U.S. Housing and Urban Development Secretary Alphonso Jackson announced this morning that he would be stepping down on April 18th, according to a statement posted on the HUD website.
“During my time here, I have sought to make America a better place to live, work and raise a family,” said Jackson, who served as Deputy Secretary and then Secretary.
“I take great pride in working alongside some of the most dedicated civil servants in America. The hardworking people at HUD make a difference in the lives of thousands of Americans daily.”
“There comes a time when one must attend more diligently to personal and family matters. Now is such a time for me,” Jackson added.
Jackson joined the Bush Administration in June of 2001 as HUD’s Deputy Secretary and Chief Operating Officer and was unanimously confirmed as the nation’s 13th Secretary of HUD by the Senate on March 31, 2004.
About two weeks ago, Senate Banking, Housing and Urban Affairs Chairman Chris Dodd and Patty Murray, who chairs the appropriations subcommittee that oversees HUD, sent a letter to President Bush calling for Jackson’s resignation.
The two cited favoritism and cronyism by Jackson, noting that he avoided direct questions about the issues at hand and was not fit to serve as HUD chief.
Most notably, Jackson was accused of bullying the Philadelphia Housing Authority after it refused to transfer a valuable property to one of his business associates.
“I recently voiced my concerns about Secretary Jackson’s ability to provide the leadership necessary during these trying times for our country while under the cloud of various investigations into alleged impropriety,” said Dodd in a statement on his website.
“I hope this change in personnel will be matched by a change in policy that brings real solutions to the housing crisis that has triggered this economic recession. I stand ready to work with the President and his new HUD Secretary to that end.”
Thanks to a record number of price cuts and a big improvement in mortgage rates, home buying conditions have improved tremendously.
Taken together, you might be able to snag a lower purchase price and finance the property with a mortgage rate about .50% lower than what was on offer last month.
Does this mean it’s time to rush out to buy a home? Or does it continue to pay to be patient?
Personally, I’m still in the no-rush camp, but if you do see something you love, the price tag could be a little lower.
And there may be less competition as it tends to drop off later in the year as buyers get consumed with other things.
Unseasonal Increase in For-Sale Listings as Asking Prices Drop
Redfin reported this morning that some “glimmers of hope” are emerging for prospective home buyers.
The first one being that new listings increased 1.5% from a year ago during the four weeks ending November 5th.
This was just the second such increase since July 2022, a testament to the continued short supply plaguing the housing market.
They noted that this increase is partly because new listings were falling during this period last year.
At the same time, active listings are at their highest level since the beginning of 2023, and months of supply ticked up 0.2 points to 3.6 months.
Inventory remains constrained nationally, with 4 to 5 months typically signifying healthy supply. But it is rising, which appears to be leading to price reductions.
And the share of listed homes with a price drop increased to 6.8%, a new record high.
However, the median asking price was still 4.9% higher than a year ago at $379,725, the biggest increase in over a year.
This means the median monthly mortgage payment remains near an all-time high of $2,732, assuming a 7.76% 30-year fixed mortgage rate.
The monthly mortgage payment hit an all-time high two weeks ago when it was $8 higher.
Total Housing Payments Are Up Over 10% From a Year Ago
When you factor in the steeper asking prices and the higher mortgage rates, total housing payments are still up 10.6% year-over-year.
So despite increased inventory and rising price cuts, it’s not as if discounts are rolling in.
The only real improvement has been a pullback in rates, providing a boost to affordability in an otherwise bleak environment.
If you zoom out and look at all of 2023, and ignore the month of October, mortgage rates remain close to their highs for the year.
In other words, while affordability improved relative to a month ago, it remains at/near its worst levels of the year.
As such, it might benefit buyers to continue to wait for prices/rates to come down further.
This counters advice from Redfin economists, who “recommend that serious homebuyers consider locking in a mortgage now.”
The economists, like many others, are cautious with regard to mortgage rates and concerned they could easily reverse course.
They cite the upcoming CPI report, which will be released on November 14th. If you reveals that inflation ticked up again, mortgage rates could resume their climb.
And they’re not wrong that it’s much easier for mortgage rates to go up than come down.
Mortgage lenders are generally defensive in their pricing. They’re happy to raise rates at the drop of a hat, but reluctant to lower them, even if the data supports it.
So if you are far along in the home buying process, it could make sense to lock in a mortgage rate and avoid taking chances.
Prices and Rates Could Continue to Fall into December
It could make sense to continue to wait to buy a home, as pressure has finally seemed to ease on mortgage rates.
At the same time, housing inventory is climbing at a time of year when it typically doesn’t, indicating possible incoming weakness on pricing.
This means it could be beneficial to bide your time on a home purchase, instead of rushing in to nab what could in hindsight be a small discount relative to recent levels.
A while back, I dug through Freddie Mac data and found that mortgage rates tend to be lowest in December.
The 30-year fixed has averaged 5.97% in the month of December, nearly 0.25% lower than the 6.18% rate typically seen in the months of April and May.
Those months also tend to be when homes sell for the most money as it’s the traditional spring home buying season.
There are more buyers out, more demand, increased bidding wars and competition, and higher rates.
So there’s certainly an argument to be made about buying a home in the latter months of 2023, at least relative to other months recently.
But overall, it still feels like it’s not a good time to buy a home, at least from an investment standpoint, in most areas of the country.
Until asking prices and mortgage rates come down, it could pay to continue waiting for better.
Start closing more contacts with conversations that convert! Today’s guest, Alan Stewart Jr., has mastered the art of conversation and joins us to share tips on converting potential clients. Alan also discusses the steps Realtors should take in order to become real estate authorities, the best measure of success, and the value in finding your why. Tune in and learn how to turn your next conversation into a business opportunity!
Listen to today’s show and learn:
Why Alan Stewart Jr. got into real estate [2:20]
The value in finding your why [5:22]
A better way to measure success: The Six Cs [9:59]
Three categories for increasing conversion [14:24]
Why it can be difficult to win business from friends and family [16:13]
One way to become an authority figure instantly [19:07]
Why niching down is a great strategy for building your business [20:33]
Developing skills in a specific subject matter [22:50]
Creating a database of your ideal clients [26:32]
Identifying sources for sales [27:40]
The three parts of conversations [31:27]
How seemingly forced conversation starters can work [33:59]
Getting good at conversations in order to convert [36:21]
Getting better at social cues [38:29]
Establishing a high-quality follow-up sequence [40:21]
Alan’s advice on real estate CRMs [43:15]
Alan Stewart Jr.’s upcoming book, Becoming More [43:46]
Where to find and follow Alan Stewart Jr. [46:18]
Overcoming call reluctance to build your skills [49:57]
Alan Stewart Jr.
Alan Stewart Jr. started in Real Estate in Late 2015. In 2016, he founded a brokerage out of a basement Called Yellowbrick where he was the only agent. Since then, he has grown the brokerage from himself and a partner to nearly 100 agents and does over 300 million in annual sales volume. The brokerage currently sits at number 15 in the State of CT in both units sold and Volume sold.
He was Realtor of the Year in 2017. He has coached hundreds of agents and responsible for dozens for becoming nationally top-producing Realtors.
In 2021, he founded ASK insurance which currently has over 70 Carriers and a book of business of over 2 million dollars. He is a Real Estate investor that has flipped over 100 properties and owns a few million dollars in rental properties. Alan will say his biggest accomplishment is being a dedicated and present single father of his son, Alan Stewart III.
Alan believes in living a large life through faith, self-improvement and disciplined consistency so he can give MORE, that is why he helps raise 10’s of thousands of dollars for charity every single year for the last half decade for a variety of causes.
Related Links and Resources:
It might go without saying, but I’m going to say it anyway: We really value listeners like you. We’re constantly working to improve the show, so why not leave us a review? If you love the content and can’t stand the thought of missing the nuggets our Rockstar guests share every week, please subscribe; it’ll get you instant access to our latest episodes and is the best way to support your favorite real estate podcast. Have questions? Suggestions? Want to say hi? Shoot me a message via Twitter, Instagram, Facebook, or Email.
The average American net worth varies due to many factors, with some people making far more than others. If you’re behind the national average, it may seem difficult to catch up, but whether you have bad credit or a lot of debt, you can still begin building your net worth by learning how to generate passive income.
Passive income is a great way to generate more income, pay down your debt, and start saving and investing for your future. Here you’ll learn what passive income is, as well as different ways to make passive income online and offline. With 25 passive income ideas, there is something for everyone.
25 Passive Income Ideas:
Write an E-Book
Start a YouTube Channel
Try Affiliate Marketing
Create a Blog
Sell Stock Photos and Videos
Create an Online Course
Make Sponsored Content
Invest in Dividend Stocks
Invest in REITs
Invest in Index Funds and ETFs
Try Peer-to-Peer Lending
Stake Cryptocurrency
Utilize High-Yield Savings Accounts
Buy Government Bonds
Invest in Art
Buy Property to Rent
Rent Out a Room in Your Home
Buy Domain Names
License Your Music
Design Custom Products
Rent Out Your Vehicle
Use Your Vehicle as Ad Space
Create an App
Flip Unique Items
Rent Out Your Parking Space
What Is Passive Income?
Passive income is a type of income that comes from sources other than your regular employment, and involves a more hands-off approach. Passive income isn’t a “get rich quick” scheme, though some companies make big claims about generating passive income without any work. Passive income does take work to set up, but the goal is that you can make money without managing it on a day-to-day basis.
You’ll generally do most of the work by setting up your source of passive income. While it may require some upkeep every now and then, like updating a product or maintaining a rental property, you’ll earn the majority of your income while pursuing other endeavors.
Like other sources of additional income, passive income is taxable, but when done correctly, you can make enough passive income to surpass your tax bill.
1. Write an E-Book
Whether you’re a writer or not, an e-book can be a fantastic way to generate passive income. We no longer live in a world where publishers are the gatekeepers of books, so you can self-publish a book that can generate passive income. Various websites let you self-publish books, like Amazon’s Kindle Direct Publishing, Apple Books, and Barnes & Noble. Some of these sites also offer print-on-demand services for customers who want physical copies.
You can write a nonfiction book if you’re knowledgeable about a certain subject, or you can write fiction if you have an interesting story idea. Although this can generate passive income, self-publishing can require a bit of an investment. You’ll need to pay for an editor and book cover designer, and you may also want to pay for advertisements. But if you can do the cover art and marketing on your own, you may be able to save some money.
2. Start a YouTube Channel
There are many ways to make money using social media, but YouTube is one of the best ways to make passive income. YouTube pays content creators to run ads on their videos. In order to qualify for the YouTube Partner Program, you’ll need at least 500 subscribers, three new videos within the last 90 days, and 3,000 watch hours within the last year. Previously, you needed 1,000 subscribers and 4,000 watch hours, but the policy was updated in June 2023 with lower requirements.
Like other sources of passive income, making money from YouTube will require an up-front investment of time and money. You need a stable internet connection, camera, microphone, computer, and editing software. You also need to make consistent videos to qualify for the partner program. You can eventually generate passive income by making evergreen videos, because people will watch old videos that bring in revenue—and the more videos you have on your channel, the more money you can make.
3. Try Affiliate Marketing
Affiliate marketing is when you share a link to a product or service, and the company gives you a percentage of any sales made through that link. You can share these links on your social media pages, blog, newsletter, or anywhere else that allows you to post a link. Affiliate marketing is one of the best online passive income opportunities, and you can combine it with any other online method we mention in this article.
One of the most popular affiliate link programs is Amazon Associates. Let’s say you have a YouTube channel where you review electronics, and you make a video reviewing a new TV or laptop. If you link to that product on Amazon with your affiliate link, you’ll receive a percentage of the sale each time someone uses your link.
This isn’t only limited to Amazon, either. Many companies offer affiliate links, so it can be advantageous to reach out to companies for products and services you use regularly to see if they have an affiliate program.
4. Create a Blog
There are a variety of ways to make money from writing a blog. Like YouTube, old blog posts can generate passive income even if people read the post months or years after you wrote it. If you create your own website to host your blog, you can integrate Google Ads and use affiliate links to make money online.
Platforms like Substack combine blogs and newsletters, so every time you write a new post, subscribers receive an email. You can have paid subscriptions on Substack, so users pay a monthly fee to read your posts, and you can have free posts that go out to non-paying subscribers as well.
5. Sell Stock Photos and Videos
If you’re a photographer or videographer, you can earn money for your photos and videos. There are many different websites that buy stock photos and videos, like Shutterstock, iStock, and Getty Images. One thing to consider is that the website gets exclusive rights to your images or videos, but on some sites you can make between 15% and 45% in royalties.
6. Create an Online Course
Many people have expertise in a certain area, and utilizing your knowledge and skills to create an online course is a great way to make passive income online. For example, you can create a course for how to knit, how to take amazing photos, or how to program an app. Websites like Kajabi and Teachable allow you to host and sell your courses.
You may need to invest some time and possibly money in marketing your course to ensure you find the right audience. Some course-hosting platforms like Skillshare also categorize courses by topic for better discoverability.
If you start gaining a following on social media platforms or through a blog, you may get the opportunity to do sponsored content. Companies want to ensure they target the right audience, so if you have followers who may buy their product or service, they’re more likely to sponsor a piece of content. This typically means you discuss their product in a video or write about it in a caption.
In order to generate passive income from a sponsored opportunity, the company will give you an affiliate link. This allows you to make money up front for the sponsored content as well as passive income from anyone who uses your link to buy the product or service.
This route for passive income may take some time because companies typically want people to have a decent following before sponsoring content.
8. Invest in Dividend Stocks
Stocks can be a great way to make money while also investing in your future. When you buy a stock, you buy a small portion of a company. If the stock price rises and you sell it at a higher price, you make a profit, but the stock can also drop in price and lose you money. Some, but not all, stocks offer dividends, which pay investors a dividend per share if the company has a profitable quarter.
When the stock pays out dividends, you can receive the payment directly from your brokerage or reinvest the dividends by buying more of the stock. Like other investments, this can compound and turn into a lot of money over time if the company continues to profit. As you invest in dividend stocks, keep in mind the companies can raise or lower the dividend percentage at any time.
Use MarketBeat’s dividend calculator to look up specific stocks and estimate dividend returns.
9. Invest in REITs
Real estate investment trusts (REITs) are another investment opportunity. Rather than investing directly in a property, you can invest in a REIT, which is a company that owns and manages real estate.
Similar to other investments, there is risk that comes along with investing in REITs. For example, there’s a possibility your REIT investments will lose money if there’s a drop in the housing market.
10. Invest in Index Funds and ETFs
Index funds and exchange-traded funds (ETFs) are some of the safest investments because they offer diversification. Rather than investing in one company, index funds and ETFs allow you to invest in multiple companies simultaneously.
Legendary investor and founder of Vanguard John Bogle was a major advocate for index fund investing. More specifically, he advised people to invest in the S&P 500, an index of the 500 largest companies in the United States. ETFs are slightly different because there are higher fees, but they allow you to invest in a group of stocks for a specific industry. For example, ARKK is an ETF that holds shares for companies that work on innovative technology.
There is still a risk when investing in index funds and ETFs, but they are often lower risk than other forms of stock investing.
11. Try Peer-to-Peer Lending
Another way to make passive income is to become your own type of “bank” by doing peer-to-peer lending, sometimes called P2P lending. Banks make money on loans by charging interest to customers, and P2P lending allows you to do the same thing. Websites like Prosper and Funding Circle allow everyday people to lend and borrow money with various interest rates.
12. Stake Cryptocurrency
Cryptocurrency investing is a highly volatile form of investing, making it especially high risk. Some cryptocurrency platforms allow you to “stake” your crypto, which is when you allow the platform to hold your crypto and lend it to other people. Similar to P2P lending, you make money off the interest.
Cryptocurrency lending and trading is also high risk because there is little to no regulation. Crypto platforms like Voyager have been known to offer extremely high returns and then go bankrupt, preventing them from paying back their users. In extreme cases, there are stories of fraudulent activity from crypto platforms. But if you have a high risk tolerance, this form of investing can be incredibly lucrative.
13. Utilize High-Yield Savings Accounts
A safer way to make passive income is to open up a high-yield savings account, which allows you to make money simply by holding it in your account. Banks use customer funds to lend out money, but unlike crypto staking, bank funds are backed by the U.S. government via the FDIC. This means that if, for some reason the bank doesn’t have the money when you want your funds, the government would provide the bank with the money to pay you up to $250,000.
Many banks and financial institutions offer high-yield savings accounts, with some offering an annual percentage yield (APY) of over 4%. So if you opened an account with a 4.5% APY and deposited $1,000, you would have $1,045 after a year.
People maximize their passive income by not touching this money because it compounds each year. So using that same example, in the second year, you would then earn 4.5% of the $1,045 rather than the original $1,000. And if you add to the savings account each month, you can make quite a bit of money over time.
14. Buy Government Bonds
Perhaps the safest way to earn passive income from investing is to buy government bonds. A government bond is basically a loan to the federal government that pays you back the original amount with interest over a certain period. The reason government bonds are so safe is because the government backs them. When buying a stock, it’s possible to lose your money if the company goes out of business. Bonds are safer because as long as the government exists, you’ll make your money back.
Although government bonds are very low risk, they also offer low returns. Depending on various factors, government bonds may offer a 3–5% return over two to 30 years. To put that into perspective, S&P 500 index fund investing offers an average return rate of over 7.5%[1] .
15. Invest in Art
Similar to stocks, you can also invest in artwork. One way to do this is to buy works of art that you believe will increase in value later. If you’re knowledgeable about art and can find pieces selling for below their value that you can sell later for a profit, you can make a bit of money. Websites like Masterworks allow you to buy shares of artwork with other investors so you take on less risk.
16. Buy Property to Rent
Many people generate passive income by purchasing properties to rent. If you can afford the initial investment of buying a single-family home or condo, you can then rent them out to tenants for a profit. For example, if you buy a house and your mortgage is only $1,000, you can make a profit by charging any amount over your mortgage cost.
In order to take advantage of the passive income aspect of renting, you may benefit from hiring an individual or company to manage the property. Property managers collect the monthly rent and take care of maintenance issues for a fee. Should you decide to invest in rental properties, it’s helpful to factor in the cost of potential home repairs before, during, and after tenants live there.
17. Rent Out a Room in Your Home
If you don’t have the money for a down payment or don’t want to take on the risk of purchasing a rental home, you can always make some extra income by renting out a room. If you have a spare room in your home, you can rent it out for a monthly fee. This is a great option for families whose children recently moved out.
You can use websites like Airbnb and VRBO to connect you with renters. Although many people use Airbnb for short-term rentals during vacations, you can also offer long-term rentals through the website. These sites also let you vet renters before they move in, so you have control over who rents the room.
18. Buy Domain Names
Buying domain names is a sort of investing, so it does come with some risk. People and businesses buy domain names to host their websites, so you can purchase a variety of inexpensive domain names in hopes of people buying them from you later for more. You can typically buy domain names for less than $10 through websites like GoDaddy, but if they don’t sell, you’ll need to pay the annual cost to keep the name.
While this may be a risky investment, people have made a lot of money flipping domain names. It was a big money-maker during the “dot com boom” in the 1990s, Help.com sold for $3 million and NFTs.com sold for $15 million in 2023. Many domains don’t sell for millions, but you may still be able to make a decent profit off domain names in high demand.
19. License Your Music
If you’re a musician, you can license your music in a similar way to selling stock photos and videos. Some websites like Music Vine pay musicians 30% for nonexclusive deals or more for an exclusive license. There are also websites like Epidemic Sound that market to YouTubers and filmmakers by offering a subscription service for royalty-free music.
20. Design Custom Products
For those who are artistically inclined, you can make money creating designs and selling them on websites that sell custom products. Websites like Redbubble, Teespring, and Society6 offer print-on-demand services for your artwork. These websites sell a wide range of products like T-shirts, coffee mugs, phone cases, and more. You get a percentage of the sale every time a customer goes to the website and chooses your design for any of these products
If you have old artwork you created in the past or simply feel like creating in your spare time, you can generate passive income as long as your art is hosted on these types of websites.
21. Rent Out Your Vehicle
Services like Uber and Lyft are popular side hustles, but you can make passive income by renting out your vehicle instead. When people are traveling or have their car in the repair shop, they often need a vehicle to get around. Rather than going to a rental car company, they can rent a vehicle through other websites like Turo or Getaround.
22. Use Your Vehicle as Ad Space
In addition to renting out your vehicle, you can make passive income by using your vehicle as ad space.
Websites like Wrapify connect businesses and drivers, and depending on how much of your car you’re willing to cover with ads, Wrapify will pay you between $181 and $452 per month. There are also sites like FreeCarMedia.com that pay you for wrapping your vehicle or simply advertising on your rear window.
23. Create an App
If you’re a programmer who can create an app, this may be the best way for you to make passive income. Whether it’s a fun game or an app that provides value and convenience, use your creativity and skills to generate income. Apple and Google allow developers to submit their apps, giving you a percentage of the sale each time someone buys the app.
24. Flip Unique Items
One of the oldest ways to generate passive income is to buy unique items, hold them, and sell them at a later date for a profit. If you’re knowledgeable about a certain type of item or are willing to learn, you can make a decent amount of money by buying and holding items.
This is ideal for people who like shopping at thrift stores or going to garage sales. You may find antique toys, memorabilia, sports trading cards, comic books, or other items for a low price that are either worth a lot of money now or will be in the future.
To sell the items or see how much items are selling for, you can use websites like eBay, OfferUp, Craigslist, or Facebook Marketplace.
25. Rent Out Your Parking Space
Some people are willing to pay for a good parking spot. If you have a space you’re not using or don’t mind giving up, you can make money renting it out—especially if you live in an urban area. Websites like SpotHero allow you to list your space.
What’s the Best Source of Passive Income?
The best source of passive income is unique to each individual. There are many options on this list, and some allow you to capitalize on different skill sets. For example, if you have expertise in certain subjects, the best sources of passive income may be online courses and e-books. If you have knowledge about stocks or are willing to learn, investing may be the best option.
When deciding which passive income sources are right for you, it may be beneficial to weigh out the pros, cons, and risks of each one. Remember that many of these options require an initial investment of money and time to get started. Consider your own risk tolerance and financial situation before going all in on any of these methods.
Do You Need Money to Make Passive Income?
While you’ll need money to get started with many passive income ideas, this isn’t the case for every method. For example, if you own a vehicle or have an extra room in your home, you can start renting them out. If you have a computer and internet connection, you have even more options.
Many people who make passive income succeed because they are willing to learn and can invest time into researching these topics. There’s a wealth of information online where you can learn how to excel at specific passive income opportunities like writing an e-book, succeeding as a YouTuber, or using affiliate links.
The Benefits of Multiple Streams of Income
Depending on your specific situation, you may want more than one source of passive income. Whether you’re already in a healthy financial situation or are trying to build your personal wealth and credit score, more income streams means more financial freedom.
The primary benefit of passive income is that you can make money with minimal effort. This means once you get one source of passive income rolling, you can begin adding others so you have multiple income streams that don’t require too much time or attention.
How Passive Income Can Help Improve Your Credit Score
A poor credit score can lead to many challenges—like making it difficult to get approved for new lines of credit, loans, and rental applications—and cost you a lot of money in interest in the long run. Passive income can help you fix your credit by allowing you to pay off your debts. Lenders also look at your total income, so making additional income can help with approvals for new lines of credit, which can also help improve your score. It’s important to know the current state of your credit health. You can get a free credit report card on Credit.com which breaks down your credit score factors and assigns a letter grade for each area, or sign up for our ExtraCredit® subscription for additional credit tools.
Last week provided a terrific, real-life stock market lesson. Let’s dive in.
First, Some Context…
Let’s zoom out to 2023 as a whole.
The market was up 9% in January
Then down 8% the next 6 weeks
Then steadily up from mid-March through the end of July – up 20% on the year
Leading into a recent 3 months of pain – down 10.3% from July 31 through October 27
Why has the market dropped over the past 3 months? It’s strange logic, but it makes sense if we tease it out.
We all know inflation reared its head in 2022, causing the Federal Reserve to raise interest rates faster than ever. Higher rates = slower economy = less inflation.
But a slower economy also presents a challenge for businesses. They’ll be less profitable. And that leads to lower returns for stockholders (stocks, after all, are nothing more than ownership shares of a business).
Stock investors are peering into the future. Will the Federal Reserve continue to hike rates? That’s bad for businesses, bad for stocks, and would push the stock market down. Or will the Federal Reserve stop hiking or even cut rates? Good for business, good for stocks, markets would rise.
Paradoxically, good economic news in 2023 has caused investors to think, “The economy is still too hot, so the Fed will have to raise rates in response, pushing the stock market further down.” Good economic news –> lousy stock market news.
That logic explains the market’s pessimism since July.
Changing Expectations
But last week, on November 1st, Jay Powell (Chairman of the Federal Reserve) announced that – at least for now – the Fed was done raising rates. This caught some investors by surprise. To see this surprise in data, let’s look at the Fed Funds futures data a.k.a. how investors believe interest rates will change over time.
Before the announcement (left, below), investors thought there was a ~30% chance of a rate hike by early 2024. After Powell’s announcement (right, below), that probability dropped to 5%. In other words, a previous expectation was significantly changed.
This is a crucial market fact. News alone doesn’t shock the stock market. But news that differs from expectations does. Investors re-write their previous assumptions, changing their opinions about the “correct” price of stocks. And those changes hit the market suddenly.
Powell’s announcement last week did just that.
The end of interest rate hikes means businesses will be more profitable and sooner. That’s good for stock owners. Their shares are worth more than previously assumed. The market jumped up 6% in one week.
The Real Lesson
What have we learned? We want to anticipate when news “differs from expectations,” right? Not quite.
I mean, we would if we could. But we can’t.
Predicting the future is impossible enough. Let alone predicting the future when looking for news that others disagree with.
Instead, the lesson is to accept that you can’t predict the future. And to continue holding your pre-defined asset allocation through thick and thin.
It’s not easy. Watching our stock allocations drop 10% from July through October wasn’t fun! It’s all too human to think, “I’m going to bail. Time to sell. I’ll buy back in once all this volatility is over with.“
Unfortunately, the volatility never ends. It’s a feature of the stock market (not a temporary bug). And volatility acts in both directions. Last week was a perfect example. The stock market can (and will again) jump 6% in a week. You’d have missed that sudden surge if you had sold to wait for calmer waters.
Stocks will always have days of up or down 1% or more.
And weeks of up or down 5% or more.
And months of 10% or more.
And years of 30% or more.
Not every day, week, or month. But many. If you, like me, plan to hold stocks for decades to come, we’ll face such volatility regularly.
But you won’t hit the peaks if you bail during the valleys. You simply won’t see them coming and won’t be invested when they arrive.
Buy and hold. Stay the course. Don’t try to predict the future.
Thank you for reading! If you enjoyed this article, join 7000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
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The 85 per cent LTV (loan-to-value) five-year mortgage rate dropped below five per cent for the first time since June — and some expect it could “continue to edge downwards”.
Sitting at 4.99 per cent, the Rightmove numbers came after the Bank of England’s decision last week to hold interest rates for the second time in a row.
Simon Gammon, managing partner at Knight Frank Finance, said the below five per cent mortgage rates would help improve property market sentiment, “but only to a point” as many borrowers are “rolling off deals below 2%”.
He added: “The Bank of England’s decision to hold at 5.25% was largely priced in, and we expect the rate of inflation to be the biggest determinant of whether we see more substantial mortgage rate cuts before the end of the year.”
The typical five-year fixed rates could ease to around 4.5 per cent by the end of the year, Gammon said, if the annual rate of inflation subsides to between four and five per cent as expected by the Bank of England.
“Most borrowers are currently opting for tracker products, taking the view that, even if the Bank does opt to raise the base rate again, they would like to benefit from cuts to the base rate next year,” he said.
Rightmove’s mortgage expert Matt Smith said: “A second consecutive pause is a good indicator that the Base Rate has reached its peak, which will be reassuring to those looking to take out a mortgage soon.
“We’ve now seen the arrival of a sub-5%, 5-year fixed rate mortgage in the important 85% loan-to-value bracket — the deposit size we see for many first-time buyers and home-movers.
After sinking Friday, shares of Washington Mutual bounced back in a major way following a report from the Wall Street Journal claiming a significant capital infusion was in the works.
The Journal reported this morning that the Seattle-based thrift is close to a deal with private equity firm TPG that would provide the ailing national bank and mortgage lender with a much needed $5 billion investment.
The deal would help the nation’s largest savings and loan navigate through the mortgage crisis, but result in further dilution for shareholders who have already lost their hats over the last several months.
The terms of the deal aren’t clear, but the $5 billion investment is expected to be structured as a common and preferred stock offering that would land TPG with a “substantial minority holding” in WaMu.
TPG is also expected to get one seat on the company’s 14-member board and the move should eliminate the likelihood of a buyout from another large bank, perhaps quelling the possibility of a Chase WaMu merger.
At the same time, concerns remain if $5 billion will be enough to buoy the struggling thrift, with much of its mortgage holdings in hotbeds like California and Florida, markets that continue to face significant downward pressure.
Late last year, WaMu took a major step back in the home lending business, cutting 3,000 jobs and closing several sales and processing centers throughout the country.
The company also cut its dividend by 73 percent and offered $2.5 billion in convertible preferred stock in a bid to raise capital.
So far 2008 has been the year of the bailout, with Bear Stearns, Thornburg Mortgage, and Washington Mutual all requiring major assistance as mortgage losses continue to pile up.
The paper noted that the government was aware of the deal, but not directly involved, such as in the case of the Chase buyout of Bear Stearns.
Shares of Washington Mutual were up $2.81, or 27.63%, to $12.98 in afternoon trading on Wall Street.
In related news, Accredited Home Lenders said today that it will resume lending after receiving a $100 million capital infusion from its parent Lone Star funds.
Good morning and thank you for joining today’s call to review Freddie Mac’s business and financial results.
As many of you know, September marked 15 years since Freddie Mac entered government conservatorship. And the company has made significant progress.
While much remains to be done, and this company is committed to the work, today I will cover three topics that illustrate how far Freddie Mac has come since 2008:
First, how the company has intensified its focus on mission, particularly related to affordable housing.
Second, how risk has been reduced.
And finally, how Freddie Mac has made progress in its work to build financial stability.
Then I will turn it over to our CFO, Chris Lown, for an update on the company’s third quarter financial performance.
Ongoing Improvement
Mission
Let’s start with mission.
Over the past few years, Freddie Mac has strengthened its focus on its mission and embraced an expansive view of support for affordable housing.
Freddie Mac strives to meet or exceed a number of affordable housing-related commitments, such as:
Affordable Housing Goals in both Single Family and Multifamily,
The Duty to Serve Plan, which targets high-needs rural regions, manufactured housing, and affordable housing preservation.
And that includes the company’s payments into the Capital Magnet Fund and Affordable Housing Trust Fund, which now top $2.2 billion.
And finally, Freddie Mac’s Equitable Housing Finance Plan, which expands the company’s efforts to promote equity in the Single-Family and Multifamily markets.
Regulatory commitments are the baseline expectation. Today, the company approaches mission more broadly, with a range of initiatives to help renters, lenders, diverse developers and other market participants. For example:
Single-Family improved its technology to help borrowers with thin credit files by allowing lenders to access bank data, tax transcripts and direct deposit data to verify critical information such as income, assets, and on-time rent payments.
Multifamily is helping renters prepare for homeownership though an on-time rent reporting initiative, which helps them establish or raise credit scores. To date, more than 375,000 renters can participate.
Freddie Mac has also provided tools to help borrowers receive down payment assistance, including through Special Purpose Credit Programs and the newly launched DPA One tool, both of which I have discussed previously.
This company’s commitment to housing affordability is more ingrained in its DNA than ever before.
Reducing Risk
That’s equally true for the company’s commitment to strong risk management. Today, it is both a requirement and a vital part of Freddie Mac’s identity.
Here are just a few of the many examples:
Since 2008, Freddie Mac has reduced its mortgage-related investments portfolio down to approximately $85 billion. This is less than one-tenth of its $867-billion peak.
In 2020, the company adopted bank-like capital requirements designed to backstop its risks and has been steadily building total equity to meet those requirements.
And finally, Freddie Mac pioneered credit risk transfer. CRT brings billions of dollars of private capital into the U.S. housing finance system, dramatically reducing taxpayer exposure and lowering the company’s own risk.
In fact, the third quarter marked 10-years since the first Single-Family CRT transaction.
To date, Freddie Mac’s Single-Family CRT program has transferred more than $108 billion of credit risk on approximately $3.3 trillion of mortgages.
Multifamily has also protected a half-trillion dollars of loans via its K-Deal program, which started in 2009.
Ensuring Stability
Finally, let me turn to the growing stability of Freddie Mac’s financial position after 15 years of change and improvement.
In the third quarter the company earned $2.7 billion and grew its net worth to $44.7 billion.
Furthermore, credit quality today is strong in both the Single-Family and Multifamily mortgage businesses. Chris will say more about that in a moment, but it is clear that the changes the company made since 2008 have set Freddie Mac on a new course.
Keeping What Works
While the company made significant strides to improve its focus and performance over the past 15 years, it still preserved the core elements of Freddie Mac that have worked for decades.
That includes support for the 30-year mortgage—the cornerstone of the American housing finance system and Freddie Mac’s business. Thirty-year fixed-rate mortgages accounted for more than 90 percent of the home loans we purchased this year.
Freddie Mac is also helping provide access to housing for low- and moderate-income renters and borrowers.
Support for first-time homebuyers is near all-time highs at 50 percent of purchase loans.
And more than 90 percent of the eligible rental units financed were affordable to low-income and working families.
The company also has preserved small lenders’ access to the secondary mortgage market via the cash window.
And it enhanced liquidity in the to-be-announced market as one of the leaders in the creation of the uniform mortgage-backed security, one of the most significant changes to the market in a generation.
Since inception more than $284 trillion of UMBS have been traded.
Finally, Freddie Mac has maintained its counter-cyclical role. The company’s market presence in the early days of the pandemic and current support for the housing market are solid examples.
Playing an Important Role
Before I turn it over to Chris Lown, allow me to put the work of thousands of talented people over 15 years into context.
Since 2008, Freddie Mac has:
Provided more than $8 trillion in liquidity to the mortgage market,
Helped nearly 11 million homebuyers, including more than 4.1 million first-time homebuyers, and
Funded more than 8.3 million rental units, 87 percent of which were affordable.
Further the company has returned nearly $120 billion to taxpayers, approximately 67 percent more than it borrowed from the U.S. Treasury.
And most importantly, Freddie Mac is a strong, stable organization that is unwavering in its focus on Making Home Possible for renters and borrowers well into the future.
Now, let me turn it over to Chris.
Financial Results (Remarks of Chris Lown)
Thank you, Michael, and good morning.
As Michael noted, this morning we reported net income of $2.7 billion for the quarter, an increase of $1.4 billion, or 104 percent, year-over-year. This increase was primarily driven by a credit reserve release in our Single-Family business versus a credit reserve build in the prior year quarter.
Third quarter net revenues were $5.7 billion, an increase of $509 million, or 10 percent, year-over-year. This increase was driven by both higher net interest income and higher non-interest income. Net interest income increased 4 percent year-over-year to $4.7 billion, driven by higher investments net interest income benefiting from higher short-term interest rates. Non-interest income of $941 million was up 50 percent year-over-year driven by higher Multifamily guarantee income and higher investment gains.
An increase in observed and forecasted house price appreciation drove a $263 million benefit for credit losses this past quarter versus an expense of $1.8 billion in the prior year quarter.
In the third quarter of 2022, the provision for credit losses was driven by deterioration in housing market conditions coupled with lower observed and forecasted house price appreciation.
These increases were partially offset by a $751 million, or 41 percent, increase in our non-interest expense, which was primarily driven by an allocation of $313 million for the accrual for the judgement in the Fairholme Funds litigation and a $314 million decrease in Single-Family credit enhancement recoveries due to a decline in expected credit losses on covered loans.
Our total mortgage portfolio at the end of the third quarter was $3.5 trillion, a 2 percent increase year-over-year.
Single-Family Business Segment
Turning to our individual business segments, the Single-Family segment reported net income of $2.3 billion for the quarter, up $1.5 billion, or 176 percent, from the prior year quarter.
Single-Family net interest income of $4.5 billion was up 4 percent year-over-year, primarily driven by higher income on our investment portfolio, which benefited from higher short-term interest rates, partially offset by lower deferred fee income recognition as prepayments slowed due to higher mortgage interest rates. Mortgage interest rates at the end of this quarter were 7.31 percent, up 61 basis points from the prior year quarter. Non-interest income for Single-Family was $393 million this quarter, up $335 million from the prior year quarter. This increase was primarily driven by higher net investment gains which benefited from higher interest rate-related gains.
Our benefit for Single-Family credit losses this quarter was $304 million, primarily driven by increases in observed and forecasted house price appreciation. In the prior year quarter, we had a provision expense of $1.8 billion, which was primarily driven by deterioration in forecasted housing conditions and lower observed and forecasted house price appreciation.
House prices increased by 2.5 percent this quarter and our forecast assumes an increase of 2.9 percent over the next 12 months and 1.7 percent over the subsequent 12 months.
The Single-Family allowance for credit losses coverage ratio at the end of the quarter was 22 basis points, down from 23 basis points a year earlier.
The Single-Family serious delinquency rate declined to 55 basis points at the end of the third quarter, down 12 basis points from the end of the prior year quarter. The Single-Family serious delinquency rate remains historically low and is down 8 basis points from the pre-COVID rate of 63 basis points at the end of 2019.
In the third quarter, we helped approximately 18,000 families remain in their homes through loan workouts. Our loan workouts have continued to decline as the seriously delinquent loan population has declined.
Our Single-Family mortgage portfolio increased 2 percent year-over-year to $3 trillion at the end of the third quarter.
Credit characteristics of our Single-Family portfolio remained strong, with the weighted average current loan-to-value ratio at 53 percent and the weighted average current credit score at 756. At the end of the quarter, 62 percent of our Single-Family portfolio had some form of credit enhancement.
New business activity was $85 billion, up $2 billion from the second quarter. However, year-over-year new business activity declined $36 billion, or 30 percent, as both refinance and purchase activity declined due to higher mortgage interest rates. Home purchase volume of $76 billion made up 89 percent of our total new business activity this quarter. First-time homebuyers represented 50 percent of new Single-Family home purchase loans. The average guarantee fee rate charged on new business was 55 basis points this quarter.
Multifamily Business Segment
Moving on to Multifamily, the segment reported net income of $362 million, down 23 percent, or $108 million, from the prior year quarter. This decrease was primarily driven by higher provision for credit losses and higher non-interest expense in this period.
The provision for credit losses in Multifamily this quarter was $41 million, an increase of $29 million from the prior year quarter primarily driven by deterioration in overall loan performance. The Multifamily allowance for credit losses coverage ratio at the end of this quarter was 54 basis points, up from 14 basis points a year earlier.
Non-interest expense was $266 million, up $94 million, or 55 percent, year-over-year, primarily driven by an allocation for the accrual for the judgment in the Fairholme Funds litigation.
The Multifamily delinquency rate was 24 basis points at the end of the quarter, up from 21 basis points last quarter and 13 basis points at the end of September 2022. This increase was primarily driven by an increase in delinquent loans in our senior housing and small balance loans portfolios. Ninety four percent of these delinquent loans have credit enhancement coverage.
We have seen a continued decline in demand for Multifamily mortgage financing due to higher mortgage interest rates and a slowdown in the Multifamily origination market.
Our Multifamily new business activity was $13 billion for the third quarter, bringing the year-to-date volume to $32 billion versus $44 billion for the same time last year.
Our Multifamily mortgage portfolio increased 4 percent year-over-year to $432 billion, of which 95 percent was covered by credit enhancements.
Capital
On the capital front, our net worth increased to $44.7 billion at the end of the quarter, representing a 27 percent increase year-over-year.
With that I will turn it back over to Michael.
Conclusion (Remarks of Mr. DeVito)
Thanks, Chris.
Before we close, let me say a few words about the recent announcement that I will be departing Freddie Mac in early 2024.
It is a privilege to lead this company. And Freddie Mac is fortunate to have a strong leadership team, ready to meet the challenge of guiding this company into the future, and an outstanding group of employees who are intensely dedicated to its mission and making home possible.
Thank you for joining us today.
MEDIA CONTACT: Frederick Solomon 703-903-3861 [email protected]
If Data Stays in This Week’s Range, The Highs Are In
By:
Matthew Graham
2 Hours, 54 Min ago
If Data Stays in This Week’s Range, The Highs Are In
Friday’s weak jobs report and strong bond market reaction raise bigger questions than they answer. Granted, it is very nice to answer the question of whether the gains over the past two days were justified, but now we have to wonder if this entire week is enough to inform a long-term rate ceiling. Using our own advice about needing to see 2-3 months of similar data before drawing such conclusions, clearly it’s not enough. If we could know that the next 2 rounds of big-ticket data would be similarly cool, the top is in for rates. That’s still a big “if.”
Nonfarm Payrolls
150k vs 180k f’cast, 297k prev
Unemployment Rate
3.9 vs 3.8 f’cast, 3.8 prev
Earnings
0.2 vs 0.3 f’cast, 0.3 prev
ISM Services PMI
51.8 v 53.0 f’cast
09:35 AM
Slightly stronger overnight and now much stronger after jobs data. MBS up a full point. 10yr down 15.5bps at 4.504.
11:32 AM
Off the best levels by roughly 3/8ths in MBS, but still up 5/8ths on the day. 10yr down 13.6bps at 4.527.
02:17 PM
No further losses in MBS. 6.0 coupons back up more than 3/4ths of a point. 10yr down 11.5bps at 4.554
04:48 PM
10yr yield drifting higher into the 5pm close, but still down 8.4bps on the day at 4.579. MBS have been flatter with 6.0 coupons just 1 tick (0.03) off a 3/4 point gain.
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“The 30-year fixed-rate mortgage paused its multi-week climb but continues to hover under 8%,” Freddie Mac chief economist Sam Khater said in the report. “The Federal Reserve again decided not to raise interest rates but has not ruled out a hike before year-end. Coupled with geopolitical uncertainty, this ambiguity around monetary policy will likely have … [Read more…]