to make sure that you’re not overpaying is keep an eye on your transactions, whether you autopay or not, making sure that you review your transactions. I try to do it every month or so. And our app, the NerdWallet app, is a really good way to keep track of a bunch of different accounts at once and look at those transactions. Is that something you do or is that something you have to remind yourself to do?
Sean Pyles: So I am a big weirdo who pays off my credit card almost daily because I used to have credit card debt years ago and it’s something that has stuck with me, this almost hawkish approach to making sure I’m keeping my spending in check. So I look at it more than maybe I should or most people would even want to, but it helps me know that what I’m paying is what I should be paying.
I actually had another similar experience to this, touching on the whole aspect of making sure you’re getting billed correctly at restaurants and bars, where I was recently going through my credit card statement and I saw a charge for a bar that I went to. I only had one drink, but I was charged over $70. And I realized that my friend was trying to close out their tab. Everything they had been charging wound up on my credit card. So we had to sort it out. It was fine in the end, but it’s a reminder to double-check everything you’re being charged because that really stood out and if I hadn’t double-checked and looked at this closely, I would’ve been paying that.
Liz Weston: And that’s not something you want to do.
Sean Pyles: No. As much as I love my friends, I don’t want to shell out $70 for their tater tots and beer. Another thing that I’ve been thinking about, I recently discovered that Target and Best Buy in particular have excellent price matching policies. So if you’re looking for something and you see that it’s a little bit more at Target, but it’s easier to shop at Target because it’s in your neighborhood and you don’t want to rely on shipping or something like that, you can say, “Hey, here’s what I’m seeing at this other retailer. Can you price match me?” And they pretty much will.
Another area folks should look into if they don’t want to be overcharged is their car insurance. While a lot of people will just be tempted to sit with their same car insurance company year after year, one analysis found that folks could save an average of $560 by shopping around for car insurance.
Liz Weston: OK, that’s some serious cash. And I know we’ve talked about this before, but again, it’s something that’s really easy to leave on autopay or leave on automatic and not realize that you can save a ton of money with just a little bit of effort.
Sean Pyles: Absolutely, and the Nerds on the insurance team found that the ideal cadence for shopping for car insurance is once a year.
Liz Weston: OK. I think I can manage to do that.
Sean Pyles: Yeah, just set aside an hour, maybe even less, on a Sunday afternoon and just knock it out. Liz, I know you recently had an experience not getting the credit you deserved for credit card purchases and points. What happened there?
Liz Weston: Yeah, well, the big one has to do with a voucher for a trip we had to cancel in 2020, and it’s a fairly substantial voucher. It’s for $2,500.
Sean Pyles: Oh, wow.
Liz Weston: Yeah, I can’t find it on the airline site and customer service is so backed up. I actually got an email when I inquired about it. It’s like, “Why isn’t this voucher on my account?” They say they’ll get back to me in 10 weeks. Excuse me?
Sean Pyles: OK.
Liz Weston: That’s kind of a outlier, but I’ve noticed when you sign up for, say, money-back offers on your credit card, you can get $50 off if you spend $250. Half the time I have to go to the customer service line and say, “Hey, I didn’t get credit for this particular purchase.” So again, the credits are inducing you, those offers are inducing you to spend money. If you do it, make sure you follow up and make sure you got that money.
Sean Pyles: Yeah, make sure they’re following through on their word.
Liz Weston: Because they don’t always do so, and again, we all get busy and it’s easy to let it slide, but this can add up to real cash.
Sean Pyles: All right, well, I think that about covers it. Let’s get on to this episode’s money question.
Liz Weston: This episode’s money question comes from a listener’s voicemail. Here it is.
Speaker 3: Hi, guys. Thank you for doing the podcast. I really appreciate it. I have a question about prioritizing. So I’m in my late 20s and I am about to have an over $200,000 pretax income after basically never having a salary before. I’m starting at a big law firm. And I have about $100,000 in debt from grad school, some of which has, I think, a 6.8% interest rate. And I just have no idea whether to start by putting any of that excess income into a 401(k), into a Roth IRA or going against my student loans. What’s the smart order to go in here? Thank you. Bye.
Sean Pyles: To help us answer our listener’s question, we are joined on this episode by our occasional Smart Money co-host Sara Rathner. Hey, Sara, welcome back on.
Sara Rathner: Thank you. It’s fun to be on the other side of the proverbial microphone today.
Sean Pyles: Yeah. Well, we are going to grill you, so I hope you’re ready for it.
Sara Rathner: Oh, boy.
Sean Pyles: Our listener is about to experience a sudden and dramatic change in their personal finances, and I think that they should probably take some steps to set themselves up for success and make sure they’re managing their money properly going into this new phase of their life and their career. And where do you think they should start?
Sara Rathner: Well, one, acknowledge that this is a very nice problem to have. Congratulations to our listener for getting this job offer coming out of law school. That’s a big deal, so you should be proud of yourself. Whenever you experience even a somewhat major life change, like an income increase or decrease or new job or relocation for work or anything like that, it’s a great time to ask all of these questions. All the questions that this listener is asking are great. And you never really want to go into these situations just thinking that “I can just keep managing my money the way I did before,” because things are different. So it is good to take stock of what you’re doing currently, if it’s working for you, what more could you be doing with your new situation? And earning $200,000 a year, even if you have substantial grad school debt, it’s the kind of thing that can give you a really nice head start in life if you play your cards right. That’s what we are here for. We’re here to help you with it.
Sean Pyles: Right. Well, one thing I was thinking is that it would be helpful for them to take stock of their income and expenses, basically getting a grip on their new budget. One tool that we like to recommend is the 50/30/20 budget, where half of your income goes to cover needs. That’s rent. Thirty percent goes towards wants. That’s kind of fun things like travel. And 20% goes towards debt payments and savings. And with a pretty hefty income that our listener has, I think they should be able to use this pretty well.
Sara Rathner: Something that’s a big adjustment when you’re new to working is figuring out how much you cost. Because your life might have been very different when you were a student. Maybe you were being supported financially by family or you were working part time while in school, living with roommates.
Sean Pyles: Living off of ramen noodles.
Sara Rathner: Living the student life, and now you are out into the world potentially taking the rein of your finances on your own for the first time possibly. And so figuring out how much do blueberries cost. You know what I mean? It’s the little things you need to know. And that’s going to take some time, but it’s OK to take a couple of months and just sort of observe your spending and formulate a budget based on where your money is going and then also where you wish it would go if it’s not going where you want it to go.
Liz Weston: Well, and if somebody is jumping from being a broke law school student to having $200,000, it’s going to be really hard not to go nuts. Buy a new car, get a great apartment, buy clothes, do everything.
Sara Rathner: Yeah. Listen, I know you want the Tesla. OK? We can talk for a second. You don’t need the Tesla yet. This is not Tesla time.
Sean Pyles: And also there are plenty of other great cars besides Teslas. Let’s say that, too.
Sara Rathner: Yeah, if you aspire to Tesla, do it. They’re beautiful. But it is just important to recognize where you are, especially when you’re going into big law. The lifestyle creep temptation has got to be significantly higher than it is in other industries because it’s one of those industries where depending on what firm you work for, what city you live in, how you look matters.
It matters to clients, it matters to the partners, and how you look is, it’s how you dress, it’s what you drive, it’s how you arrive. You know what I mean? Do you golf on weekends? That’s a very expensive hobby. Do you ski? I don’t know. These are people who do things like this. And you are entering this world. And if this was not part of the world that you grew up in, it could be a real adjustment, too.
Sean Pyles: Well, yeah, that also brings me to the point that I think our listener should think about their financial goals and they can set them for one, three, five years down the road and then actually establish a path toward meeting them.
Sara Rathner: Yeah, that’s really big. The listener in their question asked about retirement savings and they asked about student loan debt. But there’s a lot of other things you have to plan for in life. You’re not just paying off your student loans and retiring. I would hope that you do other things and those other things are going to cost you money, like potentially buying a house or traveling, or maybe you want to help family out financially. Maybe you want to have children eventually. If you are working in a big law firm, child care is definitely going to be something to budget for because you work long hours. There’s a lot of life that happens in between grad school and retirement, so it’s important to list out what those things are for you and then begin putting some numbers behind them and begin making some monthly savings goals for those things.
Liz Weston: We should also make the obvious observation that you don’t net $200,000. And when you’re up in that stratosphere, you might be a little shocked at how much comes out in taxes. So figuring out what your after-tax income is going to be will really help with the 50/30/20 budget, but it will also help you right-size some of your expectations, so about how much you have to spend for an apartment, how much you have to spend for a car.
Sean Pyles: One tool that might be helpful is having a savings bucket strategy that I’m super fond of. And, Liz, actually, you turned me onto this.
Liz Weston: Oh, cool.
Sean Pyles: For me, I have half a dozen different savings accounts with different goals attached to them, and I have a certain percentage of my income go into them each paycheck, so that way I am saving toward different goals. One of them is just fun money, and that is my general bucket of cash that I have for things like travel and gifts for friends and restaurant night outs, things like that. So you can have fun with this, but I think it’s important to give every dollar a purpose.
Sara Rathner: Yeah, that’s super helpful. And when you name your goals, I think there’s studies that back up the fact that if you have a named goal, you save more, more quickly than if it’s just, “This is my savings account. It’s for saving.”
Sean Pyles: It can help gamify it because you’re seeing how much more you’re getting each paycheck.
Sara Rathner: Right. Yeah. And that way you can say like, “Hey, in five years I’m celebrating a milestone birthday and I want to take a big vacation and I’m going to budget five grand to do that.” OK, so you have to save $1,000 a year towards your vacation. Divide that by 12, set that money aside, make an automated transfer into your vacation account, and when you’re ready to book, you have the money. You don’t have to take on debt to take that trip.
Liz Weston: And you’re doing more than one thing at a time. People can get really focused on, “I’m going to pay off all my debt and then I’ll save for retirement.” No, you do it at the same time because you want to take advantage of the time value of money and multitasking is the way to go.
Sean Pyles: But there is also a balance between multitasking and prioritizing where you put your money, which is the question that our listener had. So Sara, what are your thoughts on how to prioritize different financial goals and ways to direct money?
Sara Rathner: All right. There are the big goals like retirement, buying a house, getting married, things like that. Retirement is big. Everybody has a different vision of what they want their retirement to look like, but there will be a point in your life where you can no longer work. So even if you want to work until you’re 80, your body might have other ideas and you’ll have to quit earlier because of medical issues. That’s unfortunately really common.
You do need to plan for an eventual time period where you’re not working anymore where you might have higher medical expenses, things like that. And so you’re young, you’re just out of grad school, you’re just getting started, and Liz mentioned the time value of money. Getting started early means that you can save less every month and end up with more money when you’re in your 60s or 70s than if you wait until you’re in your 40s or 50s to try to catch up.
That’s how compound interest works. The more time you give it, the better off you’re going to be, and the less aggressively you’ll have to save. And when you’re in your 40s or 50s, you might not have the money in your budget to save that aggressively for retirement because by then you might have kids in college and your vacation home and your fleet of Teslas or whatever, and you’re just not going to have as much money every month to put into your retirement account. And so start early when your life is a little simpler and just save, save, save.
Sean Pyles: But prioritization can also be a matter of personal preference, too. Maybe our listener really doesn’t like having that six-figure student loan debt hanging over them, so that might be something they want to prioritize just because psychologically that would benefit them.
Sara Rathner: Honestly, that’s what I did with my student loans. I thankfully did not have $100,000 in debt, but I did have debt. And every year before tax time, you get a letter in the mail that tells you how much interest you paid over the year. And I remember I was making my minimum monthly payments every month, and then I get this letter and it tells me how much I paid in interest, and that letter made me mad. I was like, “I just spent this money to literally just have debt.” And I was upset. I took a hard look at my budget and I was like, “How much more can I put toward this every month?” And I put an extra $40 a month toward the principal for a while, and when I got down to the last thousand dollars, I paid it all off.
Sean Pyles: Nice.
Liz Weston: Sweet.
Sara Rathner: If having that number hanging over your head annoys you or makes you angry, that’s a good thing. That’s power. You can put that anger to work. Even if you can put an extra $25 to $50 a month into the principal, it’s something. It will chip away that debt that much faster. If you get an annual bonus, for example, from your law firm — a lot of law firms do that — it could be that you set aside a certain percentage of your annual bonus and put it toward the principal of your loan just to chip away at that faster, so that’s another way that you can prioritize that debt.
Liz Weston: The interest rate they’re paying makes me think that they probably got federal student loans. It was probably graduate PLUS loans, and if that’s the case, they’re probably going to get pitched to refinance those loans into private loans just to lower the interest rate. And I’d be really hesitant about doing that just because federal loans have a ton of protections, as we know from the pandemic pausing the payments for so long. If you lose your job, if you have any kind of economic setback, you’ve got some flexibility there, whereas private student loans don’t have that as much.
Sean Pyles: Mm-hmm.
Liz Weston: If they do happen to be private student loans, then refinancing can be a great idea because it just lowers your interest rate and you’re not losing anything. But you do lose something very substantial if you’re trying to refinance federal student loans. And this is relatively high rate debt, and I doubt that they’re getting any kind of tax break on it. Usually we say, “Don’t worry about your student loans, let them ride, you’ve got more important things to do with your money.” But in this case, I endorse paying some of that down.
Sean Pyles: That brings me to another question from our listener, which is, what is the quote “smart order” to do things in?
Sara Rathner: That’s a million dollar question, isn’t it?
Sean Pyles: Yeah. I think the answer is that there maybe isn’t one specific, perfect smart order to do things in.
Liz Weston: Yeah, I think it’s very individual. With most people, you’ve got to prioritize retirement because most of us are going to get there, most of us are going to need the money, and it takes a long time. That’s an expensive goal. But if this debt is bothering you and you want to pay it off faster, that would be the next thing for me.
Sara Rathner: Obviously, if something’s a top priority and this listener mentioned retirement and debt, sounds like that’s on their mind. That could be a good place to start. Getting yourself set up so that you have your automated payments into your student loan so you know that money’s going out every month on time. Do you want to add to those payments and overpay your loan to some extent? Go ahead and do that. You also automate your retirement savings if it’s through your employer. That comes out of your paycheck automatically. When you start your job, there’ll be some paperwork to fill out, but get that going. Don’t delay. Get that money into your retirement account, select your investments and just let that money accumulate over time.
So once you automate all those things and you learn to live without that money in your bank account every month, that’s when you can really start thinking about, “OK, well this is what I have left. What do I want to do with it?” And that’s where that 50/30/20 budget comes in. And what you want to prioritize can change from year to year. You might prioritize living super cheaply so you can save up for travel, but then the next year you finish your trip and you’re like, “I hate my apartment. I don’t want to live with roommates anymore. Now I want to prioritize finding an apartment that’s just mine that maybe is a little bit nicer.” That’s going to cost you more money. Leave room in your plan for those changes because you’re at a point in your life where a lot’s going to change from year to year.
Sean Pyles: You kind of touched on getting things set up to begin with, and I think that’s something that is very smart to do first, if possible, because there’s a certain amount of administrative overhead involved in setting up your savings accounts. As you mentioned, getting your retirement savings and contributions and investments all organized. And that might take a good Sunday afternoon set aside to dive into, but then once that’s done, you pretty much have it going in the background and your money is going where you want it to.
Sara Rathner: Yeah, you revisit it every couple years, but for the most part, those things can run on autopilot for a while.
Sean Pyles: Right. All right, Sara, do you have any final thoughts for our listener?
Sara Rathner: Well, it’s just like we said, this is a huge change for you. You’re going from being a student to making a substantial annual salary, which is amazing, and this gives you options. Don’t sleep on how well you can set your life up with this income. This is a really great time to sit down and make a plan for yourself and really think about where you want your money to go, how hard you want it to work for you. You do work for clients as a lawyer, right? So think of it as if you are your money’s client, and it’s got to work for you or else you’re going to fire it. Well, you can’t fire it, but you know what I mean? We’re trying to make a metaphor here. Just go with it. But really the people I know who have made it to their mid-30s and later who are financially comfortable for where they are in life are people who didn’t ignore this stuff when they were in their 20s.
They’re the people that used that time to set a good foundation for themselves. The people who just kind of, well, winged it, they’re like, “I make money, I spend money, whatever, it’s all in my checking account. I don’t know,” they’re the ones who are hitting their mid-30s and they’re like, “Why can’t I afford a house? I don’t have a retirement account. Should I have a retirement account?” Yeah, yeah, you should. Because, yeah, we’re millennials. We’re not going to have any social safety net, right?
We do need to save for these things. That’s the advice I would give to you. As somebody who’s been out of school long enough and who has friends in the same boat to see all the different choose-your-own-adventure paths people have taken, I would say, “Use this time wisely.” You can still have fun. You can still do all the things you want to do, but you could do it because you know you’re also doing the things you have to do.
Liz Weston: That is an excellent point, Sara.
Sean Pyles: Well, thank you so much for talking with us.
Sara Rathner: Thanks for having me back, guys.
Sean Pyles: Before we get into the next money question, I wanted to mention that this is probably not the first time you’ve heard us suggest the 50/30/20 budget and it probably won’t be the last. The tool is a handy framework to get a grip on your spending so you can be more intentional about directing your income. If you haven’t already looked into it, then I hope you do now or maybe the next time we bring it up, and we definitely will. OK. Now let’s get on to the next money question.
This episode’s money question comes from Luca. Here it is. Hi, Wallet Nerds. I have used NerdWallet for quite some time and recently discovered your podcast, and I am a very big fan. I have a few questions I would like to ask of the show. I’m 16 and, as you can tell by me emailing you, a personal finance nerd. I want to know if there’s anything I can do now to help my financial future. I have a job, IRA, checking/savings account, and I am an authorized user on my parents’ credit card. Is there anything else I can do? Because I’m a personal finance nerd, I also like looking into various accounts. I am not very satisfied with my current bank and want to switch. Are there any cons to having multiple accounts? What about closing old accounts? I feel confident in my ability to manage them and keep track of my money. Thank you very much. Sincerely, Luca.
Liz Weston: I love Luca. Luca is our kind of nerd. Getting an early start with investing is always good, but getting started as a teenager, that is huge. Those extra years could more than double the amount that Luca can put aside for retirement. This is awesome. Anyway, to help us answer Luca’s question on this episode of the podcast, we’re joined by one of our own personal finance Nerds, Kim Palmer.
Sean Pyles: Welcome back to the podcast, Kim.
Kim Palmer: Thank you so much for having me.
Sean Pyles: Our listener, who is the youngest that we’ve ever heard from, is looking for some advice about how to jump-start their financial future. What do you think?
Kim Palmer: First, I think we have to acknowledge that they’re off to such a strong start because so many people aren’t even thinking about money yet. I think it’s really great that they’re already so far ahead. There’s one area actually that they didn’t mention and that is spending. I think it might make sense to take a deeper dive into how they’re currently spending money.
One thing I’ve noticed is that once you get in the habit of saving and of spending less than you’re earning, it’s easier to maintain. What a perfect time to start that habit when you’re a teenager. One tool we love at NerdWallet is the 50/30/20 budget, and that basically allots your take-home income into three different categories. You have 50% going toward needs, you have 30% going towards wants, and 20% going towards any debt payments and savings. Now, as a teenager, everything might not apply to you there. For example, you don’t probably have rent right now or a mortgage, but I still think it’s a useful tool just to start thinking about where your money is going.
Sean Pyles: I also think our listener should appreciate the really unique opportunity they have by starting building wealth so young. There’s the saying that youth is wasted on the young and for so many, so is their time horizon for saving for retirement and investing. But I think that Luca might be an exception to this, and as you nodded to, Kim, because they’re starting so young, they don’t have as many financial obligations. They probably don’t have student loans or a car payment or a rent, so they can maybe fudge the 50/30/20 to make it so that they can save a lot more right now.
Kim Palmer: I think that is a great idea. When it comes to investing, you do have to be 18 to actually go ahead and open up a brokerage account, but it can definitely be something that you do along with your parents and, as Liz mentioned, when you do start investing early, you have a head start. You have so much more time to grow your money.
One thing I like to do with my kids is go through a company like Stockpile and buy fractional shares of really big companies that you’re already familiar with. For example, with my kids, they can take $25 and buy Netflix or Disney and see how the stock fluctuates, and I think it can just be a way to get your head around what investing feels like, see if you like it.
Liz Weston: Yeah, because one of the problems with getting started with investing is that sometimes the buy-in is really high. Shares of companies that kids know and recognize might be $100 or more, and that’s not easy to get started with. Or if they’re looking at mutual funds, they can have an even higher minimum investment, so these fractional shares are a good way to get an early start.
Sean Pyles: But they will have to be 18 to open one of these accounts? How can they get around that? Is it that they’ll open one with their parents, and are there also any other limitations that Luca shouldn’t look out for because they are still under 18?
Kim Palmer: There is definitely a limitation in that you have to be 18 to open some of these accounts, but the easiest way around it is if you do have the help of your parent, then they can do it for you or you can do it jointly. Liz, do you think I’m missing anything else he should be thinking about?
Liz Weston: You’ve got to consider financial aid. If you think that you’re going to need financial aid to go to college, then you don’t want to have this money in the child’s name. Or you can do a workaround, which is to open a Roth IRA. Now, there are contribution limits to those, but Roth IRA and other retirement money is not counted in financial aid formulas, so that’s a way to get around that concern that your holdings could interfere with how much financial aid you get.
Sean Pyles: One thing I keep thinking about is how lucky Luca is to have parents that have encouraged their kid to start building a solid financial foundation really early on. Adding them as an authorized user on the credit card, for example, will give Luca an early start on building good credit. Kim and Liz, I’m wondering if you can share any other tips that you have as parents for how parents out there can help their kids get started like Luca’s parents did.
Liz Weston: Well, I think it’s like most things with parenting is that you start talking about it early and often so it’s not a subject that’s being brought up at the last possible minute. When you take your child shopping, you can talk about the cost of things and how you decide what to buy and what not to buy.
With our daughter, as soon as she was recognizing that money bought things, which was very early, like 3 years old, I want to say, that’s when we started her with an allowance. And that’s very early, but we had some good experiences with it. That’s something to consider.
Sean Pyles: And she seemed ready, right?
Liz Weston: Oh, yeah. Well, we’ve talked about this before. She was ready to save. She was ready to spend. She didn’t understand the sharing part. Why should she have to share her money? Then as she got older and she got jobs and started her own little business, we would match her earnings with Roth IRA contributions.
Sean Pyles: Oh, that’s cool.
Kim Palmer: That is very cool. My parents did the exact same thing, and I really think it helped me. I think it helped me learn how to save. One thing I’ve noticed with my kids is that from a very early age, like toddlerhood, they start asking for things, and they have no qualms about spending your money. The good thing about that is that it gives me a chance and parents a chance to say no and to explain the whole idea of scarcity. We can’t have everything we want. That’s really the basis of learning how to budget right there.
As they get older, it morphs into a more complex conversation. For example, with my 12-year-old, we can have a more nuanced discussion about saving and putting money aside so you can afford something bigger. And I think as the kids get older, you can start having those more nuanced conversations, but it really starts, I think, around age 2.
Liz Weston: Luca’s also wondering about switching banks. Kim, what do you think they should know when they’re shopping around?
Kim Palmer: It’s a really good question to look into switching banks. A lot of people are afraid to switch banks, and they just go with the flow of their current bank even though they’re not happy. I really encourage this line of thought to look at if another bank could serve your needs better. What you want to do when you start thinking about opening a new bank is first see what would be a good fit.
That starts with some online research. Where can we make sure we’re paying as few fees as possible? Where can we earn the highest APY? Where can we get the most for our money? Once you do that comparison and you choose a good fit with your new bank, you just go ahead and you transfer any money that you have into the new account, you close your old one. And it’s really not as complicated as I think a lot of people worry that it is.
Sean Pyles: Or as a lot of banks might want you to think it is to switch banks like that. I did this in the past year. I had had a goal for a while to go from the big national bank I’ve been using since high school to a local credit union in the Pacific Northwest, and it took me a while to actually muster up the energy to do it, and it took me five minutes. It was shockingly easy.
Liz Weston: Yeah, I think it’s more complicated when you have more bills to pay, especially if you’re autopaying through your bank account, so you may need to keep your old account open for a while for those to clear, but if you’re somebody like Luca who’s just starting out, you can choose whatever bank you’d like. And an online bank might be a good fit because they tend not to have minimums and a lot of fees. You can start with a small amount and build from there.
Sean Pyles: But, again, they’ll probably have to have their parents help to open any sort of account like this.
Liz Weston: Luca is obviously in pretty good shape today and is already saving for their future.
Kim, what else should Luca consider going forward?
Kim Palmer: Well, I think it really all goes back to getting in the habit of saving money. I think some of the habits that they’re establishing now really will last possibly their whole life. Of course, as a teenager, you might not have the same priorities that you will have in your 20s or 30s or beyond, so I think when you’re focused on saving and you have that savings cushion, it helps you have that flexibility. So wherever you turn, whatever priorities emerge over the next decade or two decades, if you have that savings habit, I think that gives you such a strong backbone to rely on.
Liz Weston: Yes. Absolutely. And I love the fact that you talked about the importance of saving while you’re young because a lot of people just keep putting it off thinking, “Well, in the future I’ll have more money. It’ll be easier in the future.” It is never easier in the future. Start now, do it now, and you’ll have a lot more flexibility down the road.
Sean Pyles: Well, Kim, thank you so much for talking with us.
Kim Palmer: Of course. Thanks for having me.
Liz Weston: So Luca gave us a chance to talk about the power of compounding, which is another of our favorite topics, and how an early start can make a huge difference in how much you can save over time. But we don’t want people to despair if they’re coming late to investing and wealth building. We want them to have some kind of hope.
Sean Pyles: Right. Because even small changes can make a big difference over time. Just getting a handle on your budget can be a great first step. And that’s all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected]
Liz Weston: Remember to follow our show on your favorite podcast app to automatically get new episodes. If you’re listening on Apple Podcasts or Spotify, then tap that five star button to rate the show. We really appreciate it.
Sean Pyles: This episode was produced by Liz Weston and Cody Gough with help from me. Kaely Monahan mixed this episode with additional audio editing by Cody. And a big thank you to the folks on the NerdWallet copy desk for all their help.
Liz Weston: And here’s our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sean Pyles: And with that said, until next time, turn to the Nerds.
SKYX Platforms Corp. (NASDAQ : SKYX) (d/b/a “Sky Technologies”) SKYX, a technology company with more than 60 issued and pending patents globally with a mission to make homes and buildings become safe and smart as the new standard, has announced that David Pamer, a lighting industry veteran, has joined the company as President, Wholesale and Retail Channels. In his new capacity at SKYX Platforms, Paper will lead SKYX growth initiatives as well as organizational development in the retail, wholesale and end-user channels such as home builders and architects, specifiers channels, electrical distribution, e-commerce, home center and lighting showrooms.
Prior to joining SKYX, David spent 25 years with Kichler. During his tenure, he held several positions including Chief Financial Officer (1994-2001), Executive Vice President, Supply Chain (2001-2007) and Executive Vice President, Sales (2008-2018). Subsequent to Kichler being acquired in 2018, Palmer joined Elk Home as its Chief Executive Officer and during his tenure led the company through the COVID pandemic business climate while simultaneously furthering the development and execution of a transformational business strategy.
Pamer said: “I look forward to leading SKYX’s growth initiatives and development into the retail, wholesale and end-user channels such as home builders and architects, specifiers channels, electrical distribution, e-commerce, home center and lighting showrooms. I am delighted and eager to join the SKYX team to be part of its standardization process of transforming the lighting and fan industries from the old hazardous hardwire installation process to a safe and easy plug-and-play installation method.”
Rani Kohen, Founder and Executive Chairman of SKYX Platforms, added: “We are very happy to have Dave join our team in a leading position and look forward to working with him. He pulls on vast industry experience and is regarded as a true industry leader, holding high-level positions in leading U.S. lighting and home décor companies.”
Minimum-wage workers shouldn’t bother trying to find a two-bedroom apartment — anywhere in the U.S.
According to a new federal report, “in no state, metropolitan area, or county in the U.S. can a worker earning the federal or prevailing state or local minimum wage afford a modest two-bedroom rental home at fair market rent by working a standard 40-hour work week.”
The “Out of Reach” report reveals in stark terms the financial challenges facing renters, particularly in California.
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A California renter needs to make $42.25 an hour to afford a two-bedroom rental unit, the highest figure in the nation, according to the new study. The mean hourly wage for California renters, by contrast, is only $33.67.
Hawaii, Massachusetts, New York and Washington were the next four most expensive states after California, with renters needing to make at least $35 hourly to afford a two-bedroom apartment.
In California, Cristian Morales, 33, is an example of the struggle facing hourly wage earners to secure decent housing.
He makes $21 an hour as a laundry attendant at the Hilton Pasadena. The job, which he has held for nearly five years, can be stressful. “We have to be moving all the time and sometimes there’s not time to get our 10-minute breaks,” he said.
The hotel is frequently short-staffed, Morales said, which sometimes means that a 14-story chute gets packed with linens “all the way to the sixth floor” before he can get to it.
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Along with his wife and five children, Morales lived in a rental apartment in North Hills until 2020, when they could no longer afford the apartment. “Rent in L.A. went up, it’s super up. Groceries are up,” he said.
The family moved in with Morales’ in-laws in Baldwin Park, where three of the kids live in the front house, with their grandparents and the rest of the family living in the back house.
“Of course, I want my own place,” Morales said. “It’s not the same living with your father- and mother-in-law.”
The eight most expensive counties for renters in America were all in California, including Santa Barbara and Orange counties in Southern California, according to the report from the National Low Income Housing Coalition.
In the four most expensive counties — Santa Cruz, Marin, San Francisco and San Mateo — a renter needs to make more than $60 an hour to afford a two-bedroom unit.
Santa Cruz County, where the mean renter income was estimated at $22.39 an hour, had the biggest discrepancy between actual income and the income required to afford a two-bedroom. The mean renter only made 34% of the income necessary to afford such a unit, according to the study.
“The affordable housing crisis worsened over the past few years as the COVID-19 pandemic, unusually low housing vacancy rates, skyrocketing rental prices and record-breaking inflation exacerbated the financial insecurity of low-income renters,” the report states.
California is the most renter-heavy state in the country, with 45% of housing units occupied by renters. Within the state, Los Angeles and San Francisco counties, where the rates are 62% and 54%, respectively, stand out.
Apartment owners are also speaking out about rents.
“We have been screaming for years and years that the lack of supply and construction of new housing is leading to this increase,” said Fred Sutton, a spokesperson for the California Apartment Assn., a group representing the rental housing industry.
“The costs of operating housing have skyrocketed over the last several years,” he said, noting that rent control, inflation and operating costs are factors in adjusting rents.
“Housing is becoming more and more scarce in the state, and some of the local municipalities have made it ever-increasingly harder to obtain,” Sutton said. He argued for reduced regulations on housing construction.
In all but three of California’s 58 counties, the mean wage for renters was not enough to afford a two-bedroom rental. The three counties where wages were high enough were all high-rent locales in the Bay Area: San Francisco, Santa Clara and San Mateo.
The report states that “renters are facing the effects of a long-standing trend in which rents have risen faster than wages.” Between 2001 and 2021, according to the report, median rents increased 17.9%, while median household income went up 3.2%.
In Arkansas, the nation’s cheapest state for renters, a renter can afford a two-bedroom unit with an hourly income of $16.27. That’s about one-third of the cost in California.
The Dakotas, Mississippi and West Virginia, all with hourly wages between $16 and $18, rounded out the five least expensive states. Minimum wages in all five states are far below California’s $15.50 rate: Arkansas’ is the highest, at $11, and North Dakota and Mississippi are the lowest, benchmarked to the federal level of $7.25.
For Morales, affordable housing for his family is a pipe dream. “In reality, we checked about a year ago, but it’s too expensive. It’s not like we can move to a single — I’ve got five kids.”
“It’s super hard to even find a place that we can all fit and have a little freedom,” he said.
Higher wages could make a difference. Morales belongs to the Unite Here Local 11 hotel workers’ union, and plans to go on strike this weekend alongside thousands of others, calling for higher wages.
“We’re ready, we’re motivated, and we believe that we deserve what we’re asking for,” he said.
We had a few times in the previous cycle where the 10-year yield was below 1.60% and above 3%. Regarding 4% plus mortgage rates, I can make a case for higher yields, but this would require the world economies functioning all together in a world with no pandemic. For this scenario, Japan and Germany yields need to rise, which would push our 10-year yield toward 2.42% and get mortgage rates over 4%. Current conditions don’t support this.
The backstory
The lifeblood of my economic work depends greatly on the ebbs and flows of the 10-year yield, even more than mortgage rate targeting, which is unusual for a housing analyst.
When I first dipped into 10-year yield and mortgage rate forecasting in 2015, during the previous expansion, I said the 10-year yield will remain in a channel between 1.60%-3%. I’ve stuck to that channel forecast every year since — and for the most part that 10-year yield channel stuck. That range dictated that mortgage rates would roughly stay between 3.5%-4.75%.
When COVID-19 was about to hit our economy, I forecasted that the 10-year yield recessionary yields should be in a range between -0.21%-0.62%. We got to as low as 0.32% on that Monday morning in March when the crisis was hitting the markets the hardest. About a month later, I published my AB (America is Back) recovery model, which said that the 10-year yield should get back toward 1%. We got there in December of 2020 so I was able to retire my America is Back recovery model.
I said that when the economy was beginning the new expansion, the 10-year yield would create a range between 1.33%-1.60%. This couldn’t happen in 2020 but should happen in 2021. Even with the hot economic growth, the hottest inflation data in decades, and the Fed rate hike discussion picking up, this range of 1.33%-1.60% has held up nicely for most of 2021, meaning mortgage rates were going to be low in 2021.
My forecast for the 10-year yield range in 2021 was 0.62%-1.94% which translates to a bottom-end range in mortgage rates of 2.375%-2.5%, and an upper-end of 3.375%-3.625%. Single mortgage rate target forecasts have not fared well over the decades because these forecasters did not respect the downtrend in bond yields since 1981.
The X factor
Can there be a bond market sell out short term, sending yields above 1.94%, like what we saw early in the COVID-19 crisis? Yes, but if the markets do overreact for any reason, typically bond yields would fall back. Why do I not believe bond yields will push higher aggressively? The economic rate of growth peaked in 2021. The economy was on fire this year, and inflation data was super-hot. Even so, the highest the 10-year yield got was 1.75%. The economic disaster relief that boosted the recovery in 2020 and 2021 has been drawn down.
Government spending plans have also been watered down and new legislation might not even pass at all. Economic growth peaked in 2021 and some of the hotter inflation data has the potential to fall next year. The Federal Reserve wants to hike rates to cool the economy. Typically what happens before the first Fed rate hike is that the U.S. dollar has its biggest percent move higher ,which tends to hurt commodity prices and world growth. This is something to watch for next year as it could slow down world growth.
The economy won’t be as hot in 2022 as it was in 2021, but it will remain in expansionary mode. This type of backdrop will make it challenging for rates to rise in a big way and stay higher. The key with all my 10-year yield channel work is how long the 10-year stays in that channel during the calendar year. I have always believed this type of forecast is more useful than targeting a mortgage rate.
Existing-home sales
The forecast
For 2022, I am forecasting the same sales trend range as 2021 of about 5.74 million to 6.16 million. If monthly sales prints are above 6.16 million for existing homes, then I would consider the market more robust than expected. If sales trend toward 5.3 million then we will be back to 2019 levels. This would still be healthy sales considering the post-1996 trend, but it will mean housing demand has gotten softer.
This has happened before when higher rates have impacted demand. This is why since the summer of 2020 I have written about how if the 10-year yield can get above 1.94%, then things should cool down. However, as you can see it’s been hard to bond yields over that level and thus mortgage rates above 3.75%.
The backstory
If the last two reports of the year on existing home sales are above 6.2 million, I will admit that sales have slightly outperformed what I predicted for 2021. Early in 2021, I wrote that home sales would moderate after the peaks caused by the COVID-19 shutdown make-up demand and that readers should not overreact to this slowing. I wrote that sales would range between 5.84 million and 6.2 million, and that we could anticipate a few prints under 5.84 million — but sales would consistently be above the closing level of 2020 of 5.64 million. We got one print below 5.84 million and a few recent prints over 6.2 million, with two more reports. Mortgage demand was solid all year long and has picked up in the last 15 weeks.
One of my longer-term forecasts in the previous expansion was that the MBA Index would not reach 300 until 2020-2024. We got there in the early part of 2020, then the Index got hit by the COVID-19 delays in home buying to only have a V-shaped recovery that led to the make-up demand surge, moderation down and back to 300.
As you can see, it’s been like Mr. Toad’s wild ride here. We will still have some COVID-19 year-over-year comps to deal with up until mid February and then we can get back to normal. However, one thing is for sure: demand has been solid and stable in 2020 and 2021. Also, the market we have today doesn’t look like the credit boom we saw from 2002-2005.
I didn’t believe total home sales could get to 6.2 million in the years 2008-2019, this is new and existing home sales combined. We simply didn’t have the type of demographics in the previous expansion. We are in different times.
New home sales and housing starts
The forecast
My long-term call from the previous expansion has been that we won’t start a year at 1.5 million total housing starts until the years 2020-2024 and we have finally gotten here much like the 300 level in the MBA index. My rule of thumb has always been to follow the monthly supply data for new homes, and as long as monthly supply is below 6.5 months on a three-month average, they will build.
The backstory
Housing starts, permits and builders confidence are ending the year on a good note. Even though new home sales aren’t booming this year, it’s good enough to keep the builders building more homes even with all the drama of labor shortages, material cost and delays in finishing homes.
As you can see below, the uptrend has been intact even with the slowdown in 2018 and the brief pause from COVID-19.
The new home sales sector gets impacted by rates much more than the existing home sales marketplace. The last time this sector saw some stress from mortgage rates was in 2018 when rates were at 5%. Today’s 3% mortgage rates are good enough to keep things going. We should see slow growth in new home sales and housing starts as long as the monthly supply of new homes is below 6.5 months on a 3-month average. This sector has legs to walk forward slowly. I have never believed in the housing construction boom premise as mature economies don’t have construction booms with slowing population growth. More on that here.
The X factor
The one concern I have for this sector in 2022 is if the builders keep pushing the limits of home price growth to make their margins look better. When rates are low, they have the pricing power to do this. This is why the sector has done so well in 2021. If I am wrong about mortgage rates staying low in 2022, and rates go above 3.75% with duration, then demand for new homes should get hit. The longer-term concern for this sector is price growth because if demand slows down, this means a slowdown in construction and the builders really maximized their pricing power in 2020 and 2021.
Home prices
The forecast
I am looking for total home-price growth to be between 5.2% and 6.7% for 2022. This would be a meaningful cool down in price growth but would still be a third year straight of too much price growth for my taste.
The backstory
My biggest fear for the housing market during the years 2020 to 2024 was that real home-price growth can be unhealthy. When you have the best housing demographic patch ever recorded in history occurring at the same time as the lowest mortgage rates ever, with housing tenure doubling as it has in the last 12 years, it’s the perfect storm for unhealthy price growth.
Housing inventory has been falling since 2014 and mortgage purchase applications have been rising since then. As you can see below, 2021 wasn’t looking good for me regarding my fear for home prices rising too much.
The X factor
When I talk about real home-price growth being too hot, I mean that nominal home price growth is above 4.6% each year during the five-year period of 2020 to 2024, for a cumulative 23% growth. This would not be a positive for the housing market. If we end 2021 with 13% home price growth, (and it looks like we will do that or higher), then we have already achieved 23% of the price growth that I am comfortable with in just two years.
While I do believe home-price growth is cooling from the extreme high rate of growth we had earlier in the year, I would very much like to see prices get back in line with my model for a healthy market. In order for this to happen, we would need to have no increase in home prices for the next three years. Because inventory levels are falling again, and we are at risk of starting the 2022 spring season at fresh new all-time lows, this outcome is very unlikely.
Early in 2021, I had raised concerns that prices overheating should be the main concern, not forbearance crashing the market. When demand is stable, it’s extremely rare for inventory to skyrocket and American homeowners have never looked better on paper. In fact, a few months ago I talked about inventory falling again should be the concern going out.
Housing demand
The forecast
Everyone is talking about rates going higher and no one, it seems, is talking about the possibility that mortgage rates could go under 3% in 2022, except me. This is front and center in my mind. I want to see a B&B housing market: boring and balanced. In a B&B market, buyers have choices, sales move at a reasonable pace without bidding wars, and the whole home-buying experience is less stressful and more sane. I would like to see inventory get toward 1.52 – 1.93 million, (which is still historically low). However, this will be a more stable housing market.
The backstory
Millions of people buy homes each year. The only thing that cooled demand for housing in the previous expansion was mortgage rates going over 4% with duration. The increase in rates didn’t crash the market or even facilitated negative year-over-year home price declines; but it did increase the number of days homes stayed on the market.
Currently the biggest demographic patch ever recorded in U.S. history are ages 28-34, the first-time homebuyer median age is 33. When you add move-up, move-down, cash and investor demand together, demand will be stable and hard to break under the post-1996 trend of 4 million plus total sales every year in the years 2020-2024.
The X factor
Frankly, I’m getting tired of calling this market the unhealthiest since 2010. This is not due to a massive credit boom or exotic loan products contaminating the market with excess risk — it’s the lack of choice for buyers. If mortgage rates go under 3%, which I believe they can, it just keeps the low inventory story going on. The Federal Reserves wants to cool down the economy, the government is no longer providing disaster relief anymore and the world economies should get hit if the U.S. dollar gets too strong. So, my concern is about rates falling in year three of my 2020-2024 period. This is also a first-world problem to have and we aren’t dealing with the housing market of 2005-2008 when sales were declining and the U.S. consumer was already filing for bankruptcy and having foreclosures before the great recession started in 2008. This is to give you some perspectives here with my thinking.
The economy
The forecast
I expect the rate of change to slow in 2022 but the economy will still be expansionary. Retail sales have been off the charts, and this data line, which I expected to moderate, still hasn’t. The rate of growth will cool. Replicating the growth we saw in 2021 will be nearly impossible. As the excess savings have been drawn down and the additional checks that people got are no longer coming, this data line will find a more suitable and sustainable trend in 2022. Still I am shocked that moderation hasn’t happened already and I was the year 2020-2024 household formation spending guy, too.
The backstory
The U.S. economy has been on fire this year. Even with the excess savings, good demographics, and low rates, not even I thought we would see economic growth like we did in 2021. However, like all things in life, despite the peaks and valleys, the overall trend will prevail.
The X factor
I recently raised one of my six recession red flags after the most recent jobs report as the unemployment rate got to a key level for myself. These red flags are more of a progress checklist in the economic expansion, and when all six of my flags are raised, I go into recession watch. The economy is in a more mature phase of expansion since the recovery was so fast. Like everything with me, it’s a process to show you the path of this expansion to the next recession.
For housing, a strong labor market means more people are getting off forbearance, which is already under 1 million, much smaller than the nearly 5 million we had early in the crisis. I want to wish a Merry Christmas to all my forbearance crash bros who promised a housing crash in 2020 and 2021. You guys are the best trolling grifters ever!
More jobs and more robust wage growth mean the need for shelter will grow. The housing market is already dealing with too much rent inflation, but as wage growth picks up on the lower end, this means landlords will charge more rent. Again, this the problem you want to have, a tighter labor market means wage growth will pick up and we have 11 million job openings currently.
So, look for the rent inflation story to be part of the 2022 storyline, as well as the rate of growth of home prices cooling down.
There is nothing like a fifth wave of COVID-19 and a new highly transmissible variant to crank up the personal stress meter. While the continuing COVID crisis can cause havoc on some short-term data lines for the economy, we will, as we have done, get through this and move forward. Our reality is that, as a nation, we have learned to consume goods and services with an active virus infecting and killing us every day.
The St. Louis Financial Stress Index, which was a key data line to track for the America Is Back recovery model, has still been in a calm zone for the entire year, currently at -0.8564. When we break over zero — which is considered normal stress — then we have some market drama. However, that wasn’t the storyline in 2021 and we didn’t have a single day where the S&P 500 was in correction mode. It’s not normal to not have a stock correction, so a stock market correction in 2022 is in the works and this can lead more money into bonds and drive rates lower.
For more discussion on this index and the America is Back recovery model, this podcast goes over everything that has happened in 2020-2021.
Conclusion
What a ride it has been for all of us since April 7, 2020 when I wrote the America Is Back economic recovery model for HousingWire. We end 2021 with one of the greatest economic recovery stories ever in the history of the United States of America, and a terrible, dark, two-year period of failure for the extreme housing bears. Now we are well into a recovery and looking forward to a new year with its new challenges.
The job of the analyst is to forecast the positive or negative impacts that a whole slew of variables have on the economy based on carefully formulated economic models. The variables, such as demographics, the unemployment rate, what the Federal Reserve is doing, commodity prices and so many others, are constantly in flux and feed off of and influence one another. Additionally, new economic variables pop up all the time. My job, with every podcast and article, is to show you how the changes in these variables light the path to where the economy and the housing market is heading.
Take a deep breath — in through the nose and out through the mouth. The last two years have been crazy, but I am glad you are here to read this. This is our country, our world and our universe, and everyone is part of team Life on Earth. Merry Christmas, Happy Holidays and have a wonderful Happy New Year. We will get through 2022 one data line at a time.
“We have always held to the hope, the belief, the conviction that there is a better life, a better world, beyond the horizon.” Franklin D. Roosevelt
Minutes from the latest Federal Reserve meeting released on Wednesday show the Fed feels the country’s inflation rate remains “unacceptably high.”
While the central bank chose to hold the federal funds rate at 5.0% to 5.25% in its latest meeting back in June, the recently released minutes reveal the Fed has further rate hikes planned for the year, even if they won’t come as fast and furious as they have so far.
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If that news, along with sticky inflation, after a long winter of continuously climbing mortgage rates and steadily falling home prices, has you wringing your hands over the future of the housing market, don’t despair yet.
Despite the dreary outlook, data shows the market might not be crumbling just yet.
In fact, the median U.S. home is selling for around $383,000 — only about $4,000, or 0.9%, less than the all-time high set in June 2022. This marks the smallest year-over-year drop in close to four months, according to Redfin.
Here’s what’s keeping prices elevated, and why you shouldn’t worry about a major housing correction in the near future regardless of what the Fed has planned.
Inventory is tight, keeping prices high
High mortgage rates may be keeping some buyers at bay, but they’re also deterring plenty of potential sellers who are locked into low rates from just a couple years ago.
The average 30-year fixed mortgage rate hit 6.71% last week, more than double what it averaged in 2021.
New listings plunged 27% compared to last year during the four weeks ending June 25 — the largest drop since the start of the pandemic. That’s also pushed the total number of homes for sale down by 11% — the first double-digit decline in over a year.
A lack of inventory means that with fewer options for buyers to choose from, they’re snagging homes faster than they’re being listed, which in turn keeps prices afloat.
Read more: 3 big mistakes people make with cash back credit cards that cost them every time they swipe
What does this mean for Americans entering the market?
It may not be a proper housing correction, but it’s safe to say buyers and sellers alike are finding the conditions challenging.
“The market isn’t nearly as fast as it was 18 months ago, when homes were flying off the market for well over asking price, and it’s not as slow as it was six or seven months ago, when mortgage rates first shot up,” said Oakland, California Redfin Premier agent Andrea Chopp.
Trying to follow the trends on a national level can be tricky. The typical property may be going for its asking price, but June was only the second month this has occurred since August 2022. And although sale prices are dropping the most in big metros like Las Vegas and Phoenix, areas like Milwaukee and Miami are seeing a rise.
Chopp says buyers should be aware that some desirable homes are attracting several offers and selling above asking.
“And sellers should know that their home may not attract as much competition as their neighbor’s home did two years ago, but it will sell if they price it fairly and put effort into marketing,” Chopp adds.
“Things like making small repairs and staging are important again.”
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
There was a viral tweet going around from YouTube housing influencer Nick Gerli. You’ve probably seen it. Gerli cites data from a company called AllTheRooms to make the case that the Airbnb/short-term rental market is “crashing” and it will have a big impact on inventory.
Indeed, the chart he shared is alarming.
A nearly 50% drop in revenue in some markets!
But the data looks dubious. I interviewed Jamie Lane, the chief economist and head of analytics at AirDNA. He looked at the AllTheRooms data and ran a mirror analysis with AirDNA’s data and, well, just look.
Revenue per listing is down, but it’s not down by a third or more in those markets, according to AirDNA.
AllTheRooms didn’t respond to my requests for comment, but Gerli, who runs Reventure Consulting, said he was aware of the discrepancies in the data and had reached out to Airbnb “to provide their own data for these cities so we can get the most accurate figures.” (Airbnb itself said in a statement that the data was “not consistent with its own” and added that “more guests are traveling on Airbnb than ever before.”)
Gerli, however, did offer high level thoughts on the situation. His outlook remains bearish.
“Both data sources agree that the Airbnb supply in America has surged over the last 2-3 years since the pandemic started, particularly in cities like Phoenix. In some markets there are now 2-3x more homes listed on Airbnb than for sale, a situation that has robbed the housing market for inventory,” Gerli wrote in an email. “However, now that the Airbnb correction has started, we will likely see struggling Airbnb owners look to sell their properties. Look for the downturn to be worse in cities where 1) the revenues declined the most and 2) there’s the highest surplus of Airbnb inventory relative to homes for sale.”
Lane at AirDNA doesn’t see a ‘crash’ happening, even though revenue is trending down from last year and it is a relatively saturated marketplace in some metros (the number of listings was up 18% over the same period last year).
“I see that as an entirely false narrative,” he said. “The short-term rental industry has very healthy performance right now. If you look at overall occupancies for 2023, the industry is going to run 57%. That compares to a pre-COVID [level] of 55%. So we’re well above pre COVID occupancy levels. We are down from the 2021 highs, but that was a COVID anomaly in terms of industry performance.”
AirDNA expects modest Airbnb revenue declines throughout the rest of the year – a 1% drop for the rest of the year and no growth in 2024.
Let’s dive in a little further. Lane maintains that the fundamentals in STR remain strong – we see lower churn today than we saw pre-pandemic, the travel desire is absolutely real, a large segment of the population is more mobile than ever (thanks, remote work!), and about 20% of listings are private or shared rooms, not entire houses.
More importantly, revenue for most hosts across the country is still strong nationally, reducing the likelihood of forced sellers, Lane said.
“If you look at revenue today, average revenue per listing compared to pre-pandemic, we are 30% higher, and that has barely come down off the highs in 2022. The earnings of short term rental operators have not collapsed by any means.”
But let’s say demand nosedives due to a recession and the numbers no longer pencil out for some operators. What impact would that have on the market?
It’s hard to say, but an STR crash like the one Gerli describes already did happen, back in 2020.
“In 2020, listings fell by 25%, we saw many markets essentially decline by half, with no disruption to the broader housing market,” Lane said.
Inventory, as ever, is key to all this. Currently, there are about 1.4 million short-term rental listings in the U.S. While there are about 600,000 active for-sale listings. Even if all the 1.4 million STR listings hit the market at the same time, I don’t think that would crash the market.
“Active listings in a normal period would be between 2 to 2.5 million,” said HousingWire’s Lead Analyst Logan Mohtashami. “Even if all those homes came to market overnight, they would need to not get a bid over 60 days to allow the active inventory to return to historical norms.”
Added Lane: “When you look at major cities, let’s say the 50 largest metros, most of that [Airbnb] inventory is not available full time. Over 50% was available for rent less than 180 days over the previous year. So it’s not full time short term rental investments.”
Lane argued that a flood of Airbnb’s wouldn’t crash heavily saturated markets either.
“So you look at a market like Phoenix and how many new homes are being built any given year, that’s larger than the entire short term rental industry,” Lane said.
The broader housing market needs more inventory any which way it can get it, but I don’t see much coming from non-viable Airbnbs. What do you think? Share your thoughts with me at [email protected].
In our weekly DataDigest newsletter, HW Media Managing Editor James Kleimann breaks down the biggest stories in housing through a data lens. Sign up here! Have a subject in mind? Email him at [email protected]
There was a viral tweet going around from YouTube housing influencer Nick Gerli. You’ve probably seen it. Gerli cites data from a company called AllTheRooms to make the case that the Airbnb/short-term rental market is “crashing” and it will have a big impact on inventory.
Indeed, the chart he shared is alarming.
A nearly 50% drop in revenue in some markets!
But the data looks dubious. I interviewed Jamie Lane, the chief economist and head of analytics at AirDNA. He looked at the AllTheRooms data and ran a mirror analysis with AirDNA’s data and, well, just look.
Revenue per listing is down, but it’s not down by a third or more in those markets, according to AirDNA.
AllTheRooms didn’t respond to my requests for comment, but Gerli, who runs Reventure Consulting, said he was aware of the discrepancies in the data and had reached out to Airbnb “to provide their own data for these cities so we can get the most accurate figures.” (Airbnb itself said in a statement that the data was “not consistent with its own” and added that “more guests are traveling on Airbnb than ever before.”)
Gerli, however, did offer high level thoughts on the situation. His outlook remains bearish.
“Both data sources agree that the Airbnb supply in America has surged over the last 2-3 years since the pandemic started, particularly in cities like Phoenix. In some markets there are now 2-3x more homes listed on Airbnb than for sale, a situation that has robbed the housing market for inventory,” Gerli wrote in an email. “However, now that the Airbnb correction has started, we will likely see struggling Airbnb owners look to sell their properties. Look for the downturn to be worse in cities where 1) the revenues declined the most and 2) there’s the highest surplus of Airbnb inventory relative to homes for sale.”
Lane at AirDNA doesn’t see a ‘crash’ happening, even though revenue is trending down from last year and it is a relatively saturated marketplace in some metros (the number of listings was up 18% over the same period last year).
“I see that as an entirely false narrative,” he said. “The short-term rental industry has very healthy performance right now. If you look at overall occupancies for 2023, the industry is going to run 57%. That compares to a pre-COVID [level] of 55%. So we’re well above pre COVID occupancy levels. We are down from the 2021 highs, but that was a COVID anomaly in terms of industry performance.”
AirDNA expects modest Airbnb revenue declines throughout the rest of the year – a 1% drop for the rest of the year and no growth in 2024.
Let’s dive in a little further. Lane maintains that the fundamentals in STR remain strong – we see lower churn today than we saw pre-pandemic, the travel desire is absolutely real, a large segment of the population is more mobile than ever (thanks, remote work!), and about 20% of listings are private or shared rooms, not entire houses.
More importantly, revenue for most hosts across the country is still strong nationally, reducing the likelihood of forced sellers, Lane said.
“If you look at revenue today, average revenue per listing compared to pre-pandemic, we are 30% higher, and that has barely come down off the highs in 2022. The earnings of short term rental operators have not collapsed by any means.”
But let’s say demand nosedives due to a recession and the numbers no longer pencil out for some operators. What impact would that have on the market?
It’s hard to say, but an STR crash like the one Gerli describes already did happen, back in 2020.
“In 2020, listings fell by 25%, we saw many markets essentially decline by half, with no disruption to the broader housing market,” Lane said.
Inventory, as ever, is key to all this. Currently, there are about 1.4 million short-term rental listings in the U.S. While there are about 600,000 active for-sale listings. Even if all the 1.4 million STR listings hit the market at the same time, I don’t think that would crash the market.
“Active listings in a normal period would be between 2 to 2.5 million,” said HousingWire’s Lead Analyst Logan Mohtashami. “Even if all those homes came to market overnight, they would need to not get a bid over 60 days to allow the active inventory to return to historical norms.”
Added Lane: “When you look at major cities, let’s say the 50 largest metros, most of that [Airbnb] inventory is not available full time. Over 50% was available for rent less than 180 days over the previous year. So it’s not full time short term rental investments.”
Lane argued that a flood of Airbnb’s wouldn’t crash heavily saturated markets either.
“So you look at a market like Phoenix and how many new homes are being built any given year, that’s larger than the entire short term rental industry,” Lane said.
The broader housing market needs more inventory any which way it can get it, but I don’t see much coming from non-viable Airbnbs. What do you think? Share your thoughts with me at [email protected].
In our weekly DataDigest newsletter, HW Media Managing Editor James Kleimann breaks down the biggest stories in housing through a data lens. Sign up here! Have a subject in mind? Email him at [email protected]
High above the Las Vegas Strip, solar panels blanketed the roof of Mandalay Bay Convention Center — 26,000 of them, rippling across an area larger than 20 football fields.
From this vantage point, the sun-dappled Mandalay Bay and Delano hotels dominated the horizon, emerging like comically large golden scepters from the glittering black panels.Snow-tipped mountains rose to the west.
It was a cold winter morning in the Mojave Desert. But there was plenty of sunlight to supply the solar array.
“This is really an ideal location,” said Michael Gulich, vice president of sustainability at MGM Resorts International.
The same goes for the rest of Las Vegas and its sprawling suburbs.
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Sin City already has more solar panels per person than any major U.S. metropolis outside Hawaii, according to one analysis. And the city is bursting with single-family homes, warehouses and parking lots untouched by solar.
L.A. Times energy reporter Sammy Roth heads to the Las Vegas Valley, where giant solar fields are beginning to carpet the desert. But what is the environmental cost? (Video by Jessica Q. Chen, Maggie Beidelman / Los Angeles Times)
There’s enormous opportunity to lower household utility bills and cut climate pollution — without damaging wildlife habitat or disrupting treasured landscapes.
But that hasn’t stopped corporations from making plans to carpet the desert surrounding Las Vegas with dozens of giant solar fields — some of them designed to supply power to California. The Biden administration has fueled that growth, taking steps to encourage solar and wind energy development across vast stretches of public lands in Nevada and other Western states.
Those energy generators could imperil rare plants and slow-footed tortoises already threatened by rising temperatures.
They could also lessen the death and suffering from the worsening heat waves, fires, droughts and storms of the climate crisis.
Researchers have found there’s not nearly enough space on rooftops to supply all U.S. electricity — especially as more people drive electric cars. Even an analysis funded by rooftop solar advocates and installers found that the most cost-effective route to phasing out fossil fuels involves six times more power from big solar and wind farms than from smaller local solar systems.
But the exact balance has yet to be determined. And Nevada is ground zero for figuring it out.
The outcome could be determined, in part, by billionaire investor Warren Buffett.
The so-called Oracle of Omaha owns NV Energy, the monopoly utility that supplies electricity to most Nevadans. NV Energy and its investor-owned utility brethren across the country can earn huge amounts of money paving over public lands with solar and wind farms and building long-distance transmission lines to cities.
But by regulatory design, those companies don’t profit off rooftop solar. And in many cases, they’ve fought to limit rooftop solar — which can reduce the need for large-scale infrastructure and result in lower returns for investors.
Mike Troncoso remembers the exact date of Nevada’s rooftop solar reckoning.
It was Dec. 23, 2015, and he was working for SolarCity. The rooftop installer abruptly ceased operations in the Silver State after NV Energy helped persuade officials to slash a program that pays solar customers for energy they send to the power grid.
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“I was out in the field working, and we got a call: ‘Stop everything you’re doing, don’t finish the project, come to the warehouse,’” Troncoso said. “It was right before Christmas, and they said, ‘Hey, guys, unfortunately we’re getting shut down.’”
After a public outcry, Nevada lawmakers partly reversed the reductions to rooftop solar incentives. Since then, NV Energy and the rooftop solar industry have maintained an uneasy political ceasefire. Installations now exceed pre-2015 levels.
Today, Troncoso is Nevada branch manager for Sunrun, the nation’s largest rooftop solar installer. The company has enough work in the state to support a dozen crews, each named for a different casino. On a chilly winter morning before sunrise, they prepared for the day ahead — laying out steel rails, hooking up microinverters and loading panels onto powder-blue trucks.
But even if Sunrun’s business continues to grow, it won’t eliminate the need for large solar farms in the desert.
Some habitat destruction is unavoidable — at least if we want to break our fossil fuel addiction. The key questions are: How many big solar farms are needed, and where should they be built? Can they be engineered to coexist with animals and plants?
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And if not, should Americans be willing to sacrifice a few endangered species in the name of tackling climate change?
To answer those questions, Los Angeles Times journalists spent a week in southern Nevada, touring solar construction sites, hiking up sand dunes and off-roading through the Mojave. We spoke with NV Energy executives, conservation activists battling Buffett’s company and desert rats who don’t want to see their favorite off-highway vehicle trails cut off by solar farms.
Odds are, no one will get everything they want.
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The tortoise in the coal mine
Biologist Bre Moyle easily spotted the small yellow flag affixed to a scraggly creosote bush — one of many hardy plants sprouting from the caliche soil, surrounded by rows of gleaming steel trusses that would soon hoist solar panels toward the sky.
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Moyle leaned down for a closer look, gently pulling aside branches to reveal a football-sized hole in the ground. It was the entrance to a desert tortoise burrow — one of thousands catalogued by her employer, Primergy Solar, during construction of one of the nation’s largest solar farms on public lands outside Las Vegas.
“I wouldn’t stand on this side of it,” Moyle advised us. “If you walk back there, you could collapse it, potentially.”
I’d seen plenty of solar construction sites in my decade reporting on energy. But none like this.
Instead of tearing out every cactus and other plant and leveling the land flat — the “blade and grade” method — Primergy had left much of the native vegetation in place and installed trusses of different heights to match the ground’s natural contours. The company had temporarily relocated more than 1,600 plants to an on-site nursery, with plans to put them back later.
The Oakland-based developer also went to great lengths to safeguard desert tortoises — an iconic reptile protected under the federal Endangered Species Act, and the biggest environmental roadblock to building solar in the Mojave.
Desert tortoises are sensitive to global warming, residential sprawl and other human encroachment on their habitat. The U.S. Fish and Wildlife Service has estimated tortoise populations fell by more than one-third between 2004 and 2014.
Scientists consider much of the Primergy site high-quality tortoise habitat. It also straddles a connectivity corridor that could help the reptiles seek safer haven as hotter weather and more extreme droughts make their current homes increasingly unlivable.
Before Primergy started building, the company scoured the site and removed 167 tortoises, with plans to let them return and live among the solar panels once the heavy lifting is over. Two-thirds of the project site will be repopulated with tortoises.
Workers removed more tortoises during construction. As of January, the company knew of just two tortoises killed — one that may have been hit by a car, and another that may have been entombed in its burrow by roadwork, then eaten by a kit fox.
Primergy Vice President Thomas Regenhard acknowledged the company can’t build solar here without doing any harm to the ecosystem — or spurring opposition from conservation activists. But as he watched union construction workers lift panels onto trusses, he said Primergy is “making the best of the worst-case situation” for solar opponents.
“What we’re trying to do is make it the least impactful on the environment and natural resources,” he said. “What we’re also doing is we’re sharing that knowledge, so that these projects can be built in a better way moving forward.”
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The company isn’t saving tortoises out of the goodness of its profit-seeking heart.
The U.S. Bureau of Land Management conditioned its approval of the solar farm, called Gemini, on a long list of environmental protection measures — and only after some bureau staffers seemingly contemplated rejecting the project entirely.
Documents obtained under the Freedom of Information Act by the conservation group Defenders of Wildlife show the bureau’s Las Vegas field office drafted several versions of a “record of decision” that would have denied the permit application for Gemini. The drafts listed several objections, including harm to desert tortoises, loss of space for off-road vehicle drivers and disturbance of the Old Spanish National Historic Trail, which runs through the project site.
Separately, Primergy reached a legal settlement with conservationists — who challenged the project’s federal approval in court — in which the company agreed to additional steps to protect tortoises and a plant known as the three-corner milkvetch.
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The company estimates just 2.5% of the project site will be permanently disturbed — far less than the 33% allowed by Primergy’s federal permit. Regenhard is hopeful the lessons learned here will inform future solar development on public lands.
“This is something new. So we’re refining a lot of the processes,” he said. “We’re not perfect. We’re still learning.”
By the time construction wraps this fall, 1.8 million panels will cover nearly 4,000 football fields’ worth of land, just off the 15 Freeway. They’ll be able to produce 690 megawatts of power — as much as 115,000 typical home solar systems. And they’ll be paired with batteries, to store energy and help NV Energy customers keep running their air conditioners after sundown.
Unlike many solar fields, Gemini is close to the population it will serve — just a few dozen miles from the Strip. And the affected landscape is far from visually stunning, with none of the red-rock majesty found at nearby Valley of Fire State Park.
But desert tortoises don’t care if a place looks cool to humans. They care if it’s good tortoise habitat.
Moyle, Primergy’s environmental services manager, pointed to a small black structure at the bottom of a fence along the site’s edge — a shade shelter for tortoises. Workers installed them every 800 feet, so that if any relocated reptiles try to return to the solar farm too early, they don’t die pacing along the fence in the heat.
“They have a really, really good sense of direction,” Moyle said. “They know where their homes are. They want to come back.”
Primergy will study what happens when tortoises do come back. Will they benefit from the shade of the solar panels? Or will they struggle to survive on the industrialized landscape?
And looming over those uncertainties, a more existential query: With global warming beginning to devastate human and animal life around the world, should we really be slowing or stopping solar development to save a single type of reptile?
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Moyle was ready with an answer: Tortoises are a keystone species. If they’re doing well, it’s a good sign of a healthy ecosystem in which other desert creatures — such as burrowing owls, kit foxes and American badgers — are positioned to thrive, too.
And as the COVID-19 pandemic has demonstrated, human survival is inextricably linked with a healthy natural world.
“We take one thing out, we don’t know what sort of disastrous effect it’s going to have on everything else,” Moyle said.
We do, however, know the consequences of relying on fossil fuels: entire towns burning to the ground, Lake Mead three-quarters empty, elderly Americans baking to death in their overheated homes. With worse to come.
The shifting sands of time
A few miles south, another solar project was rising in the desert. This one looked different.
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A fleet of bulldozers, scrapers, excavators and graders was nearly done flattening the land — a beige moonscape devoid of cacti and creosote. The solar panel support trusses were all the same height, forming an eerily rigid silver sea.
When I asked Carl Glass — construction manager for DEPCOM Power, the contractor building this project for Buffett’s NV Energy — why workers couldn’t leave vegetation in place like at Gemini, he offered a simple answer: drainage. Allowing the land to retain its natural contours, he said, would make it difficult to move stormwater off the site during summer monsoons.
Safety was another consideration, said Dani Strain, NV Energy’s senior manager for the project. Blading and grading the land meant workers wouldn’t have to carry solar panels and equipment across ground studded with tripping hazards.
“It’s nicer for the environment not to do it,” Strain said. “But it creates other problems. You can’t have everything.”
This kind of solar project has typified development in the Mojave Desert.
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And it helps explain why the Center for Biological Diversity’s Patrick Donnelly has fought so hard to limit that development.
The morning after touring the solar construction sites, we joined Donnelly for a hike up Big Dune, a giant pile of sand covering five square miles and towering 500 feet above the desert floor, 90 miles northwest of Las Vegas. The sun was just beginning its ascent over the Mojave, bathing the sand in a smooth umber glow beneath pockets of wispy cloud.
On weekends, Donnelly said, the dune can be overrun by thousands of off-road vehicles. But on this day, it was quiet.
Energy companies have proposed more than a dozen solar farms on public lands surrounding Big Dune — some with overlapping footprints. Donnelly doesn’t oppose all of them. But he thinks federal agencies should limit solar to the least ecologically sensitive parts of Nevada, instead of letting companies pitch projects almost anywhere they choose.
“Developers are looking at this as low-hanging fruit,” he said. “The idea is, this is where California can build all of its solar.”
We trekked slowly up the dune, our bodies casting long shadows in the early morning light. When we took a breather and looked back down, a trail of footprints marked our path. Donnelly assured us a windy day would wipe them away.
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“This is why I live here, man,” he said. “It’s the most beautiful place on Earth, in my mind.”
Donnelly broke his back in a rock-climbing accident, so he used a walking stick to scale the dune. He lives not far from here, at the edge of Death Valley National Park, and works as the nonprofit Center for Biological Diversity’s Great Basin director.
As we resumed our journey, the wind blowing hard, I asked Donnelly to rank the top human threats to the Mojave. He was quick to answer: The climate crisis was No. 1, followed by housing sprawl, solar development and off-road vehicles.
“There’s no good solar project in the desert. But there’s less bad,” he said. “And we’re at a point now where we have to settle for less bad, because the alternatives are more bad: more coal, more gas, climate apocalypse.”
That hasn’t stopped Donnelly and his colleagues from fighting renewable energy projects they fear would wipe out entire species — even little-known plants and animals with tiny ranges, such as Tiehm’s buckwheat and the Dixie Valley toad.
“I’m not a religious guy,” Donnelly said. “But all God’s creatures great and small.”
After a steep stretch of sand, we stopped along a ridge with sweeping views. To our west were the Funeral Mountains, across the California state line in Death Valley National Park — and far beyond them Mt. Whitney, its snow-covered facade just barely visible. To our east was Highway 95, cutting across the Amargosa Valley en route from Las Vegas to Reno.
It’s along this highway that so many developers want to build.
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“We would be in a sea of solar right now,” Donnelly said.
Having heard plenty of rural residents say they don’t want to look at such a sea, I asked Donnelly if this was a bad spot for solar because it would ruin the glorious views. He told me he never makes that argument, “because honestly, views aren’t really the primary concern at this moment. The primary concern is stopping the biodiversity crisis and the climate crisis.”
“There are certain places where we shouldn’t put solar because it’s a wild and undisturbed landscape,” he said.
As far as he’s concerned, though, the Amargosa Valley isn’t one of those landscapes, what with Highway 95 running through it. The same goes for Dry Lake Valley, where NV Energy’s solar construction site is already surrounded by energy infrastructure.
What Donnelly would like to see is better planning.
He pointed to California, where state and federal officials spent eight years crafting a desert conservation plan that allows solar and wind farms across a few hundred thousand acres while setting aside millions more for protection. He thinks a similar process is crucial in Nevada, where four-fifths of the land area is owned by the federal government — more than any other state.
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If Donnelly had his way, regulators would put the kibosh on solar farms immediately adjacent to Big Dune. He’s worried they could alter the movement of sand across the desert floor, affecting several rare beetles that call the dune home.
But if the feds want to allow solar projects along the highway to the south, near the Area 51 Alien Center?
“Might not be the end the world,” Donnelly said.
He shot me a grin.
“You know, one thing I like to do …”
Without warning, he took off racing down the dune, carried by momentum and love for the desert. He laughed as he reached a natural stopping point, calling for us to join him. His voice sounded free and full of possibility.
Some solar panels on the horizon wouldn’t have changed that.
Shout it from the rooftops
Laura Cunningham and Kevin Emmerich were a match made in Mojave Desert heaven.
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Cunningham was a wildlife biologist, Emmerich a park ranger when they met nearly 30 years ago at Death Valley. She studied tortoises for government agencies and later a private contractor. He worked with bighorn sheep and gave interpretive talks. They got married, bought property along the Amargosa River and started their own conservation group, Basin and Range Watch.
And they’ve been fighting solar development ever since.
That’s how we ended up in the back of their SUV, pulling open a rickety cattle gate off Highway 95 and driving past wild burros on a dirt road through Nevada’s Bullfrog Hills, 100 miles northwest of Las Vegas.
They had told us Sarcobatus Flat was stunning, but I was still surprised by how stunning. I got my first look as we crested a ridge. The gently sloping valley spilled down toward Death Valley National Park, whose snowy mountain peaks towered over a landscape dotted with thousands of Joshua trees.
“Everything we’re looking at is proposed for solar development,” Cunningham said.
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Most environmentalists agree we need at least some large solar farms. Cunningham and Emmerich are different. They’re at the vanguard of a harder-core desert protection movement that sees all large-scale solar farms on public lands as bad news.
Why had so many companies converged on Sarcobatus Flat?
The main answer is transmission. NV Energy is seeking federal approval to build the 358-mile Greenlink West electric line, which would carry thousands of megawatts of renewable power between Reno and Las Vegas along the Highway 95 corridor.
The dirt road curved around a small hill, and suddenly we found ourselves on the valley floor, surrounded by Joshua trees. Some looked healthy; others had bark that had been chewed by rodents seeking water, a sign of drought stress. Scientists estimate the Joshua tree’s western subspecies could lose 90% of its range as the world gets hotter and droughts get more intense.
But asked whether climate change or solar posed a bigger threat to Sarcobatus Flat, Cunningham didn’t hesitate.
“Oh, solar development hands down,” she said.
Nearly 20 years ago, she said, she helped relocate desert tortoises to make way for a test track in California. One of them tried to return home, walking 20 miles before hitting a fence. It paced back and forth and eventually died of heat exhaustion.
Solar farms, she said, pose a similar threat to tortoises. And at Sarcobatus Flat, they would cover a high-elevation area that could otherwise serve as a climate refuge for Joshua trees, giving them a relatively cool place to reproduce as the planet heats up.
“It makes no sense to me that we’re going to bulldoze them down and throw them into trash piles. It’s just crazy,” she said.
In Cunningham and Emmerich’s view, every sun-baked parking lot in L.A. and Vegas and Phoenix should have a solar canopy, every warehouse and single-family home a solar roof. It’s a common argument among desert defenders: Why sacrifice sensitive ecosystems when there’s an easy alternative for fighting climate change? Especially when rooftop solar can reduce strain on an overtaxed electric grid and — when paired with batteries — help people keep their lights on during blackouts?
The answer isn’t especially satisfying to conservationists.
For all the virtues of rooftop solar, it’s an expensive way to generate clean power — and keeping energy costs low is crucial to ensure that lower-income families can afford electric cars, another key climate solution. A recent report from investment bank Lazard pegged the cost of rooftop solar at 11.7 cents per kilowatt-hour on the low end, compared with 2.4 cents for utility solar.
Even when factoring in pricey long-distance electric lines, utility-scale solar is typically cheaper, several experts told me.
“It’s three to six times more expensive to put solar on your roof than to put it in a large-scale project,” said Jesse Jenkins, an energy systems researcher at Princeton University. “There may be some added value to having solar in the Los Angeles Basin instead of the middle of the Mojave Desert. But is it 300% to 600% more value? Probably not. It’s probably not even close.”
There’s a practical challenge, too.
The National Renewable Energy Laboratory has estimated U.S. rooftops could generate 1,432 terawatt-hours of electricity per year — just 13% of the power America will need to replace most of its coal, oil and gas, according to research led by Jenkins.
Add in parking lots and other areas within cities, and urban solar systems might conceivably supply one-quarter or even one-third of U.S. power, several experts told The Times — in an unlikely scenario where they’re installed in every suitable spot.
Energy researcher Chris Clack’s consulting firm has found that dramatic growth in rooftop and other small-scale solar installations could reduce the costs of slashing climate pollution by half a trillion dollars. But even Clack said rooftops alone won’t cut it.
“Realistically, 80% is going to end up being utility grid no matter what,” he said.
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All those industrial renewable energy projects will have to go somewhere.
Sarcobatus Flat may not be the answer. Federal officials classified all three solar proposals there as “low priority,” citing their proximity to Death Valley and potential harm to tortoise habitat. One developer withdrew its application last year.
Before leaving the area, Cunningham pointed to a wooden marker, one of at least half a dozen stretching out in a line. I walked over to take a closer look and discovered it was a mining claim for lithium — a main ingredient in electric-car batteries.
If solar development didn’t upend this valley, lithium extraction might.
On the beaten track
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The four-wheeler jerked violently as Erica Muxlow pressed her foot to the gas, sending us flying down a rough dirt road with no end in sight but the distant mountains. Five-point safety straps were the only things stopping us from flying out of our seats, the vehicle leaping through the air as we reached speeds of 40 mph, then 50 mph, the wind whipping our faces.
It was like riding Disneyland’s Matterhorn Bobsleds — just without the Yeti.
Ahead of us, Muxlow’s neighbor Jimmy Lewis led the way on an electric blue motorcycle, kicking up a stream of sand. He wanted us to see thousands of acres of public lands outside his adopted hometown of Pahrump, in Nevada’s Nye County, that could soon be blocked by solar projects — cutting off access to off-highway vehicle enthusiasts such as himself.
“You could build an apartment complex or a shopping mall here, and it would be the same thing to me,” he said.
To progressive-minded Angelenos or San Franciscans, preserving large chunks of public land for gas-guzzling, environmentally destructive dirt bikes might sound like a terrible reason not to build solar farms that would lessen the climate crisis.
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But here’s the reality: Rural Westerners such as Lewis will play a key role in determining how much clean energy gets built.
Not long before our Nevada trip, Nye County placed a six-month pause on new renewable energy projects, citing local concerns about loss of off-road vehicle trails. Similar fears have stymied development across the U.S., with rural residents attacking solar and wind farms as industrial intrusions on their way of life — and local governments throwing up roadblocks.
For Lewis, the conflict is deeply personal.
He moved here from Southern California more than a decade ago, trading life by the beach for a five-acre plot where he runs an off-roading school and test-drives motorcycles for manufacturers. His warehouse was packed with dozens of dirt bikes.
“This is my life. Motorcycles, motorcycles, motorcycles,” he said, laughing.
Lewis has worked to stir up opposition to three local solar farm proposals. So far, his efforts have been in vain.
One project is already under construction. Peering through a fence, we saw row after row of trusses, waiting for their photovoltaic panels. It’s called Yellow Pine, and it’s being built by Florida-based NextEra Energy to supply power to California.
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Lewis learned about Yellow Pine when he was riding one of his favorite trails and was surprised to find it cut off. He compared the experience to riding the best roller-coaster at a theme park, only to have it grind to a halt three-quarters of the way through.
“I don’t want my playground taken away from me,” he said.
“Me neither!” a voice called out from behind us.
We turned and were greeted by Shannon Salter, an activist who had previously spent nine months camping near the Yellow Pine site to protest the habitat destruction. She and Lewis had never met, but they quickly realized they had common cause.
“It’s the opposite of green!” Salter said.
“On my roof, not my backyard,” Lewis agreed.
Never mind that conservationists have long decried the ecological damage from desert off-roading. Salter and Lewis both cared about these lands. Neither wanted to see the solar industry lay claim to them. They talked about staying in touch.
It’s easy to imagine similar alliances forming across the West, the clean energy transition bringing together environmentalists and rural residents in a battle to defend their lifestyles, their landscapes and animals that can’t fight for themselves.
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It’s also easy to imagine major cities that badly need lots of solar and wind power — Los Angeles, Las Vegas, Phoenix — brushing off those complaints as insignificant compared with the climate emergency, or as fueled by right-wing misinformation.
But many of concerns raised by critics are legitimate. And their voices are only getting louder.
As night fell over the Mojave, Lewis shared his idea that any city buying electricity from a desert solar farm should be required to install a certain amount of rooftop solar back home first — on government buildings, at least. It only seemed fair.
“Some people see the desert as just a wasteland,” Lewis said. “I think it’s beautiful.”
The view from Black Mountain
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So how do we build enough renewable energy to replace fossil fuels without destroying too many ecosystems, or stoking too much political opposition from rural towns, or moving too slowly to save the planet?
Few people could do more to ease those tensions than Buffett.
Our conversation kept returning to the legendary investor as we hiked Black Mountain, just outside Vegas, on our last morning in the Silver State. We were joined by Jaina Moan, director of external affairs for the Nature Conservancy’s Nevada chapter. She had promised a view of massive solar fields from the peak — but only after a 3.5-mile trek with 2,000 feet of elevation gain.
“It’ll be a little StairMaster at the end,” she warned us.
The homes and hotels and casinos of the Las Vegas Valley retreated behind us as we climbed, looking ever smaller and more insignificant against the vast open desert. It was an illusion that will prove increasingly difficult to maintain as Sin City and its suburbs continue their march into the Mojave. Nevada politicians from both parties are pushing for legislation that would let federal officials auction off additional public lands for residential and commercial development.
Vegas and other Western cities could limit the need for more suburbs — and sprawling solar farms — by growing smarter, Moan said. Urban areas could embrace density, to help people drive fewer miles and reduce the demand for new power supplies to fuel electric vehicles. They could invest in electric buses and trains — and use less water, which would save a lot of energy.
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“As our spaces become more crowded, we’re going to have to come up with more creative ideas,” Moan said.
That’s where Buffett could make things easier.
The billionaire’s Berkshire Hathaway company owns electric utilities that serve millions of people, from California to Nevada to Illinois. Those utilities, Moan said, could buck the industry trend of urging policymakers to reduce financial incentives for rooftop solar and instead encourage the technology — along with other small-scale clean energy solutions, such as local microgrids.
That would limit the need for big solar farms — at least somewhat.
Berkshire and other energy giants could also build solar on lands already altered by humans, such as abandoned mines, toxic Superfund sites, reservoirs, landfills, agricultural areas, highway corridors and canals that carry water to farms and cities.
The costs are typically higher than building on undisturbed public lands. And in many cases there are technical challenges yet to be resolved. But those kinds of “creative solutions” could at least lessen the loss of biodiversity, Moan said.
“There’s money to be made there, and there’s good to be done,” she said.
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It’s hard to know what Buffett thinks. A Berkshire spokesperson declined my request to interview him.
Tony Sanchez, NV Energy’s executive vice president for business development and external relations, was more forthcoming.
“The problem for us with rooftop solar,” he said, is that it’s “not controlled at all by us.” As a result, NV Energy can’t decide when and how rooftop solar power is used — and can’t rely on that power to help balance supply and demand on the grid.
Over time, Sanchez predicted, a lot more rooftop solar will get built. But he couldn’t say how much.
Rooftop solar faces a similarly uncertain future in California, where state officials voted last year to slash incentive payments, calling them an unfair subsidy. Industry leaders have warned of a dramatic decline in installations.
As we neared the top of Black Mountain, the solar farms on the other side came into view. They stretched across the Eldorado Valley far below — black rectangles that could help save life on Earth while also destroying bits and pieces of it.
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Moan believes the key to balancing clean energy and conservation is “go slow to go fast.” Government agencies, she said, should work with conservation activists, small-town residents and Native American tribes to study and map out the best places for clean energy, then reward companies that agree to build in those areas with faster approvals. Solar and wind development would slow down in the short term but speed up in the long run, with quicker environmental reviews and less risk of lawsuits.
It’s a tantalizing concept — but I confessed to Moan that I worried it would backfire.
What if the sparring factions couldn’t agree on the best spots to build solar and wind farms, and instead wasted years arguing? Or what if they did manage to hammer out some compromises, only for a handful of unhappy people or groups to take them to court, gumming up the works? Couldn’t “go slow to go fast” end up becoming “go slow to go slow”?
In other words, should we really bet our collective future on human beings working together, rather than fighting?
Moan was sympathetic to my fears. She also didn’t see another way forward.
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“We really need to think holistically about saving everything,” she said.
The sad truth is, not everything can be saved. Not if we want to keep the world livable for people and animals alike.
Some beloved landscapes will be left unrecognizable. Some families will be stuck paying high energy bills to monopoly utilities, even as some utility investors make less money. Some tortoises will probably die, pacing along fences in the heat.
The alternative is worse.
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Mortgage rates decreased one basis point to 3.10% in the week ending Dec. 9, remaining low and stable despite tighter housing supply and affordability, according to the latest Freddie Mac PMMS mortgage report.
A year ago at this time, the average 30-year fixed-rate loan averaged just 2.71%, according to the report published on Thursday.
Sam Khater, Freddie Mac’s chief economist, said in a statement that rates have moved sideways over the last several weeks, fluctuating within a narrow range.
“Going forward, the path that rates take will be directly impacted by more information about the Omicron variant as it is revealed and the overall trajectory of the pandemic,” Khater said. “In the meantime, rates remain low and stable, even as the nation faces declining housing affordability and low inventory.”
The survey focuses on conventional, conforming, and fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit.
Lenders – Now is the time to prioritize lead generation
HousingWire Editor-in-Chief Sarah Wheeler and Deluxe Senior Business Development Executive Mark McGuinn discuss the challenges lenders are facing to optimize lead generation, even as mortgage rates continue to change.
Presented by: Deluxe
Economists at Freddie Mac said the 15-year fixed-rate mortgage averaged 2.38% last week, down from 2.39% the week prior. However, it’s higher than it was a year ago, at 2.26%. Meanwhile, the five-year ARM decreased to 2.45%, down four basis points from last week. A year ago, 5-year ARMs averaged 2.79%.
Mortgage rates tend to move in concert with the 10-year Treasury yield, which reached 1.52% on Dec. 8, up from 1.43% a week before.
The year-over-year increase in rates is impacting mortgage applications. The latest Mortgage Bankers Association (MBA) survey published on Wednesday showed a 27.3% decline for the week ending Dec. 3, in comparison to a year ago. The decline is higher in refinance (36.5%) than in purchases (9.4%).
Compared to the previous week, the overall market composite index grew 2% on a seasonally adjusted basis.
“Mortgage rates declined for the first time in a month, prompting a pickup in refinancing, with government refinances increasing more than 20% over the week,” Joel Kan, the MBA’s associate vice president of economic and industry forecasting, said in a statement. “Borrowers are continuing to act on these opportunities, but if rates trend higher as MBA is forecasting, the window of opportunity to refinance will continue to get smaller.”