recessions

Apache is functioning normally

There was rampant speculation after the Federal Open Market Committee (FOMC) meeting last week about the timing and number of interest rate cuts this year. In a follow-up interview on 60 Minutes on Sunday, Federal Reserve Chairman Jerome Powell did not sound like someone who has pivoted.

In fact, Powell believes the Fed can wait until it sees more labor damage before cutting the Federal Funds Rate aggressively or moving toward a neutral policy stance, saying again that a March rate cut is “unlikely.”

In December, the Fed talked about three rate cuts in 2024 but some people made a case for four, five or even six rate cuts given a Fed pivot. However, for me it’s always been about the labor market and jobless claims data, and that data line hasn’t broken enough for the Fed to be more aggressive. For the Fed to cut rates in March, we would need weaker labor data, no matter how low inflation goes in the next report. 

Here’s part of the interview on 60 Minutes that illustrates what I’m talking about:

Scott Pelley: But inflation has been falling steadily for 11 months. You’ve avoided a recession. Why not cut the rates now?

Jerome Powell: Well, we have a strong economy. Growth is going on at a solid pace, the labor market is strong, 3.7% unemployment. With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully. We want to see more evidence that inflation is moving sustainably down to 2%. We have some confidence in that, our confidence is rising. We just want some more confidence before we take that very important step of beginning to cut interest rates.

Notice the statement, “We feel like we can approach the question of when to begin to reduce interest rates carefully.” This is the old and slow part I have been discussing since the end of 2022. The Fed already has a restrictive policy and if the labor market was breaking today they would be cutting rates aggressively. However, instead of getting ahead of the curve and getting out of restrictive territory into neutral policy, they will take their time on this and stay restrictive for a bit longer. 

This has been a theme of my work since 2022 and is why I favor labor data over inflation data at this stage. Back in 2022, the Fed discussed having the Fed Funds rate mirror three, six and 12-month PCE data. Today, PCE three-month and six-month inflation is running below 2%, headline 12-month PCE is running at 2.6%, core PCE 12-month is running at 2.9% and the Fed funds rate is over 5%.

With that kind of improvement in inflation, why is the Fed risking being restrictive with its policy? It’s because they will feel better about cutting rates when the labor market is breaking. The data line that will change everything is not more BLS jobs Friday reports like we just had, but the jobless claims data. It is simply too low for the Fed to pivot.

We are going to see rate cuts this year. The Fed believed that policy was too restrictive when the 10-year was near 5% and we had 8% mortgage rates, but they seem fine with mortgage rates between 6%-7.25% right now. Here’s another quote from the 60 Minutes interview: 

Pelley: The next meeting around this table that will decide the direction of interest rates is in this coming March. Knowing what you know now, is a rate cut more likely or less likely at that time?

Powell: So, the broader situation is that the economy is strong, the labor market is strong, and inflation is coming down. And my colleagues and I are trying to pick the right point at which to begin to dial back our restrictive policy stance.

This clearly shows that the Fed hasn’t pivoted now, they just didn’t want their policy to be too restrictive. The last thing they want on their plate is a job-loss recession going into an election year after they hiked so high so fast.

Bond yields react

Let’s take a first glance at the bond market reaction to the interview. The 10-year yield headed higher after this interview went live, rising from 4.02% to 4.07%.

The 10-year yield is the key for housing in 2024. In my 2024 forecast, I set the 10-year yield range between 3.21%-4.25%, with a critical line in the sand at 3.37%. If the economic data stays firm, we shouldn’t break below 3.21%, but if the labor data gets weaker, that line in the sand — which I call the Gandalf line, as in “you shall not pass” — will be tested. 

This 10-year yield range means mortgage rates between 5.75%-7.25%, but this assumes spreads are still bad. The spreads have been improving this year so much that if we hit 4.25% on the 10-year yield, we won’t see 7.25% in mortgage rates.

Below is the chart of the 10-year yield since Feb. 1 and you can see the reaction after Powell talked on 60 minutes Sunday: yields went higher.

We are in the upper-end range of my 10-year yield forecast, and jobless claims are near the historical bottom of the post-COVID-19 recovery. My model is based more on claims data, so this looks about right. 

What about housing?

Powell didn’t discuss housing at all in this interview and the Fed is in a kind of no-man’s land when talking about housing. The only silver lining I can say here for the housing market is that if the Fed didn’t talk about a 5% 10-year yield and 8% mortgage rates being too restrictive with Fed policy. We might be there today after the last jobs report! That’s the most positive spin I can take from the recent actions — that they know they were pushing the limits with the housing market.

Remember, most recessions start with losing residential construction jobs so they’re mindful of this reality in an election year.

At this point of the cycle, if you want an idea on rate cuts, the 2-year yield is the best place to go. I will stand firm on getting no more than three rate cuts in 2024 unless jobless claims get to 323,000 on a four-week moving average. Unfortunately, if the Fed hasn’t pivoted by then it will be too late. Right now, the 2-year yield is rising from recent lows, making more aggressive rate cut forecasts unlikely. 

Like the 10-year, the chart of the 2-year yield below shows a strong reaction to the 60 Minutes interview.

Powell’s latest interview makes it clear: Nothing big will change over the next few months no matter what happens with inflation — the labor market hasn’t broken enough for the Federal Reserve to pivot.

Source: housingwire.com

Apache is functioning normally

Kim: Fannie Mae removed its explicit call for a recession in 2024 and now expects “below-trend growth.” At this point, how high is the risk for a recession?

Duncan: It was more of a marginal move from our perspective. There’s still a bunch of things that are highly correlated with recessions in the past that are still pointing in that direction. 

There is an inverted yield curve, leading economic indicators have fallen for 21 months in a row, monetary aggregates are in decline and temporary work has turned down. There are seven or eight things that we watch that are still pointing that way, but the combination of all of them has not been enough to tip the market over. And with the Fed clearly making a shift in December, financial conditions eased significantly and that’s going to provide some support for them as well.

The market has gotten a little too enthusiastic in our view, so the change in our view on the Fed was only to change the number of cuts from three to four in 2024 with slow growth. 

Kim: Compared to the beginning of January, more investors believe that an interest rate cut in May is more likely than a cut in March. Why do you think investors are throwing their hats in for a delayed rate cut by the Fed?

Duncan: I think that the markets were overenthusiastic, and a couple of Fed governors went on and walked it back, making statements along the lines of ‘let’s make sure we’re moving carefully.’ I think that was the primary thing.

Consumer spending numbers that came in at the end were quite strong, at least to the headline piece of that. On the flip side of that, consumer delinquencies for credit cards and auto loans are rising fairly quickly, which is a sign of stress in the consumer. 

Kim: What is your expectation for the Fed’s timeline to cut benchmark rates?

Duncan: May, June, December and somewhere in the middle of there, where they may pause after the June meeting to see what the data looks like. It’s an election year, so it’s a little tricky to figure out exactly when they’ll do that.

Could they possibly move it up to March and May to get it out of the way of the election? They could, but I don’t think they’re going to be influenced that much by the election. 

Kim: As mortgage rates increased, borrowers paid more points to buy them down. Do you think this will be a more permanent shift in the mortgage market even as rates stabilize?

Mark Palim: Part of what made it economical for the builders to offer rate buydowns was that the bond market was skeptical that the high rates would last long. So, the cost of buying down rates wasn’t as high as it might otherwise be from the perspective of borrowers and the builders subsidizing it with a buydown. I think it depends on the conditions and what the expectations are for rates.

Duncan: The 2% buydown saves you X amount of dollars monthly for as long as the market rates reach the level that you bought it down to. You have to make a judgment on how long rates will stay above that level for you to save that amount of money.

Kim: Overcapacity in the industry has resulted in lenders slimming down through layoffs and consolidations. How close are we from being done? 

Duncan: I sat in on a meeting with about 30 small and midsized mortgage company CEOs where they said they made so much profit in 2020 through 2022, some of them are actually running at a loss knowingly to keep their best people.

Some are calibrating when they think volumes will pick up, how much of that pickup would be their business and what the cost is of carrying employees for this period. It may be the case that some of the employees would be willing to take a pay cut during that time period, knowing that the alternative is they lose their job.

When I was at the Mortgage Bankers Association, we had a model that worked pretty well to forecast what the downturn would be. Lenders held on to employment for six months. That was the window in which they wanted to see, ‘Will the trend change?’ so we don’t have to do layoffs, because it’s expensive to lay people off and rehire them. 

One of the things that has undoubtedly changed is the advent of technology, centered around getting to the consumer faster. It’s a speed game for independent mortgage companies. They will do loans at a loss to get them done quickly, and keep the volume flowing through the business and covering their variable costs. 

So, I think that those couple of alternative strategies and the advent of more technological development has changed the degree to which you see the volatility across the cycle.

Palim: The other thing I would add — two points — is that the projections for the size of the U.S. labor force are not vigorous. Growth is going to be substantially lower than it has been historically. You see pretty low levels of layoffs in the economy and questions about labor hoarding. So, it would make sense that given how hard it was to attract talent, I can see mortgage companies being reluctant to downsize unless they really have to.

Second point is, we do have a pickup in mortgage originations if rates and the economy go where they’re supposed to go next year and the following year. 

Source: housingwire.com

Apache is functioning normally

About the series…

When most people talk about money management, they discuss tactics. Occasionally, you’ll encounter someone who elevates the discussion to strategy, rather than simply scattershot tactics.

But what’s missing from both conversations — both tactics and strategy — is a wider-lens look at how to become a better thinker; how to become a crisp, clear decision-maker.

How to think from first principles. How to better your brain. How to cultivate the wisdom to know the next move.

This series is an attempt to bring first principles thinking into the conversation around money. Welcome to the inaugural post.

Welcome back to First Principles, my series with an alternate definition of FIRE — Financial Psychology, Investing, Real Estate and Entrepreneurship.

Today we’ll dive right in with the question on everyone’s mind: is a recession looming?

Financial Psychology

Are we in a recession?

Short answer: Possibly. I may even go as far as to say “probably.”

A recession is defined as two consecutive quarters of negative economic growth, as measured by GDP. (Notice that recessions reflect the state of the economy, not the stock market. We’ll come back to that in a moment.)

By definition, a recession is only visible in hindsight, after two negative-growth quarters have passed. This means it’s possible we’re already in a recession. It’s also possible that one may be looming.

Why now?

What’s behind this (potential) recession? In a word: inflation.

As I’m sure you know, the Federal Reserve has been raising interest rates. (There have already been 5 rate hikes so far in 2022!)

The Fed is tasked with a “dual mandate” to control both inflation and the risk of recession; this “dual mandate” exists because controlling inflation necessarily carries a recessionary risk.

But why?

To control inflation, the Fed must make money more expensive to access. When borrowing becomes more expensive, people and companies do less of it, which slows spending and growth. This could lead to a couple of consecutive negative-growth quarters, which is, by definition, a recession.

What does this mean for you?

Recessions vary along three dimensions:

(1) severity

(2) duration

(3) frequency

It’s tempting to think that a recession will impact us in the same ways as the Great Recession of 2008.

This is due to a few cognitive biases, including:

Recency bias — our tendency to overestimate that an event that occurred recently will re-occur again, or to assign greater importance to things that have happened most recently.

Salience bias — our tendency to focus on events and facts that are remarkable (the headline-grabbers), rather than events and facts that are mundane.

Availability bias — our tendency to think that examples that most easily come to mind are more important or significant than they actually are.

The Great Recession of 2008 was (1) recent; (2) remarkable; and (3) easy to recall.

Its remarkability and ease-of-recall stems from the fact that the Great Recession was both high-severity AND long-duration. It felt personal; millions lost their jobs and homes, which meant that this recession impacted us in the most visceral, tangible ways possible.

For all those reasons, it’s easy to assume that every recession will look, feel and behave similarly to the Great Recession.

But will it?

Let’s turn our attention to 2022, and look at the many factors that are different this time around, including:

(1) Unemployment is at a record low. Despite the occasional warning headline (e.g. Tesla will be reducing its salaried headcount by 10 percent), the unemployment rate remains 3.6 percent as of May 2022, according to the U.S. Bureau of Labor Statistics.

(2) Housing prices continue to rise, despite higher interest rates, due to imbalances in supply-demand fundamentals. The cost of materials (such as lumber) remains high, which increases construction costs and therefore home values.

(3) Consumer spending remains strong, particularly in discretionary areas such as travel and dining. Despite higher fuel prices, airlines are seeing strong demand for flights.

What does this mean?

We may or may not already be in a recession, or enter one in the near future.

But if we do, there’s a chance this might be experienced as an “on-paper” recession, in which the daily lives of the average middle-class worker isn’t strongly affected.

If unemployment remains low, consumer spending stays strong, and inflation gets roped into check, there’s a chance that this recession will be forgotten. It might be long-duration, but low-severity.

Of course, this is one of a range of possibilities, and as you know, I’m not in the business of prognostication.

But it’s worth making the point that we shouldn’t let our cognitive biases lead us astray. Don’t assume that the next recession will resemble the conditions of 2008.

SPOTLIGHT ON…

Have you been interested in real estate investing for years, sitting on the sidelines watching the market go up and wishing you’d gotten in sooner?

I have a secret for you: it’s not too late to find good deals.

Even though parts of the US market are crazy, there are still good deals to be found; you just have to know where to look.

Soon, enrollment for my flagship real estate investing course, Your First Rental Property, will open for the ONLY time this year.

Want to get notified when we open the doors? Join the VIP list.

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Investing

Recessions reflect the economy, not the stock market.

Let’s return to the definition of a recession: two consecutive quarters of negative economic growth, as measured by GDP. This definition doesn’t directly relate to stock prices.

But investors react in varied ways.

There are two popular styles of investing: growth and value.

Growth investors tend to sell (or not buy) during recessions. When companies expect lower profits, growth investors are usually unwilling to pay a high price for a share of that company, so stocks can fall.

But this is counterbalanced by value investors who pick up shares of the ‘winners,’ the companies and stocks that they believe have been maligned by the market and that will emerge strong during the recovery.

Hence, the volatility.

So let’s zoom out and look at what’s happening now:

Everything (except real estate) is falling.

Stocks are volatile. Crypto is depressed. Bonds are unattractive.

And that’s not surprising, given the liquidity patterns of the past two years.

At the start of the pandemic, $10 trillion in liquidity got pumped into the monetary system. Investors used that liquidity to buy all types of assets — stocks, bonds, crypto, housing — triggering a massive spike in the value of all asset classes across the board. (It’s no surprise that “meme stocks” like GameStop and AMC Theaters became a thing at the exact moment when millions received “stimmy” checks.)

Two years ago, people were already asking the question, “what should I invest in when everything is expensive?”

Last year, that question only became louder and more pronounced.

It’s reasonable that today, as liquidity is getting removed from the system and capital becomes harder to access, the values of these assets will gyrate for awhile, then stabilize at a “new normal,” with valuations that reflect market fundamentals such as earnings and expectations.

What does that mean for you?

Expect that the rest of 2022, perhaps 2023, could be volatile. Stocks, crypto and bonds may swing for awhile as investors try to figure out the “new normal.”

But these types of events are how the market cleans itself.

The poorly-run companies run out of money and fold. Better companies take their place. And the broad market, over the long-term, reflects the growth of the winners.

Many fantastic companies started during the Great Recession; many new companies will be created during the next one.

Real Estate

We created a massive, multi-day email series to deep-dive into recession and inflation in 2022 — and specifically, to talk about how it could impact the housing market.

It’s waaayyyy too detailed to summarize into this post, so I’d suggest signing up to get this multi-day email series.

If you’re even thinking about buying real estate, either as an investor or as an owner-occupant, you’ll find a ton of value in this free email series.

Get the free email series

Entrepreneurship

One of the most interesting stats to watch in coming months relates to the unemployment rate.

Right now, many entrepreneurs are struggling to hire talent. The labor market is tight. Small businesses are having a tough time competing with the salary and benefits packages offered by major corporations.

Many real estate investors (which is a specific subset of entrepreneurship) have spent years lamenting how hard it is to hire contractors — because many contractors are booked, busy, and in high demand.

Given the record-low unemployment, that’s not surprising.

If the labor market loosens, it might become easier to hire. And that will be a blessing for small business owners and real estate investors who are trying to find top talent, especially 1099 contractor talent.

Again, this is why many great companies tend to be launched during recessions:

One of the best times to create a business is when skilled talent is looking for work.

Hope you enjoyed this issue of First Principles.

I’ll see you in the next issue. Until then!

Click here if you want future posts like this straight to your inbox with more thoughts, ideas and insights on a new take on FIRE.

See you soon!

Source: affordanything.com

Apache is functioning normally

The 2023 housing market faced one of the same roadblocks we saw in 2022: mortgage rates were too high for home sales growth. Now that we’re in 2024, the Federal Reserve‘s rate hike cycle is over, so let’s look at what that means for housing demand and home prices. However, a yearly forecast has limitations and in this crazy housing and economic cycle, if people give you a yearly forecast without guidance as variables change, you’ll be dealing with stale data. Every Saturday I publish a weekly housing market tracker with forward-looking data and insights so you can adjust quickly to market conditions.

Here’s my forecast for 2024:

10-year yield and mortgage rates

For 2024, the 10-year yield range will be similar to 2023, but with a few different variables to watch.

  • 10-year yield range: 4.25%-3.21%
  • Mortgage rates: between 7.25%-5.75%

A key level to watch for the 10-year yield is 3.37%. To go below this level last year, labor would need to break, so I borrowed Gandalf the Grey’s catchphrase: “You shall not pass.” And the 10-year yield did not pass that level in 2023!

However, if the labor or economic data gets weaker, we can break through that Gandalf line, which means 2.72% on the 10-year yield is in play for 2024. This could mean sub-5% mortgage rates if the spreads get better — a win for the housing market.. If the spreads are still bad, mortgage rates will be between 5%-6%. If the 10-year yield gets above 4.25%, the U.S. economy has outperformed again, as it did in Q3 when it grew at 5% and jobless claims fell.

Here is a chart of the 10-year yield with the inflation growth rate data tied to it for 2023:

Now let’s talk about mortgage rates!

The spread between the 10-year yield and mortgage rates can get better in 2024, which means mortgage rates could be 0.625% to 1% lower next year. For example, mortgage rates would be under 6% today if the spreads were normal. Instead, they closed 2023 at 6.67%. If the spreads get anywhere back to normal and the 10-year yield gets to the lower end of the range in 2024, we can have sub-5 % mortgage rates in 2024.

With the Fed no longer in hiking mode, any economic weakness on the labor side is a better backdrop to send mortgage rates lower. Unlike 2023, this year there are more positive variables that could send mortgage rates lower rather than higher.

Home prices

If everything stays constant, 2024 home-price growth levels will repeat what happened in 2023: low single-digit national home-price gains.

What could make home prices grow faster than low single digits? If I am wrong and mortgage rates go lower for longer and we don’t get more new listings in 2024, then home prices can grow faster in 2024 because we will have the same issue as before: too many people chasing too few homes.

What could make home prices decline? This would happen if we saw a surge of stressed inventory and mortgage rates didn’t go low enough to handle that much new supply into the market. We had mortgage rates in a solid range between 3.75% and 4.75% for most of the previous decade, but that hasn’t been the case recently. So, this is something to consider only if we see an increase in stressed inventory. 

To give an example of what I am talking about, from 2008 to 2011, new listings data ran between 250,000 and 400,000 each week, with the peak seasonal data at 370,000 and 400,000. We haven’t had new listings data break over 90,000 in the peak seasons of 2021, 2022 or 2023. So if we do see a push in stressed new listings we have to be on it right away and see how the supply and demand equilibrium works.

However, we won’t have this conversation until we see it in the weekly data. In this episode of the HousingWire Daily podcast I explain how fast the housing dynamics shifted after Nov. 9, 2022, with prices returning to all-time highs in months. This is why weekly data is important!

Existing home sales

When we saw mortgage rates fall from 7.375% to 5.99% early in 2023, we got one of the most significant existing home sales prints ever, going from 4 million to 4.55 million. We need lower rates to get more consistent sales growth and to have one or two monthly existing home sales prints of 4.72 million or more, it’s going to take sub-6% mortgage rates with duration.

We will track the purchase application data weekly, however, I am only focused on that 4.72 million monthly print number for 2024 because the lack of affordability with rates still this high is impacting sales.

New home sales

As long as mortgage rates go lower, the builders can sell homes because they can lower mortgage rates even more than the existing home sales market and they have a pipeline of homes to sell. They have 106,000 homes that they haven’t even started construction on yet, and only 78,000 new homes have been completed and are ready to sell. They will manage their supply slowly.

Economic outlook

Looking at the economic cycle and the housing economy, we have a similar playbook going into 2024 as we did in 2023. Let’s look at that dynamic.

I raised the final flag in my six recession red flag model on Aug. 5, 2022. However, by Nov. 9, 2022, I saw that housing market dynamics had shifted and if I was right, the builders were about to get more positive about their business. Sure enough, the builders confidence survey started to grow again going into 2023.

As mortgage rates started rising toward 8%, the builders survey started to go lower, mostly due to smaller builders feeling the pinch. Now that rates have fallen again, this is a positive for the single-family housing market. The new home sales market means more to the economy because of construction jobs and big-ticket item purchases. In contrast, the existing home sales market is more about the transfer of commission and moving trucks.

People correctly keep an eye on the builder’s survey. However, the builder survey and new home sales rebounded to growth in 2023, and now, with rates almost down 1.5% for 2024, lower rates will help the builder survey again. 

This is only for the single-family housing market, not the apartment market, which is heading into a decline in activity. This is something to watch on labor, as certain builders will not need as many people to build apartments. When rates stay too high for too long, you eventually impact future production.

We will only start talking about a recession when jobless claims break over 323,000 on the four-week moving average. We won’t talk about a recession today, or next year or even this decade until that happens. The history of economics has shown us that we need the labor market to break to have a job-loss recession. If you followed my work during COVID-19, you know my critical two takes about the labor market and how household balance sheets are much better now than ever. When jobless claims break that critical level, we will have a good discussion about the economy and the housing market, just not yet.

If the economy doesn’t have a credit event where lending gets tighter, the consumer should hold up in 2024, especially with lower mortgage rates. This means the homebuilders can sell more homes and keep construction workers employed longer. Falling construction employment is a staple of all job-loss recessions, and we have avoided that so far.

For 2024, I want to stress that the economic data can turn on a dime — both positive and negative — in ways that weren’t the case in the previous decade. Following the weekly tracker will be essential for the housing market and the economy. I track this stuff daily so you don’t have to!

The existing home sales market has spent the last 18 months with sales near great recession levels. Now it’s time for the Fed to give up on its covid-era housing economic policy and be pro-housing once again. It’s time to get U.S. housing off the COVID-19 policy and get sales growing.

Source: housingwire.com

Apache is functioning normally

If you spent your teenage years waiting anxiously for one of your siblings to get out of the shower, the idea of selling your spacious, multi-bathroom home and moving into a smaller house or condo may feel like a reversal of fortune.

Yet for many retirees, downsizing makes financial and practical sense. Younger baby boomers — those currently ranging in age from 57 to 66 — made up 17% of recent home buyers, while older boomers — ages 67 to 75 — accounted for 12%, according to a 2022 report from the National Association of Realtors Research Group. Boomers’ primary reasons for buying a home were to be closer to friends and family, as well as a desire to move into a smaller home, the report said. Both younger and older boomers were more likely than others to purchase a home in a small town, and younger boomers were the most likely to buy in a rural area.

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For retirees Fred and Shelby Bivins, selling their home in Green Valley, Ariz., will enable them to realize their dream of traveling in retirement. The Bivinses have put their 2,050-square-foot Arizona home on the market and plan to relocate to their 1,600-square-foot summer condo in Fish Creek, Wis., a small community about 50 miles from Green Bay. They plan to live in Wisconsin in the spring and summer and spend the winter months in a short-term rental in Arizona, where they have family.  

Fred, 65, says the decision to downsize was precipitated by a two-month stay in Portugal last year, one of several countries they hope to visit while they’re still healthy enough to travel. “We’ve had Australia and New Zealand on our list for many years, even when we were working,” says Shelby, 68. The Bivinses are also considering a return visit to Portugal. Eliminating the cost of maintaining their Arizona home will free up funds for those trips. 

With help from Chris Troseth, a certified financial planner based in Plano, Texas, the Bivinses plan to invest the proceeds from the sale of their home in a low-risk portfolio. Once they’re done traveling and are ready to settle down, they intend to use that money to buy a smaller home in Arizona. “Selling their primary home will generate significant funds that can be reinvested to support their lifestyle now and in the future,” Troseth says. “Downsizing for this couple will be a positive on all fronts.”

Challenges for downsizers 

For all of its appeal, downsizing in today’s market is more complicated than it was in the past. With 30-year fixed interest rates on mortgages recently approaching 8%, many younger homeowners who might otherwise upgrade to a larger home are unwilling to sell, particularly if it means giving up a mortgage with a fixed rate of 3% or less. More than 80% of consumers surveyed in September by housing finance giant Fannie Mae said they believe this is a bad time to buy a home and cited mortgage rates as the top reason for their pessimism. “This indicates to us that many homeowners are probably not eager to give up their ‘locked-in’ lower mortgage rates anytime soon,” Fannie Mae said in a statement. As a result, buyers are competing for limited stock of smaller homes, says Hannah Jones, senior economic research analyst for Realtor.com. 

Here, though, many retirees have an advantage, Jones says. Rising rates have priced many younger buyers out of the market and made it more difficult for others to obtain approval for a loan. That’s not an issue for retirees who can use proceeds from the sale of their primary home to make an all-cash offer, which is often more attractive to sellers. 

Retirees also have the ability to cast a wider net than younger buyers, whose choice of homes is often dictated by their jobs or a desire to live in a well-rated school district. While the U.S. median home price has soared more than 40% since the beginning of the pandemic, prices have risen more slowly in parts of the Northeast and Midwest, Jones says. “We have seen the popularity of Midwest markets grow over the last few months because out of all of the regions, the Midwest tends to be the most affordable,” she says. “You can still find affordable homes in areas that offer a lot of amenities.” 

Meanwhile, selling your home may be somewhat more challenging than it was during the height of the pandemic, when potential buyers made offers on homes that weren’t even on the market. The Mortgage Bankers Association reported in October that mortgage purchase applications slowed to the lowest level since 1995, as the rapid rise in mortgage rates has pushed many potential buyers out of the market. Sales of previously owned single-family homes fell a seasonably adjusted 2% in September from August and were down 15.4% from a year earlier, according to the National Association of Realtors. “As has been the case throughout this year, limited inventory and low housing affordability continue to hamper home sales,” NAR chief economist Lawrence Yun said in a statement. 

However, because of tight inventories, there’s still demand for homes of all sizes, Jones says, so if your home is well maintained and move-in ready, you shouldn’t have difficulty selling it. “The market isn’t as red-hot as it was during the pandemic, but there’s still a lot to be gained by selling now,” she says.

Other costs and considerations 

If you live in an area where real estate values have soared, moving to a less expensive part of the country may seem like a logical way to lower your costs in retirement. While the median home price in the U.S. was $394,300 in September, there’s wide variation in individual markets, from $1.5 million in Santa Clara, Calif., to $237,000 in Davenport, Iowa. But before you up and move to a lower-cost locale, make sure you take inventory of your short- and long-term expenses, which could be higher than you expect. 

Selling your current home, even at a significant profit, means you will incur costs, including those to update, repair and stage it, as well as a real estate agent’s commission (typically 5% to 6% of the sale price). In addition, ongoing costs for your new home will include homeowners insurance, property taxes, state and local taxes, and homeowners association or condo fees.

Nicholas Bunio, a certified financial planner in Berwyn, Pa., says one of his retired clients moved to Florida and purchased a home that was $100,000 less expensive than her home in New Jersey. Florida is also one of nine states without income tax, which makes it attractive to retirees looking to relocate. Once Bunio’s client got there, however, she discovered that she needed to spend $50,000 to install hurricane-proof windows. Worse, the only home-owners insurance she could find was through Citizens Property Insurance, the state-sponsored insurer of last resort, and she’ll pay about $8,000 a year for coverage. Her property taxes were higher than she expected, too. When it comes to lowering your cost of living after you downsize, “it’s not as simple as buying a cheaper house,” Bunio says 

Before moving across the country, or even across the state, you should also research the availability of medical care. “Oftentimes, those considerations are secondary to things like proximity to family or leisure activities,” says John McGlothlin, a CFP in Austin, Texas. McGlothlin says one of his clients moved to a less expensive rural area that’s nowhere near a sizable medical facility. Although that’s not a problem now, he says, it could become a problem when they’re older. 

If you use original Medicare, you won’t lose coverage if you move to another state. But if you’re enrolled in Medicare Advantage, which is offered by private insurers as an alternative to original Medicare, you may have to switch plans to avoid losing coverage. To research the availability of doctors, hospitals and nursing homes in a particular zip code, go to www.medicare.gov/care-compare.

At a time when many seniors suffer from loneliness and isolation, a sense of community matters, too. Bunio recounts the experience of a client who considered moving from Philadelphia to Phoenix after her daughter accepted a job there. The cost of living in Phoenix is lower, but the client changed her mind after visiting her daughter for a few months. “She has no friends in Phoenix,” he says. “She’s going on 61 and doesn’t want to restart life and make brand-new connections all over again.”

Time is on your side 

Unlike younger home buyers, who may be under pressure to buy a place before starting a new job or enrolling their kids in school, downsizers usually have plenty of time to consider their options and research potential downsizing destinations. Once you’ve settled on a community, consider renting for a few months to get a feel for the area and a better idea of how much it will cost to live there. Bunio says some of his clients who are behind on saving for retirement or have high health care costs have sold their homes, invested the proceeds and become permanent renters. This strategy frees them from property taxes, homeowners insurance, homeowners association fees and other expenses associated with homeownership 

The boom in housing values has boosted rental costs, as the shortage of affordable housing increased demand for rental properties. But thanks to the construction of new rental properties in several markets, the market has softened in recent months, according to Zumper, an online marketplace for renters and landlords. A Zumper survey conducted in October found that the median rent for a one-bedroom apartment fell 0.4% from September, the most significant monthly decline this year. 

In 75 of the 100 cities Zumper surveyed, the median rent for a one-bedroom apartment was flat or down from the previous month. (For more on the advantages of renting in retirement, see “8 Great Places to Retire—for Renters,” Aug.)

Aging in place

Even if you opt to age in place, you can tap your home equity by taking out a home equity line of credit, a home equity loan or a reverse mortgage. At a time when interest rates on home equity lines of credit and loans average around 9%, a reverse mortgage may be a more appealing option for retirees. With a reverse mortgage, you can convert your home equity into a lump sum, monthly payments or a line of credit. You don’t have to make principal or interest payments on the loan for as long as you remain in the home. 

To be eligible for a government-insured home equity conversion mortgage (HECM), you must be at least 62 years old and have at least 50% equity in your home, and the home must be your primary residence. The maximum payout for which you’ll qualify depends on your age (the older you are, the more you’ll be eligible to borrow), interest rates and the appraised value of your home. In 2024, the maximum you could borrow was $1,149,825.

There’s no restriction on how homeowners must spend funds from a reverse mortgage, so you can use the money for a variety of purposes, including making your home more accessible, generating additional retirement income or paying for long-term care. You can estimate the value of a reverse mortgage on your home at www.reversemortgage.org/about/reverse-mortgage-calculator.

Up-front costs for a reverse mortgage are high, including up to $6,000 in fees to the lender, 2% of the mortgage amount for mortgage insurance, and other fees. You can roll these costs into the loan, but that will reduce your proceeds. For that reason, if you’re considering a move within the next five years, it’s usually not a good idea to take out a reverse mortgage.

Another drawback: When interest rates rise, the amount of money available from a reverse mortgage declines. Unless you need the money now, it may make sense to postpone taking out a reverse mortgage until the Federal Reserve cuts short-term interest rates, which is unlikely to happen until late 2024 (unless the economy falls into recession before that). Even if interest rates decline, they aren’t expected to return to the rock-bottom levels seen over the past 15 years, according to a forecast by The Kiplinger Letter. And with inflation still a concern, big rate cuts such as those seen in response to recessions and financial crises over the past two decades are unlikely. 

Note: This item first appeared in Kiplinger’s Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Source: kiplinger.com

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MSR Sales, Subservicing, Margin Mgt., PPE, HELOC, Pre-Approval Tools, Don’t Ignore HMDA Requirements

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MSR Sales, Subservicing, Margin Mgt., PPE, HELOC, Pre-Approval Tools, Don’t Ignore HMDA Requirements

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Rob Chrisman

5 Hours, 0 Min ago

Home schooling is the goodest thing I ever did for my two kids. Hopefully, they both learned that an inverted yield curve doesn’t automatically create, or lead to, a recession. As we approach 2024, short term rates have been higher than long term rates since 2022, and when you think of the last 10 recessions eight of the last 10 were preceded by an inverted yield curve. But now the “experts” are saying that this yield curve inversion is due to artificial reasons, namely the U.S. Federal Reserve’s actions that shifted rates, rather than more natural factors. Time will tell, and no one can eliminate business cycles, so we may have a recession (and with it, lower rates) at some point. But for now, “The U.S. economy is becoming increasingly recession resistant. State, local, and federal government spending as a percentage of GDP has risen from 29 percent in 1962 to 35 percent today. Healthcare spending has risen from 5 percent of GDP in 1962 to 18 percent in 2021. Collectively they have risen from 34 percent of GDP to 53 percent and most critically, both sectors are not particularly interest-rate sensitive.” So spoketh Dr. Elliot Eisenberg. (Today’s podcast can be found here, and this week’s is sponsored by MCT. MCT’s technology and know-how continues to revolutionize how mortgage assets are priced, locked, protected, valued, and exchanged, offering clients the tools to thrive under any market condition. Hear an interview with Lender Price’s Dustin McClelland on how lenders can upgrade or enhance their pricing technology.)

Lender and Broker Products, Programs, and Services

Revolution Mortgage estimates that they can save up to $20,000 in cost on verifications with TRUV over competitors. Femi Ayi, EVP Operations shares how he estimates he is saving 80 percent on his verification costs with Truv in this recorded event. “Let’s talk about our documentation costs and those giant monopolies that are out there and laughing at customers and increasing prices because they have a particular monopoly. You want to lower your manufacturing costs.” Contact TRUV today for your income, employment, insurance, and asset verifications.

When a borrower or Realtor needs an updated pre-approval letter to submit an offer, how quickly can your loan officers turn it around? This quick?

Cutting-edge technology, lower rates, exceptional service… these are many of the claims made by today’s HELOC providers. It’s important to thoroughly research these companies before partnering with them. Check with insiders and peers to learn about their experiences. A company with a solid reputation is worth its weight in gold. Symmetry Lending is a HELOC company you can trust and rely on, offering… SUCCESS: Symmetry’s proprietary technologies and dedicated fulfillment teams deliver industry-leading turn times and streamlined documentation processes. Built on three main principles: service, speed, and simplicity, Symmetry presents a foundation of long-term success for their business and clients. STABILITY: Symmetry began in 2018 with an exclusive focus on HELOCs. Their experienced leadership team has a combined 150 years of industry experience. VALUE: With on-demand staff, service, and resources, Symmetry is committed to creating exceptional, consistent experiences from submission to close. Follow Symmetry on Facebook and LinkedIn to learn more about what differentiates them.

LoanPASS PPE and Uplist have announced a strategic partnership that integrates Uplist’s suite of smart, real-time home shopping tools directly into LoanPASS’s powerful product and pricing engine. This will allow loan officers to provide Uplist’s SmartBuyer™ Tool directly to perspective buyers from their LoanPASS interface. Loan officers will also have remote access to their rates through Uplist Quick Quotes, featuring real-time pricing, which includes detailed calculations for the popular 2-1 buydown. This fusion of technology will enable loan officers to easily deliver real-time, personalized solutions direct to their homebuyers and agents with the click of a button. Lenders and loan officers interested in leveraging this patent-pending technology can learn more by scheduling a no-pressure call with Uplist.

So, you’ve been dying to uncover the mystical wonders of Performance Marketing, right? Look no further! TrustEngine just dropped its Performance Marketing eBook in the digital realm. Hold onto your seats, folks, because TrustEngine is hyping up Performance Marketing like it’s the reigning rockstar of the century. This isn’t your average eBook; oh no, it’s the clandestine weapon of epicness, crafted to illuminate our fabulous community. Learn the differences between traditional and performance marketing; the Mortgage Performance Marketing Platform and crafting a performance marketing strategy in 7 steps. Click here to download the FREE eBook today.

With mortgage volume struggling to recover, now is the perfect time for lenders to focus on their profitability with MCT’s exclusive whitepaper: “Margin Management Best Practices.” Dive deep into the intricate world of margin management, where success in the dynamic mortgage industry is defined. MCT’s Capital Markets Technology Advisor, Cody Echols, unravels the complexities, challenges, and actionable techniques to boost profit margins and navigate lending volumes with agility. Discover the strategic compass for effective margin management: analyze market share dynamics, understand volume trends, and fortify profitability against volatility. Don’t just survive; thrive in the ever-transforming mortgage landscape! Ready to adapt and conquer? Download the MCT Whitepaper and elevate your margin management game.

“As year-end quickly approaches, lenders are hopeful that the recent rate rally continues, which is a great thing if you are originating loans. But what about lenders with servicing portfolios? As we consider a possible change in Fed cycle and liquidity needs, Lenders still have time to execute a trade on their portfolio by year end. Blue Water (“Blue Water Financial Technologies Services, LLC”) can assist lenders to sell bulk MSR, regardless of size. With BlueRATE™, a lender can obtain an instant portfolio valuation and then determine what to sell – whether it be a small geo carve or the entire MSR portfolio. Blue Water can also assist in moving your product quickly with Blue Water’s proprietary SuperTransfer™. With SuperTransfer™, transferring the portfolio to a buyer is easier than ever. Connect with our expert Sales Team to learn more.”

Earlier this year, Zillow Home Loans selected PHH Mortgage to provide subservicing for its residential mortgage portfolio. Following a collaborative onboarding and integration cycle, Zillow Home Loans and PHH completed an initial transfer of loans in August. PHH has worked with Zillow Home Loans to purchase loans on a correspondent and co-issue basis since 2019 and 2021, respectively. As of September 30, 2023, PHH Mortgage’s total servicing portfolio was approximately $296 billion, which included approximately $167 billion of subservicing. Earlier this year, PHH was recognized for servicing excellence for the third consecutive year through Freddie Mac’s Servicer Honors and Rewards Program (SHARP)SM in the top-tier servicing group and for the second consecutive year through Fannie Mae’s Servicer Total Achievement and Rewards (STAR)TM performer recognition. The Company also achieved HUD’s Tier 1 servicer ranking. No other servicer in the U.S. has been more highly decorated with these top awards from all three agencies over the past two years.

Compliance and Supervising LO’s

Our biz is still talking about the November 28 CFPB consent order fining Bank of America $12 million for failing to collect and report race and ethnicity information under HMDA. The CFPB alleges that the bank’s loan officers failed to ask applicants for their race and ethnicity information, and instead recorded that the applicant chose not to provide the information, which the bank reported.

Here is a US Consumer Financial Protection Bureau’s enforcement action. The CFPB ordered Bank of America to pay a $12 million penalty for submitting false mortgage lending information to the federal government under a long-standing federal law. For at least four years, hundreds of Bank of America loan officers failed to ask mortgage applicants certain demographic questions as required under federal law, and then falsely reported that the applicants had chosen not to respond. Under the CFPB’s order, Bank of America must pay $12 million into the CFPB’s victims relief fund.

Hundreds of Bank of America loan officers reported that 100 percent of mortgage applicants chose not to provide their demographic data over at least a three-month period. In fact, these loan officers were not asking applicants for demographic data, but instead were falsely recording that the applicants chose not to provide the information. Why? Because that is easier! It is sloppy, though: If you continually report that 100 percent of your applicants decline to answer, eventually someone will notice.

The issue didn’t spring up overnight. In 2013, BofA made attempts to train and monitor for this issue after noting that its rate of applicants not providing this HMDA information was high. The consent order alleges that in 2016, the bank’s monthly monitoring still showed that several offices and loan officers had information-not-provided rates three to four times the bank’s average, but the bank discontinued its monitoring.

In addition, the consent order alleges that in 2020, the bank found that over 400 loan officers recorded that applicants chose not to provide their race and ethnicity information on 100 percent of applications over a three-month period. The consent order also alleges that the loan officers were not asking applicants for their race, ethnicity, or sex, and instead were “wrongly recording on applications that the applicants chose not to provide the information.”

Capital Markets

Bonds once again climbed yesterday, the third consecutive day of gains, on bets the Fed will be able to start cutting rates in the first half of 2024, though Fed officials have signaled that cuts aren’t coming so soon. The Federal Reserve’s Beige Book for November noted that economic activity slowed since the October report, as four Districts reported modest growth, two reported little change, while six reported declining activity. Discretionary retail sales decreased as consumers showed more sensitivity to prices. Travel remained healthy while demand for transportation services was sluggish. The outlook among manufacturers weakened while demand for business loans dipped. Consumer credit was healthy, but some banks saw rising delinquencies. Demand for labor slowed while price increases moderated but remained at a generally elevated level.

We also learned yesterday that Gross Domestic Product rose at the fastest pace in almost two years (+5.2 percent) while consumer spending advanced at a less-robust rate. The Fed’s preferred inflation metric, PCE, was also revised down to 2.3 percent, signaling rate hikes are working. Put it all together and it paints the picture that the U.S. economy was effectively booming in the third quarter despite higher interest rates, aided by a strong labor market and disinflation that fueled healthy consumer spending activity. The volatility index (VIX) or so-called “fear gauge,” dropped to its lowest since January 2020.

Personal income and spending (both +.2 percent, as expected) and weekly jobless claims (218k, as expected; 1.9 million continuing) led off today’s calendar. PCE was +.2 percent, core flat. After Richmond Fed President Barkin argued yesterday the Fed should keep hikes on the table, which was in contrast with Cleveland President Mester signaling support for standing pat next month and Atlanta President Bostic signaling he is increasingly convinced that prices and the economy will moderate, later today brings remarks from New York Fed President Williams. Markets will also receive Chicago PMI for November, pending home sales for October, and Freddie Mac’s latest Primary Mortgage Market Survey. We begin the last day of November with Agency MBS prices worse a few 32nds, the 10-year yielding 4.29 after closing yesterday at 4.27 percent, and the 2-year at 4.65 percent after a bunch of news that came in as expected.

Employment

“If you are looking for a lifeline to save your people and your business in this challenging rate environment, you have an opportunity to partner with a well-capitalized independent mortgage company with over 40 years of experience. We offer a portfolio product line that gives our origination team the opportunity to quote unique scenarios for DPA, 2nd liens, ARMs, non-owner, Jumbo, Doctor/Professional, and more. Our proprietary coaching program is free to all Loan Officers. Even in this market, we’ve doubled-down on the support we provide, from a dollar-for-dollar marketing match to in-house creative & design services, video marketing, social media, training, and credit services. With unmatched operations support at the branch and corporate levels, your clients and referral partners will be more than impressed. Our company is Fannie and Freddie seller/servicer, FHA, VA, and USDA approved. For a confidential conversation, please contact Anjelica Nixt and mention this opportunity.”

PrimeLending’s Forward Commitment program opens doors to new opportunities for our LOs, offering homebuilders a quick way to move existing inventory without compromising value. By entering a short-term agreement with PrimeLending, builders can secure a block of funds at a significantly lower interest rate, enabling them to pass these promotional rates to potential homebuyers and convert more sales. The success speaks for itself! A builder in the Carolinas turned a $3 million agreement into the sale of 10 inventory homes within just 14 days. Forward Commitment is just one of many examples of how PrimeLending helps LOs redefine the narrative, stay ahead of the competition, and ultimately find new ways to close loans in the local market. Contact Nic Hartke now and discover how a move to PrimeLending can transform your approach and elevate your business. Your advantage starts here.

Don’t forget that the FHFA, which oversees Freddie & Fannie, is hiring.

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Source: mortgagenewsdaily.com

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Rental, Renovation, Fee Collection, Subservicing, Verification Tools; Training and Events

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Rental, Renovation, Fee Collection, Subservicing, Verification Tools; Training and Events

By:
Rob Chrisman

2 Hours, 11 Min ago

Yes, WeWork has filed for bankruptcy, but if you look at GDP and employment, our economy is doing pretty well. Did you know that the Dallas metro area is home to the headquarters of companies responsible for originating 78 percent of residential volume? You probably didn’t, as I just made that up out of thin air. Texas’ growth and not having state income tax both help. Here in Dallas at the TMBA Education Symposium, there is plenty of discussion about the industry incorporating non-traditional products into their lineups, such as reverse mortgages, bond programs, buydowns, renovation loans, construction to perm financing, and jumbo loans, all have value to lenders. Meanwhile, loan originators are looking at a “full stack” loan origination & processing platform like Realfinity.io to go “independent” allowing them to get the most competitive pricing directly from wholesale lenders with no overlays due to corporate expenses. (No, this is not a paid ad… Check out this WSJ article which really opened my eyes. To learn more about going independent reach out to Luca Dahlhausen.) Today’s podcast can be found here, and this week is sponsored by nCino makers of the nCino Mortgage Suite. With three products tailored to the needs of the modern mortgage lender, nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics unite the people, systems, and stages of the mortgage process. Hear an interview with nCino’s Jay Arneja on the company’s rebrand and the seamlessness of the nCino Mortgage Suite.

Lender and Broker Software, Products, and Services

Is down payment assistance (DPA) actually making an impact in a brutal housing market? The answer is a resounding “yes” according to a newly released Urban Institute (UI) study. UI partnered with Down Payment Resource (DPR) to analyze 2022 HMDA data and DPA data from the 10 largest MSAs. Among the findings, 43.6% of purchase loans were potentially DPA-eligible. 36.7% of declined loans fell through because of DTI. 30.7% of declined loans (46,370) could potentially have been salvaged with DPA. This is especially relevant because it shows that DPA can prevent more declined loans by improving DTI ratios, a growing issue as interest rates rise. To get insight into how many DPA programs are available to help you save declined loans in your service area, schedule a demo with the DPR team.

Servbank is dedicated to creating excellence with every customer and client experience. Having personally experienced how subpar service can negatively impact your businesses and brand, we have consistently elevated our own standards through substantial investments in our people and technology to ensure we are delivering a consistent, best-in-class experience at every interaction point. Our efforts have yielded remarkable results: a 92% first-call resolution rate, a 99% customer satisfaction score, an 85% Net Promoter Score, with wait times of under 10 seconds. This forward-thinking commitment to creating excellence with every experience has positioned Servbank as a market leader and one of the nation’s 10 largest subservicers. As a genuine, collaborative partner, Servbank has the capability and determination to enhance your brand, keep your customers loyal, and improve your bottom line. Ready for a subservicer who goes above and beyond? Partner with Servbank.

Now available: New MERS® Automated Lien Release™ Now, loan servicers and sub-servicers can optimize efficiency and accuracy on process lien releases, all while significantly lowering cost, with the recently announced MERS® Automated Lien Release. Leverage the combined power of the MERS® System and the Simplifile® Document Builder lien release framework to streamline the lien release process for loans registered with MERS®. When a paid-in-full transaction is completed on the MERS® System, this triggers the creation of a compliant lien release package and processing workflow in Document Builder. With pre-populated compliant document templates, Automated Lien Release ensures accuracy and compliance with the latest regulatory requirements. By leveraging the loan updates already sent daily to MERS®, the solution is compatible with the servicing platform you use today, alleviating implementation challenges. Click here to learn more.

While the industry strives for a “fully digital” real estate transaction experience, we cannot lose sight of how important it is to make it easier for loan officers and other staff members to do their jobs. The experts at ICE understand this, which is why any new solution that is developed prioritizes the back-office experience just as much as the front-end experience. As EVP of Product Strategy Sandra Madigan tells HousingWire in a new interview: “You can put the most incredible technology in front of the consumer, but if you don’t work on streamlining the back-end part of the process, you have not delivered effective technology.” Read her full interview here, and see how ICE Mortgage Technology is digitizing the mortgage and servicing processes, while still providing the human-guided experience borrowers want.

It’s no secret. The industry is going through tough times, and Xactus, the leading verifications provider, is here to help guide you in navigating through these challenges. It anticipates credit costs will soon increase as much as 30-100 percent due to several external factors including inflation and out-of-pocket fees. This will, in turn, have a far-reaching impact on all lenders. At the MBA Annual, we heard a lot of “Survive until ’25.” But how is a lender supposed to do that with these rising costs? One way is to work with a partner like Xactus who has the experience to help you strategically review processes to efficiently and cost-effectively manage milestones, improve workflows, optimize outcomes and enhance margins. The right partner can even assist you with capturing market share by helping you mine leads within your existing portfolio and identify more prospects. That’s how lenders will survive until ’25 and eventually thrive. Collaborate more in ’24 with Xactus. Email Xactus today to schedule a consultation!

Sagent’s Five Principles for the Future of Servicing. A better homeowner experience begins, ends, and emanates out of simplified, unified operations, a key component as Sagent delivers on their future-of-servicing model for the industry at large. Check out their COO Marianne Sullivan’s latest blog, where she shares relevant intel about how an open ecosystem provides open opportunities to power a better customer experience while reducing total operational costs and powering real-time compliance for servicers. Read the full piece here where she breaks down their 5 guideposts for servicing innovation. (Spoiler alert: end-to-end servicing tech IS the future.)

Click button, collect fee. It’s as easy as that with Fee Chaser. No more missed appraisal fees. No more awkwardly taking down credit card numbers over the phone. No more data entry into the LOS. With Fee Chaser’s integration into Encompass® by ICE Mortgage Technology™, borrowers get a text message to pay a fee, and everything’s automatically updated including a receipt into the eFolder. Check out the borrower experience here.

Broker and Correspondent Programs

Every lender is looking for a competitive advantage in today’s tight lending environment. With AFR Wholesale® (AFR) take your Delegated Correspondent business to the next level. With competitive best effort and mandatory pricing, our partners can maximize their profitability. AFR will purchase a diverse program catalog, including completed Renovation, Construction, and Manufactured Homes on all program types. We are fully integrated with BAM and Resitrader for those who wish to shadow bid on their loans prior to signing up. Activate AFR in your pricing engine or contact the AFR Bulk Bid desk today or 973-298-8003. Not yet a partner? Sign up today to start taking action! Have questions? Contact AFR at afrwholesale.com, email us or call 1-800-375-6071.

Long-term Rental or Vacation Rental? Visio Lending is the nation’s leader in Non-QM Investor DSCR loans for buy and hold SFR rentals with nearly a decade of experience and over $2.5 billion in originations. No-DTI, 30-year terms, rate buy downs, free 45-day rate locks; I/O and Sub-1 DSCR options available. Through our top-notch Broker Program, brokers are able to earn up to 2 points YSP, and 5 points total. Visio Brokers can count on a designated Account Executive and in-house processing.

Training and Events, In-Person or Virtual

Deephaven Mortgage invites you to join its educational webinar “Opportunities in Today’s Mortgage Market With Deephaven and CoreLogic” on November 9th at 1:00 pm EST. Chief Sales Officer Tom Davis with Deephaven Mortgage and Chief Economist Selma Hepp, PhD at CoreLogic will discuss opportunities in today’s challenging mortgage environment. Selma brings extensive experience in analytics offering actionable and straightforward insights that are important to know. Selma and Tom will provide an update on the housing market, forecasts, demographic trends, and the non-QM products to expand offerings and increase volume. Don’t miss it! Register today.

A good place for longer term conference planning is to start is here, and click on “events” for conferences in the future.

Today, Tuesday, 11/7, is the next Mortgages with Millennials with Kristin Messerli and Robbie Chrisman. Tune in every Tuesday at 10AM PT to the weekly video show designed to empower mortgage professionals to tap into the millennial market. This show demystifies the psychology of first-time homebuyers and offers strategies to win more market share with a key segment of the market. Sign up for a weekly reminder with the link to join and a sneak peek into the next episode. Special guest Jordan Nutter, VP of the Influencer Division at NFM.

Join CAMP on today at 1PM PT to hear expert insurance panelists discuss why insurance companies are leaving California, what new regulations to expect, what are the best practices for your new home-buying clients and what happens if their insurance is cancelled.

Join NYMBA and Proof (formerly Notarize) for a webinar on operationalizing RON in New York, November 7th, 12-1pm. Learn the latest developments in New York State’s rollout of remote online notarization (RON) including the benefits for lenders, attorneys, and your customers. See a live demo of the Notarize platform and learn how RON can help your business from lending to servicing.

Discover what lies ahead in the world of home financing and interest rates with our upcoming webinar, “What Does the Road Ahead Look Like? Navigating Home Financing, Interest Rates, Planning, and More in 2024.” Join us on November 8th: Secure your spot now!

Tomorrow, looking for more in-depth commentary on weekly mortgage news? Register here for “Mortgage Matters: The Weekly Roundup” presented by Lenders One. Every Wednesday at 2:00 PM EST/11:00 AM PT is a dive into a range of mortgage-related topics, including market trends, interest rate fluctuations, innovative mortgage products, and industry advancements. Listen to a unique mix of age perspective, expertise, and charisma to the screen, ensuring that the information is not only educational but also entertaining. This week’s episode features respected attorney Brian Levy.

Join Optimal Blue for the next session in its hedging series, Wednesday, Nov. 8th at 11a.m. CT, Hedging 201: The Components of Pipeline Valuation. Take a deeper dive into the different components that make up your pipeline valuation. From data integrity to gain/loss reconciliation, this webinar will cover features and functionality that Optimal Blue’s hedging and loan trading services provide.

On Wednesday, November 8th at 11:30am–12:30 pm PT, join Orrick’s fourth session zoom conversation about what’s next in fair lending enforcement.

Join USDA Rural Development first live, virtual training for fiscal year 2024. Back to the Basics…SFHGLP Overview: 101 on Wednesday, November 8th | 2:00 pm – 3:00 pm ET.

Beginning in 2024, USDA-RD will be offering free monthly virtual live training events: USDA Rural Development 2024 training schedule.

Learn more about HFA Advantage® features and benefits, borrower eligibility, homebuyer education requirements and product enhancements. Register for a free Freddie Mac webinar on Wednesday, November 8, 2 pm – 3:30 pm ET.

The MBA of Eastern Pennsylvania is hosting its annual President’s Banquet on Thursday November 9, welcoming CNBC commentator Ron Insana for the keynote address. This event is open to members and nonmembers. Tickets can be purchased here.

Join Land Gorilla for an upcoming webinar on November 9 at 11 a.m. PT, “Florida Lien Law Overview For Construction Lenders,” which will cover statutory requirements and lender strategies for managing construction loans in the Sunshine State. If you can’t make the live session, register anyway and you will be sent the recording.

In support of the Credit Score and Credit Reports Initiative, FHFA will host a series of stakeholder forums. The initial topics will focus on the historical credit score files and the timing/sequencing of key project milestones. To register for any of the sessions outlined below and to stay up to date on future discussions, send your name, affiliation and contact information to [email protected]. Forum Schedule: Tuesday, November 7, 3-4 p.m. ET: Uses of Historical Data for Stakeholder Analysis. Tuesday, November 14, 3-4 p.m. ET: Sequencing of Project Milestones. Tuesday, November 28, 3 –4 p.m. ET: Uses of Historical Data for Stakeholder Analysis (cont’d). Tuesday, December 12, 3–4 p.m. ET: Sequencing of Project Milestones (cont’d).

In September, the CFPB included Loan Originator Compensation in its supervisory highlights. Are your compensation policies compliant? Register for the MMBA MLO Compensation Program Webinar on November 9th, 10:00 – Noon.

Friday the 10th is The Mortgage Collaborative’s Rundown covering current events in the mortgage market for 30-45 minutes starting at noon PT, 3PM ET, in “The Rundown”. This Friday’s features David Karandish with Capacity.

Capital Markets

There was a big rally over the last week as the sentiment that the Fed could be done raising rates swept through markets, allowing Treasuries to build on gains. However, this week opened with substantial sales as a knee jerk reaction to how far bond yields fell over the past seven days. That selling hasn’t really put in a dent in how much yields have risen over the past 18 months and the last time U.S. government bond yields climbed so far, so fast, the nation plunged into back-to-back recessions. And even with markets firmly in “bad news is good news” mode, everyone who has predicted a downturn since early last year has been incorrect. Even with the chance of a rate cut in March increasing to nearly 25 percent, for now, the Fed will continue to feel the pressure to keep rates high to battle price surges.

Today’s economic calendar is light and kicked off with the September trade deficit ($61.5 billion, moving higher). Expectations were for the trade deficit to deteriorate to $59.2 billion from $58.3 billion with consumer credit increasing $15.0 billion following the surprising $15.6 billion decline in August. Later today brings September consumer credit, Redbook same store sales, a Treasury auction of $48 billion 3-year notes, and a litany of Fed speakers. We begin the day with Agency MBS prices better than Monday night by a few ticks and the 10-year yielding 4.62 after closing yesterday at 4.66 percent; the 2-year is at 4.94.

Employment and Transitions

Merchants Bank of Indiana, continues to grow. The Carmel, IN based Bank knows these are challenging times, but also sees opportunity. Having recently reached $16 billion in assets, they continue to leverage their diversified business model to grow market share and assist their lending partners. They offer Correspondent Lending, Non delegated and Delegated; a Dedicated Wholesale platform for Banks and Credit Unions; Retail Lending and Warehouse financing. Their LO centric platform along with the strength and balance sheet of the bank allows them to expand market share in their regional markets. Contact Ron Berry, Retail Sales Leader to learn more about their LO opportunities. With the TPO market experiencing frequent Investor shakeup their committed, focused, and growing TPO channel is worth a look. Contact Rob Wilson, Correspondent Sales Executive to learn more about their Servicing Released Non Delegated, Delegated platforms and their Financial Institutions dedicated BCU Mortgage Services platform.

FHA has two vacancies for a Housing Program Policy Specialist. Duties include monitoring and evaluating agency operations to ensure policies and standards are maintained, up-to-date, and in compliance with respective guidance and procedures. Resolve many types of program policy issues involving single family mortgages and appraisal/valuation requirements presented by field staff, lending institutions, and other housing interests. Collect, review, and analyze a variety of data including statistical information. Announcement 23-HUD-2577-P.

FHA is accepting applications for a Management and Program Analyst, Announcement Number 23-HUD-3104-P. Responsibilities include development of procedures and systems for assessing the effectiveness of programs/management processes. Analyze and evaluate on a quantitative/qualitative basis the effectiveness of line program operations in meeting established goals and objectives. Direct and develop plans for project teams or other groups in accomplishing/producing projects/studies.

FHA is hiring a Single-Family Housing Specialist. This position is responsible for providing technical assistance and advice to the Single-Family Homeownership Centers on matters concerning risk management and monitoring of program participants. Serve as technical expert on established policies and procedures for monitoring lender/servicer performance.

View Job Announcement Number 23-HUD-3102-P for all job duties.

FHA has an open position for a Deputy Director, Quality Assurance Division. Job duties include exercising full managerial authority in assisting the Director in the planning and execution of assigned program operations and functions. Provide technical assistance and advice to the Single-Family Homeownership Centers on matters concerning risk management and monitoring of program participants. Prepare bulletins highlighting notable trends for management in Headquarters and the Homeownership Centers. For details, view Job Announcement Number 24-HUD-141-P.

DocMagic has promoted Chris Lewis to the role of Director of Sales, tasked with “building on DocMagic’s success as a market leader while also driving strategic sales initiatives for the company’s new innovations.” “His primary goal is to lead a team of subject matter experts in offering a consultative approach. This approach assists lenders of all sizes in realizing the cost-saving benefits and operational efficiencies of eClosings, which are becoming more prevalent in the industry.”

Morgan Barnes has joined the Real Estate Connection team as Director of Lender Relations. “As a licensed Real Estate Agent with keen organizational expertise, Morgan is committed to offering streamlined industry support to our lenders and agent partners.”

 Download our mobile app to get alerts for Rob Chrisman’s Commentary.

Source: mortgagenewsdaily.com

Apache is functioning normally

Apache is functioning normally

A bear market is defined as a broad market decline of 20% or more from recent highs, which lasts for at least two months. Although bear markets make for dramatic headlines, the truth is that bull markets tend to last much longer — the average bear market typically ends within a year.

While most investors know the difference between a bull and a bear market, it’s important to know some of the characteristics of bear markets in order to understand how different market conditions may impact your portfolio and your investment choices.

What Is a Bear Market?

Investors and market watchers generally define a bear market as a drop of 20% or more from market highs. So when investors refer to a bear market, it usually means that multiple broad market indexes, such as the Standard & Poors 500 Index (S&P 500), Dow Jones Industrial Average (DJIA), and others, fell by 20% or more over at least two months.

To be sure, 20% is a somewhat arbitrary barometer, but it’s a common enough standard throughout the financial world.

The term bear market can also be used to describe a specific security. For example, when a particular stock drops 20% in a short time, it can be said that the stock has entered a bear market.

Bear markets are usually associated with economic recessions, although this isn’t always the case. As economic activity slows, people lose jobs, consumer spending falls, and business earnings decline. As a result, many companies may see their share prices tumble or stagnate as investors pull back.

Why Is It Called a Bear Market?

There are a variety of explanations for why “bear” and “bull” have come to describe specific market conditions. Some say a market slump is like a bear going into hibernation, versus a bull market that keeps charging upward.

The origins of the term bear market may also have come from the so-called bearskin market in the 18th century or earlier. There was a proverb that said it is unwise to sell a bear’s skin before one has caught the bear. Over time the term bearskin, and then bear, became used to describe the selling of assets.

Characteristics of a Bear Market

There are two different types of bear markets:

•   Regular bear market or cyclical bear market: The market declines and takes a few months to a year to recover.

•   Secular bear market: This type of bear market lasts longer and is driven more by long-term market trends than short-term consumer sentiment. A cyclical bear market can happen within a secular bear market.

History of Bear Markets

The most recent U.S. bear market began in June 2022, largely sparked by rising interest rates and inflation. The bear market officially ended on June 8, 2023, lasting about 248 trading days, according to Dow Jones Market Data, and resulting in a market drop of about 25.4%.

Including the most recent bear market, the S&P 500 Index posted 12 declines of more than 20% since World War II. The table below shows the S&P 500’s returns from the highest point to the lowest point in a downturn. Bear markets average a decline of 34%, and generally last a little more than a year: about 400 days.

Recommended: What Is a Financial Crisis?

Bear markets have occurred as close together as two years and as far apart as nearly 12 years. A secular bear market refers to a longer period of lower-than-average returns; this could last 10 years or more. A secular bear market may include minor rallies, but these don’t take hold.

A cyclical bear market is more likely to last a few weeks to a few months and is more a function of market volatility.

Peak (Start) Trough (End) Return Length (in days)
May 29, 1946 May 17, 1947 -28.78% 353
June 15, 1948 June 13, 1949 -20.57% 363
August 2, 1956 October 22, 1957 -21.63% 446
December 12, 1961 June 26, 1962 -27.97% 196
February 9, 1966 October 7, 1966 -22.18% 240
November 29, 1968 May 26, 1970 -36.06% 543
January 11, 1973 October 3, 1974 -48.20% 630
November 28, 1980 August 12, 1982 -27.11% 622
August 25, 1987 December 4, 1987 -33.51% 101
March 27, 2000 Sept. 21, 2001 -36.77% 545
Jan. 4, 2002 Oct. 9, 2002 -33.75% 278
October 9, 2007 Nov. 10, 2008 -51.93% 408
Jan. 6, 2009 March 9, 2009 -27.62% 62
February 19, 2020 March 23, 2020 -34% 33
June 2022 June 8, 2023 -25% 248
Average -34% 401

Source: Seeking Alpha/Dow Jones Market Data as of June 8, 2023.

What Causes a Bear Market?

Usually bear markets are caused by a loss of consumer, investor, and business confidence. Various factors can contribute to the loss of consumer confidence, such as changes to interest rates, global events, falling housing prices, or changes in the economy.

When the market reaches a high, people may feel that certain assets are overvalued. In that instance, people are less likely to buy those assets and more likely to start selling them, which can make prices fall.

When other investors see that prices are falling, they may anticipate that the market has reached a peak and will start declining, so they may also sell off their assets to try and profit on them before the decline. In some cases panic can set in, leading to a mass sell-off and a stock market crash (but this is rare).

Is a Recession the Same as a Bear Market?

No. Bear market conditions can lead to recessions if the market slump lasts long enough. But this isn’t always the case. According to the National Bureau of Economic Research as reported in The New York Times, the U.S. has been in a recession only 14% of the time since World War II.

What Is a Bear Market Rally

Things can get tricky if there is a bear market rally. This happens when the market goes back up for a number of days or weeks, but the rise is only temporary. Investors may think that the market decline has ended and start buying, but it may in fact continue to decline after the rally. Sometimes the market does recover and go back into a bull market, but this is hard to predict.

If the bear market continues on long enough then it becomes a recession, which can go on for months or years. That said, it’s not always the case that a bear market means there will be a recession.

Once asset prices have decreased as much as they possibly can, consumer confidence begins to rise again, and people start buying. This reverses the bear market trend into a bull market, and the market starts to recover and grow again.

Example of a Bear Market

The most recent bear market occurred in June of 2022, when the S&P 500 closed 21.8% lower than its high on Jan. 3, 2022.

While the Nasdaq and the Dow showed a similar pattern in early 2022, the decline of those markets didn’t cross the 20% mark that signals official bear market territory.

Bear Market vs Bull Market

A bull market is essentially the opposite of a bear market. As consumer confidence increases, money goes into the markets and they go up.

A bull market is defined as a 20% rise from the low that the market hit in a bear market. However, the parameters of a bull market are not as clearly defined as they are for a bear market. Once the bottom of the bear market has been reached, people generally feel that a bull market has started.

Investing Tips During a Bear Market

There are a few different bear market investing strategies one can use to both prepare for a bear market and navigate through one.

1. Reduce Risky Investments

When preparing for a bear market, it’s a good idea to reduce riskier holdings such as growth stocks and speculative assets. One can move money into cash, gold, bonds, or other ‘safe’ investments to reduce the risk of losses if the market goes down.

These safe investments tend to perform better than stocks during a bear market. Types of stocks that tend to weather bear markets well include consumer staples and healthcare companies.

2. Diversify

Another investing strategy is diversification. Rather than having all of one’s money in stocks, distribute your investments across asset classes, e.g. precious metals, bonds, crypto, real estate, or other types of investments.

This way, if one type of asset goes down a lot, the others might not go down as much. Similarly, one asset may increase a lot in value, but it’s hard to predict which one, so diversifying increases the chances that one will be exposed to the upward trend, and you’ll see a gain.

3. Save Capital and Reduce Losses

During a bear market, a common strategy is to shift from growing capital into saving it and reducing losses. It may be tempting to try and pick where the market has hit the bottom and start buying growth assets again, but this is very hard to do. It’s safer to invest small amounts of money over time using a dollar-cost averaging strategy so that one’s investments all average out, rather than trying to predict market highs and lows.

4. Find Opportunities for Future Growth

However, in a broad sense if the market is at a high and assets are clearly overvalued, this may not be the best time to buy. And vice versa if assets are clearly undervalued it may be a good time to buy and grow one’s portfolio. A bear market can be a good time to identify assets that might grow in the next bull market and start investing in them.

5. Short Selling

A very risky strategy that some investors take is short selling in anticipation of a bear market. This involves borrowing shares and selling them, then hoping to buy them back at a lower price. It’s risky because there is no guarantee that the price of the shares will fall, and since the shares are borrowed, typically using a margin account, they may end up owing the broker money if their trade doesn’t work out as they hope.

Overall, it’s best to create a long-term investing strategy rather than focusing on short-term trends and making reactive decisions to market changes. It can be scary to watch one’s portfolio go down, especially if it happens fast, but selling off assets because the market is crashing generally doesn’t turn out well for investors.

The Takeaway

Bear markets can be scary times for investors, but even a prolonged drop of 20% or more isn’t likely to last more than a few months, according to historical data. In some cases, bear markets present opportunities to buy stocks at a discount (meaning, when prices are low), in the hope they might rise.

Also there are strategies you can use to reduce losses and prepare for the next bull market, including different types of asset allocation. The point is that whether the markets are considered bearish or bullish, any time can be a good time to invest.

If you’re looking to build a portfolio, no matter what the market, it’s easy when you set up an Active Invest account with SoFi Invest. The secure investing app lets you research, track, buy and sell stocks, ETFs, crypto, and other assets right from your phone or computer. You can easily move between different types of assets and you can set automated recurring investments if you want to put in a certain dollar amount each week or month. All you need is a few dollars to get started.

Start building a portfolio today.

FAQ

How long do bear markets last?

Bear markets may last a few months to a year or more, but most bear markets end within a year’s time. If they go on longer than that they typically become recessions. And while a bear market can end in a few months, it can take longer for the market to regain lost ground.

When was the last bear market?

The most recent bear market started in June of 2022, when the S&P 500 fell from record highs in January for more than two months.

Photo credit: iStock/Morsa Images

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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Source: sofi.com

Apache is functioning normally

Apache is functioning normally

There are two sides to inflation for consumers: The rising cost of goods and services means that the basic cost of living rises for most people. But the right amount of inflation can spur production and economic growth.

Deciding whether inflation is good or bad therefore depends on how various factors might play out in different economic sectors.

What Is Inflation?

Inflation is an economic trend in which prices for goods and services rise over time. The Federal Reserve uses different price indexes to track inflation and determine how to shape monetary policy.

Generally speaking, the Fed targets a 2% annual inflation rate as measured by pricing indexes, including the Consumer Price Index. Historically, though, the inflation rate has been about 3.3%.

Rising demand for goods and services can trigger inflation when there’s an imbalance in supply. This is known as demand-pull inflation.

Cost-push inflation occurs when the price of commodities rises, pushing up the price of goods or services that rely on those commodities.

Asking whether inflation is bad isn’t the right lens for this economic factor. Inflation can have both pros and cons for consumers and investors. Understanding the potential effects of inflation can maximize the positives while minimizing the negatives.
💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Is Inflation Good or Bad?

Answering the question of whether inflation is good or bad means understanding why inflation matters so much. The Federal Reserve takes an interest in inflation because it relates to broader economic and monetary policy.

Some level of inflation in an economy is normal, and an indication that the economy is continuing to grow. While inflation has remained relatively low over the past decade, it has historically seen the most change during or right after recessions.

The Fed believes that its 2% target inflation rate encourages price stability and maximum employment.

Recommended: 7 Factors That Cause Inflation

Broadly speaking, high inflation can make it difficult for households to afford basic necessities, such as food and shelter. When inflation is too low, that can lead to economic weakening. If inflation trends too low for an extended period of time, consumers may come to expect that to continue, which can create a cycle of low inflation rates.

That sounds good, as lower inflation means prices are not increasing over time for goods and services. So consumers may not struggle to afford the things they need to maintain their standard of living. But prolonged low inflation can impact interest rate policy.

The Federal Reserve uses interest rate cuts and hikes to keep the economy on an even keel. For example, if the economy is in danger of overheating because it’s growing too rapidly, or inflation is increasing too quickly, the Fed may raise rates to encourage a pullback in borrowing and spending.

Conversely, when the economy is in a downturn, the Fed may cut rates to try to promote spending and borrowing.

When both inflation and interest rates are low, that may not leave much room for further rate cuts in an economic crisis, which may spur higher employment rates. If prices for goods and services continue to decline, that could lead to a period of deflation or even a recession.

So, is inflation good or bad? The answer is that it can be a little of both. How deeply inflation affects consumers or investors — and who it affects most — depends on what’s behind rising prices, how long inflation lasts, and how the Fed manages interest rates.

What Is Core Inflation?

Core inflation measures the rising cost of goods and services in the economy, but excludes food and energy costs. Food and energy prices are notoriously volatile, even though demand for these staples tends to remain steady.

Both food and energy prices are partly driven by the price of commodities — which also tend to fluctuate, owing to speculation in the commodities markets. So the short-term price changes in these two markets make it difficult to include them in a long-term reading of inflationary trends: hence the core inflation metric.

The Consumer Price Index and the core personal consumption expenditures index (PCE) are the two main ways to measure underlying inflation that’s long term.

Who Benefits from Inflation?

The Federal Reserve believes some inflation is good and even necessary to maintain a healthy economy. The key is keeping inflation rates at acceptable levels, such as the 2% annual inflation rate target. Staying within this proverbial Goldilocks zone can result in numerous positive impacts for consumers and the economy in general.

That said, the core inflation rate began to climb out of that range in Q1 of 2021, and reached a peak of about 9.02% in June 2022. As of Q3 2023, the inflation rate has eased down in the 4.0% range, according to data from the Consumer Price Index.

Inflation Pros

Sustainable inflation can yield these benefits:

•   Higher employment rates

•   Continued economic growth

•   Potential for higher wages if employers offer cost-of-living pay raises

•   Cost-of-living adjustments for those receiving Social Security retirement benefits

The danger, of course, is that inflation escalates too rapidly, requiring the Federal Reserve to raise interest rates as a result. This increases the overall cost of borrowing for consumers and businesses.

Who Is Inflation Good For?

Inflation can benefit certain groups, depending on how it impacts Fed shapes monetary policy. Some of the people who can benefit from inflation include:

•   Savers, if an interest rate hike results in higher rates on savings accounts, money market accounts or certificates of deposit

•   Debtors, if they’re repaying loans with money that’s worth less than the money they borrowed

•   Homeowners who have a low, fixed-rate mortgage

•   People who hold investments that appreciate in value as inflation rises

💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

Who Does Inflation Hurt the Most?

Some of the negative effects of inflation are more obvious than others. And there may be different consequences for consumers versus investors.

Inflation Cons

In terms of what’s bad about inflation, here are some of the biggest cons:

•   Higher inflation means goods and services cost more, potentially straining consumer paychecks

•   Investors may see their return on investment erode if higher inflation diminishes purchasing power, or if they’re holding low-interest bonds

•   Unemployment rates may climb if employers lay off staff to cope with rising overhead costs

•   Rising inflation can weaken currency values

Inflation can be particularly bad if it leads to hyperinflation. This phenomenon occurs when prices for goods and services increase uncontrolled over an extended period of time. Generally, this would mean an inflation growth rate of 50% or more per month. While hyperinflation has never happened in the United States, there are many examples from different time periods around the world: For example, Zimbabwe experienced a daily inflation rate of 98% in 2007-2008, when prices doubled every day.

Recommended: How to Protect Yourself From Inflation

Who Is Inflation Bad For?

The negative impacts of inflation can affect some more than others. In general, inflation may be bad for:

•   Consumers who live on a fixed income

•   People who plan to borrow money, if higher interest rates accompany the inflation

•   Homeowners with an adjustable-rate mortgage

•   Individuals who aren’t investing in the market as a hedge against inflation

Inflation and higher prices can be detrimental to retirees whose savings may not stretch as far, particularly when health care becomes more expensive.

If the cost of living increases but wages stagnate, that can also be problematic for workers because they end up spending more for the same things.

Recommended: Cost of Living by State Comparison (2023)

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How to Invest During Times of Inflation

While inflation is an investment risk to consider, some investing strategies can help minimize its impact on your portfolio.

How to Protect Your Money From Inflation

The first step is to understand that inflation rates may be variable from year to year, but the upward trend in the cost of goods and services is typically a factor investors must contend with. Essentially, if inflation is historically about 2% per year, it’s ideal to look for returns above that.

For example, while savings accounts may yield more interest if the Fed raises interest rates, investing in stocks, exchange-traded funds (ETFs) or mutual funds could generate higher returns, though these investments also come with a higher degree of risk.

•   Diversification. Having a diversified portfolio that includes a mix of stock and bonds and other asset classes may help mitigate the impact of inflation.

•   Always be aware of investment costs and the impact of taxes and fees. Minimizing investment costs is a time-honored way to keep more of what you earn.

•   Investing in Treasury-Inflation Protected Securities (TIPS). TIPS are government-issued securities designed to generate consistent returns regardless of inflationary changes.

•   If prices are rising, that can increase rental property incomes. You could benefit from that by investing in real estate ETFs or real estate investment trusts (REITs) if you’d rather not own property directly.

•   Compounding interest allows you to earn interest on your interest, which is key to building wealth.

•   Dollar-cost averaging means investing continuously, whether stock prices are low or high. When inflationary changes are part of a larger shift in the economic cycle, investors who dollar-cost average can still reap long term benefits, despite rising prices.

The Takeaway

Inflation is unavoidable, but you can take steps to minimize the impact to your personal financial situation. Building a well-rounded portfolio of stocks, ETFs and other investments is one strategy for keeping pace with rising inflation. Being aware of how taxes and fees can impact your returns is another way to keep more of what you earn.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

How is economic deflation different from inflation?

Deflation is when the cost of goods and services trends downward rather than upward (the sign of inflation). Deflation can be positive for consumers, as their money goes further, but prolonged deflation can also be a sign of a contraction.

How do homeowners benefit from inflation?

Typically tangible assets like real estate tend to increase in value over time, even in the face of inflation. Currency, on the other hand, tends to lose value.

How does the government measure inflation?

The Bureau of Labor Statistics produces the Consumer Price Index (CPI), based on the change in cost for a range of goods and services. The CPI is the most common measure of inflation.

Photo credit: iStock/AJ_Watt

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing. Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Source: sofi.com