versus

Apache is functioning normally

Apache is functioning normally

HousingWire Editor in Chief Sarah Wheeler sat down with John Ashley, chief information officer and chief information security officer at PRMG, to talk about what the company is building versus buying, and how regulators are ramping up privacy and security standards.

Sarah Wheeler: Tell me a little bit about your background and what you’ve done at PRMG.

John Ashley: I’ve collaborated with PRMG since late 2005 and my background was network infrastructure and security. In my career, I’ve swung between enabling technology and securing it at the same time.

Within mortgage, we’ve done everything here at PRMG: multiple lending platform LOS systems, multiple changes of those systems, multiple changes of pricing engines, marketing systems, marketing platforms, CRMs, infrastructure security systems moving to the cloud for most of our infrastructure — I’ve been behind all of that over the last 10 to 15 years.

SW: How many tech people do you guys have?

JA: Within the IT department, we have about 60. So, we’re not little, but we’re not big, like some of these companies with 500 developers. We have smaller teams, but they’re very effective.

SW: At PRMG, do you generally build or buy technology?

JA: We do both. We have a development team and so we have software developers, system analysts, business analysts, quality assurance testers, and people that manage deployments. So, we can and do build stuff, but we tend to try to find solutions just for the speed of getting things up and we find ourselves doing a lot of integration or extending systems that we have.

A great example of this is the Encompass platform, which has been around a long time. And while it’s kind of long in the tooth in many respects, ICE has done a fantastic job in building out their back-end developer, connecting their API and micro services. So now you can extend so much from the Encompass platform. And we’ve taken other products and hooked them to Encompass — we have a pretty innovative work queuing system for our fulfillment people, within operations, that’s all been enabled by using a different third-party product. We tend to lean towards buying and extending, but we do a lot of custom stuff as well.

SW: What’s been the biggest change since you started at PRMG in 2005?

JA: I was going back through some old PRMG stuff and they had “the five tenets of mortgage lending success” and it was: product, pricing, compensation, marketing, and fulfillment. Well, technology is now the sixth tenet, because you can’t do any part of the other ones without the technology and that’s where the big change has happened. People are just clamoring for technology to get an edge, especially now.

The biggest shifts are just in the last two or three years. Back in 2020 and into 2021, you could go out in the parking lot with a net and just catch loans. We put a huge amount of effort into building a fantastic CRM platform, but you couldn’t get anyone to touch it — they were all too busy simply getting loans. And then that changed fast. Now, if you’re in the wholesale business, you need to know what every broker is, what all their people are doing, what kind of loans each of them are doing, and what’s your wallet share with every lender.

Of course, if I had to go back and pick a point in time that really changed mortgage data, it was the 2008 mortgage crisis and the regulations that followed. Now every mortgage that’s recorded has a lender name and it’s got the originator’s NMLS number on every single loan. And that enables just a tremendous amount of data that’s available to be collected and used. That didn’t exist before.

That’s how I can take any lender, any broker shop anywhere in the country, and show you exactly what their mix of business is on different types of loans — purchase or refinance — and what percentage is PRMG. I actually have the data.

SW: Let’s talk about the CRM you mentioned. We know that the time to build is in a slower market, but what does that look like?

JA: Well, within the IT world, we’re just as busy now as we were before, even though the business is slower. Before, we were just trying to hang on and keep the rivets from popping out, just from everything going so fast. But now it’s all into rebuilding. So, there is a lot of work on CRM, marketing platforms, but increasingly quite a bit around compliance, especially around privacy. That’s really become a burden.

But I do agree this is a time to build new capabilities when you have this kind of an opportunity. And we’re looking at changing platforms, looking at new point of sale systems, trying on a lot of technology. I mean, I can’t tell you how many people we talk to, and how many products we look at and ideas that we’ve been getting exposed to.

SW: Is there a type of technology that you’re seeing now, that people are pitching you, that you think is new and really exciting?

JA: One good example is we changed our product and pricing engine. We’ve been using the big common one on the market, Optimal Blue, for so many years, since about 2016 when we changed from another one. We wanted to be able to get more out of our product and pricing engine, so we made a shift this year over to a new platform, which is called Polly X. A pricing engine is something no one ever really wants to have to change because the whole world is tied into that: every product, you’ve got every overlay and everything else. And we’re also looking at changes for our wholesale lending technology to help streamline that.

And when it comes to digital marketing, there’s nothing that’s off limits. I would say search engine optimization and customized websites for loan officers, those are areas where we’ve had some success.

The world of lead generation has really gotten tight, we’ve been looking at new ways to get better data there. We will get lower mortgage rates one day, right? So, we’ve been putting time into building and working on technology for call center tech, things of that sort.

And the CRM — we have our main CRM for retail and a different one for wholesale. But we were looking at actually doing some test implementations on a couple of other ones that are more interesting to really high producing loan officer teams.

And of course, lots of integrations — everywhere where you can build a connection. FinLocker is the company that we’ve been working with an integration to offer that kind of capability, they call it a financial locker for borrowers, where they keep all their data. And consumers can work and use tools to improve their credit and then one day they come back as a borrower or repeat borrower. Another company called Credit Evolve is a really legitimate credit counseling service and we try to move people there who need help.

So, we just try not to leave anything on the table. If somebody would have said two years ago, hey, we could have saved 59 loans out of the kazillion loans that we did, nobody would pay attention. But now it’s like, we could have saved 59 loans if we would have followed this process: it means something. It certainly means something in the pocket of those loan officers who can help those people get into a home.

SW: What do you see on the horizon that you think we should be paying attention to now?

JA: First, privacy is a huge area. In Europe, with GDPR, they’re pretty far ahead of us, but our government is catching up really fast. But the biggest thing is just the web of state regulations. Companies that learn how to navigate the privacy landscape are going to have a really strong competitive advantage. But it’s not an easy landscape to navigate. We wrangle with it every week.

For example, you have to have prior written consent from borrowers to do just about anything with their data. Even if you want to help them in some way — like referring them to a credit counselor or getting a homeowner’s policy — you have to have consent to do that. So, you’ve got to build that infrastructure into your system and then you can reuse that process over and over again on your different platforms.

Secondly, when you get into the security realm, that’s become very much a different world with the FTC — they’ve re-released a whole new set of safeguards, guidelines that fully took effect in June. And there are all kinds of new nationwide requirements for all mortgage lenders that are subject to that rule, things like using multifactor authentication, encrypting all of your data, a whole lot of requirements that I know a lot of smaller lenders are struggling with. We’re doing okay on it. But I know the trouble we’ve gone through to get to where we are, and I know how difficult it is, especially for lenders that maybe don’t have that experience.

SW: How does your background in security inform what you’re doing now at PRMG?

JA: I’d like to say it’s just kind of built into all my decision-making. If I was just a security officer, I would probably be more highly focused just there, but I’m also chief information officer, so we have to get things done and business has to move forward, so you have to find solutions.

There’s no perfection. I mean, if you think wow, I’m secure, all you need to do is go to a cybersecurity conference and listen to these guys get up there and tell you how you’re hosed. So there’s no perfection, there’s just best efforts and making sure that your choices are sound and you can document what you’re doing.

My background has served me well, but it’s a steady, long-term path toward building a secure company. It just doesn’t happen overnight or even in a year. It’s a multiyear plan.

SW: How do smaller companies cope with these kind of issues?

AJ: I think that’s going to be a real test now that the regulations are getting more teeth in them. Everyone’s getting into the game, every regulator, state and federal, and not just that, but all of your counterparties — your warehouse banks and the government sponsored entities, they all have their own audits and their own questionnaires. And they’re all checking the boxes and trying to ensure that everybody’s secure out there. So there is a lot of scrutiny and I think over time, smaller companies are going to remain at a disadvantage there.

SW: With your security background, what keeps you up at night?

JA: Actually, I sleep pretty good. But if I had to pick among the small things that bother me the most in the security world, I think it’s what everyone fears: these ransomware takedowns.

Everybody’s afraid of getting their systems encrypted, having someone get control of their data, and everybody has that same risk. And there are companies in the mortgage industry that have been taken down like that — I assume most of them had to pay the ransom.

And then beyond that is just any kind of large-scale data breach. I don’t see how you can really do business in this space without a strong cyber insurance policy, but I know there are companies out there that don’t have them because they can’t get them. We do. But that market is really tough and if you don’t have a good system, and good controls that you can demonstrate to the insurer, then you’re going to have a tough time getting coverage.

SW: What’s exciting about the future of technology and mortgage?

JA: There’s a lot of promise in artificial intelligence and machine learning. Just about everybody in this country is using that technology already — we have it in our cybersecurity systems. And I think the real promise in lending is what you can do to help speed the process: helping borrowers find the right product and helping underwriters in making decisions faster. I think that’s the exciting, fun part.

Source: housingwire.com

Apache is functioning normally

Apache is functioning normally

This statement from the Fed is classic Fed at work.

The Fed has not helped its own cause here, as Austan Goolsbee, president and CEO of the Federal Reserve Bank of Chicago, said in a speech last week: “I’m still trying to process why long-end interest rates are increasing.”

My answer: “Stop talking about raising rate at this stage with a hawkish outlook!”

The Fed has expressed that real yields, meaning where inflation is currently and where rates are, are restrictive to the economy, so sounding hawkish on monetary policy at this stage can lead the bond market to go higher more than the Fed would like. Land the plane, folks, land the plane! 

As you can see in the chart below, it was another wild week in the bond market. Mortgage rates went from 7.39% to a high of 7.65% and ended the week at 7.44%. Before last week the high for mortgage rates this year was 7.49%.


The bond market has been volatile, but after the 10-year yield broke the 4.34% level, I am watching for the 4.63% level. A close above that and follow-through bond market selling could lead to higher mortgage rates. Hopefully, the last two weeks caught the Fed’s attention. If they cared about a soft landing, which I have been skeptical about from the start, as I talked about here on CNBC, the Fed would be more mindful of what they say and do.

Weekly housing inventory data

One of the things I got wrong this year is that I believed if mortgage rates stayed higher for longer, active inventory would grow between 11,000 and 17,000 for at least some of the weeks; that hasn’t happened recently with higher rates — close but no cigar. T

Last week, the growth of active listings slowed to 6,808. Seasonality is kicking in now, but we should be able to continue growing housing inventory like we did last year, as higher rates slow sales down, keeping homes on the market longer.

Last year, the seasonal peak was Oct. 28. Last week, according to Altos Research:

  • Weekly inventory change (Sept.22-29): Inventory rose from  527,938 to 534,746
  • Same week last year (Sept. 23-30): Inventory rose from 556,865 to 561,229
  • The inventory bottom for 2022 was 240,194
  • The inventory peak for 2023 so far is 534,746
  • For context, active listings for this week in 2015 were 1,187,2000

After some volatile weeks with the new listings data, things look similar to earlier in the year when we had an orderly seasonal decline in new listings data, which has been trending at the lowest levels ever for over 13 months. Even with rates spiking, the new listing data hasn’t created another new leg lower. This is important, as I expect flat to slightly positive data soon due to a shallow bar.


Historically, one-third of all homes have price cuts every year. Last week’s price cuts were lower than last year at the same time by 4%. This is happening even with rates over 7% and part of the reason is that housing inventory has been negative year over year since mid-June. As mortgage rates move higher, the percentage of price cuts can grow but it’s trailing last year’s percentage as home sales aren’t crashing like they did last year.

Price cuts for last week over the years:

  • 2021: 29%
  • 2022: 42%
  • 2023: 38%

Purchase application data

Purchase application data was 2% lower last week versus the previous week, making the year-to-date count 17 positive prints, 19 negative prints, and one flat week. If we start from Nov. 9, 2022, it’s been 24 positive prints versus 19 negative prints and one flat week. The week-to-week data has gotten softer since mortgage rates have been trending above 7%. However, it’s not crashing like last year because we are working from a lower bar.

The week ahead: It’s jobs week! (If the government is open)

If we don’t have a government shutdown, the week ahead will be jobs week again! The Fed was happy about labor data last month as job openings have been falling, and the job growth data is cooling down. However, jobless claims are still going strong, so they have more work to do in attacking the labor supply. In addition to jobless claims, this week we will also have job openings, the ADP jobs report, and the BLS Jobs Friday report, which could move the bond market this week.

Also, I will watch this week to see if more Fed members comment about rising long-term rates. The Fed would like to keep rates higher for longer, but if the bond market gets a whiff of any terrible recession data, it will take yields down. So far, jobless claims data hasn’t given them any reason to do so.

Source: housingwire.com

Apache is functioning normally

If you’re putting your home on the market, you may be wondering how to style it. Home staging is a popular house-selling strategy that presents your home in its best light.

Staging a house is meant to show off your home’s features, create a move-in-ready look and help potential buyers see themselves living in the space. From tidying up your space to redecorating, home staging can give your home a clean and inviting ambiance that welcomes buyers — and may even entice them to pay more.

When preparing a home for sale, many sellers hire professional home stagers to create a warm, inviting place that buyers will want to call home. But, there are many changes you can make on your own.

Declutter Your Space

Declutter, declutter, declutter. Staged homes shouldn’t have piles of paper on the countertops. Take a moment to reassess your space and ask yourself, “Do I need this?” Determine which books, loose mail and magazines can be stored elsewhere to create a more spacious look.

Getting rid of clutter shows that your home is organized. Potential buyers may also infer that you take good care of your home and that it’s well-maintained.

Focus on a Neutral Color Palette

Home stagers always prefer neutral palettes to make a room look balanced and timeless. Colors such as beige, white or light gray are good choices. Then, add aesthetically pleasing decor, such as a black or green pillow for the couch. Try to create a fun look that’s not too matchy-matchy.

Find Long-Term Storage for Everything on the Counters

In the bathroom, find a long-term storage solution for items like cotton swabs and hair brushes so they’re not littering countertops. Add mirrors to walls to increase light in a small or dark bathroom. Even consider a new set of white, solid brown or light gray towels to give your bathroom a clean, seamless look.

Clear off your kitchen countertops by storing away small appliances, kitchen tools and knick-knacks. You want to accentuate the positives — cabinets for storage and plenty of countertop space for food prep. What can you keep on the table? A bowl of fresh fruit, like lemons or oranges, to add a pop of color and style.

Professionally Organize Your Closet

Show off your generous closet space by making each one neat and tidy. Remove everything from your closets and sort it into piles: keep, donate, sell and recycle.

If there are items you’d like to keep that you’re not currently using, store them away until you’re ready to move. You want potential homebuyers to see uncluttered closets with plenty of space. A bonus? Paring down your belongings means you’ll have less to pack.

Make Your Bedrooms Feel Hotel-Like and Inviting

Stick with one neutral color in the bedroom, perhaps all white, gray or beige, for example. To make your room hotel-like, tuck your comforter into the end of your mattress. Place two pillows on the bed, then add another three to five on top for a luxurious feel. For an attractive touch above the headboard, hang either one large piece of artwork or a set of three smaller ones.

Look to Odd Numbers

Group items in odd numbers, such as three or five. This classic design rule helps create visual interest and calming, naturally appealing displays. It’s a trick that makes a room look more luxurious versus symmetrical. On the dresser or bedside table, arrange a small vase of flowers with two books.

Use Glass for Small Dining Spaces

Make a tiny dining room’s layout appear larger with a glass-topped table. The more solid the furniture, the smaller a place looks.

Add a rug to “anchor” the room, even if you have an open-plan house. But keep in mind the room’s scale — in grander rooms, go big, and in smaller spaces, use a more petite rug that fits under the table. Place a generously sized centerpiece to draw the eye upward toward the room’s ceiling light.

Take Window Treatments to the Ceiling

To create height (even in small rooms), take window treatments as high to the ceiling as possible. Window treatments make the room look taller. And there’s no need to splurge on fancy panels; drapes are one way to use fun patterns in an otherwise neutral room.

Hang a Mirror in the Entryway

At the entryway, set up a sofa table or console with a lamp and accessories in sets of three. Above the console, hang a mirror or a larger piece of artwork to create a welcoming feel whether you’re coming or going.

Don’t Forget About the Curb Appeal

Curb appeal is all about making that beautiful first impression. Fortunately, it doesn’t take much to make a big impact. Fresh paint, a new mailbox, a healthy manicured lawn, a clean walkway and flower-filled containers are easy ways to improve your home’s exterior appearance. You may also want to consider investing in outdoor lighting to enhance both safety and aesthetic appeal and, potentially, even your appraisal.

Remove Bulky Furniture

When staging a home for sale, put oversized furniture in storage. Furniture that is too large for a space can make a room feel cramped. Rent or purchase some inexpensive pieces better scaled to the room to make the area appear more airy and comfortable.

Depersonalize Your Home

Your home may be filled with years of special memories, but you’ll want to remove personal photos, collectibles and keepsakes when selling. The goal is to eliminate distractions and help prospective buyers envision themselves living in the space. You want them to concentrate on your home’s unique features, not your personal memories.

Have a Pleasant Scent in the Home for Tours

A gentle, refreshing scent creates a cozy feel and can trigger pleasant emotions. When it’s time to show your home, think about spraying a dash of essential oils throughout your rooms or using a diffuser.

You’ll also want to make sure to remove any bad smells. Open the windows to let fresh air in and thoroughly clean your carpets, sinks, trash cans, bathrooms and pet areas.

With this advice, your home’s spacious, balanced and livable look will be ready to list and show off to potential buyers.

And if you’re selling your home and purchasing a new one, let Pennymac guide you in the mortgage loan process. Get a custom instant rate quote from Pennymac today.

Share

Categories

selling a home real estate

Source: pennymac.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.

SOIN0322047

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)

Get up to $1,000 in stock when you fund a new Active Invest account.**

Access stock trading, options, automated investing, IRAs, and more. Get started in just a few minutes.

**Customer must fund their Active Invest account with at least $10 within 30 days of opening the account.
Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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.

SOIN0723137

Source: sofi.com

Apache is functioning normally

Apache is functioning normally

Over the past year or so, home equity lines of credit (HELOCs) have become a lot more popular.

As a quick refresher, HELOCs are typically taken out as second mortgages in order to tap equity.

Importantly, this means the first mortgage is left intact, so the borrower gets to keep their low rate while also gaining access to cash in their property.

If we consider that most existing homeowners have 30-year fixed-rate mortgages with interest rates below 4%, this approach begins to make a lot of sense.

The question is how do you compare HELOC rates? Is it the same as comparing mortgage rates? Not quite, though there are some similarities.

Why Are HELOCs Gaining in Popularity?

As noted, HELOCs (and home equity loans for that matter) have become increasingly popular in recent years.

Volume of home equity lines of credit and closed-end home equity loans surged 50% in 2022 compared to two years earlier, according to the MBA’s Home Equity Lending Study.

It’s no surprise given the trajectory of mortgage rates, which hovered around 3% at the start of 2022, and are now closer to 7.5%.

Yes, you read that right. The 30-year fixed has more than doubled in less than two years, and might keep increasing (hopefully not).

At the same time, homeowners are sitting on a ton of equity because home prices have surged since before the pandemic and beyond.

This has created an odd situation where homeowners are equity rich, but not interested in tapping that equity if it means disturbing their low-rate first mortgage.

Per Freddie Mac, nearly two-thirds of homeowners have a mortgage rate below 4%, and most of those loans are 30-year fixed loans.

Simply put, the vast majority have no interest in refinancing, even if they need cash. Instead, they are likely going to turn to a second mortgage, such as a HELOC or home equity loan (HEL).

After all, if they were to refinance those loans to tap their home equity, they’d lose their ultra-low rate in the process.

How to Compare HELOC Rates

So we know HELOCs are a lot more prevalent today, and for good reason (you want to keep your low mortgage rate!).

But how does one go about comparing HELOC rates? Well, it’s a bit different than comparing regular old mortgage rates.

The reason is HELOCs are variable-rate loans that are tied to the prime rate, while most first mortgages are fixed-rate loans that never adjust.

The prime rate, which is the same for every American, combined with a margin, determines your HELOC rate.

The margin, like a regular mortgage rate, can vary by bank/lender and can be higher or lower based on your loan’s attributes.

Simply put, it’s the markup on top of the prime rate that is used by all banks and lenders, and is really the only differentiating factor to consider other than HELOC fees.

The prime rate is currently a whopping 8.50%. Each time the Federal Reserve increases their fed funds rate, the prime rate moves in lockstep.

Since early 2022, the Fed has increased the fed funds rate 11 times, and this has pushed the prime rate up 11 times as well, from 3.25% to 8.50% today.

Now we need to factor in the margin, which is the piece you need to keep an eye on when comparing HELOC rates.

Because everyone’s HELOC rate is subject to prime plus or minus a margin, you’ll want to shop for the lowest margin possible.

Remember, the margin + prime rate = your HELOC rate. So the lower the margin, the lower your HELOC rate.

This is basically what you’re going to compare from one HELOC lender to the next, as the prime rate will be no different.

Tip: HELOCs also typically have a floor rate and ceiling rate that they will never go below/above.

The Typical Mortgage Pricing Adjustments Apply to HELOCs Too

So now we know HELOC shopping is all about paying attention to the margin. But how do lenders come up with the margin?

Well, the bank/lender will look at the loan’s attributes, just like they would on a first mortgage.

This means considering the borrower’s FICO score, loan-to-value ratio (LTV), in this case the combined LTV, or CLTV, since it’s a second mortgage.

The occupancy type, such as primary residence, second home, or investment. And the property type, such as a single-family home, condo, or a triplex.

All of these are risk factors, just as they are on a first mortgage. The lower the risk, the lower the margin. And vice versa.

An additional factor for HELOCs is the line amount, which often can result in a discount if the line amount is larger as opposed to smaller.

For example, you might see a lower margin if the line amount is above $150,000, and a higher one is the line is say $25,000 to $50,000.

It’s All About the HELOC Margin!

Margin Prime Rate HELOC Rate
Bank A 1% 8.5% 9.5%
Bank B 2% 8.5% 10.5%
Bank C 0.25% 8.5% 8.75%
Bank D -1.01% 8.5% 7.49%

Once the risk attributes are factored in, we have to consider the company’s spread, or profit margin on top of that.

They may charge a higher or lower base margin than another company for the same exact loan.

For example, once you input all of your loan attributes, Bank A may say your rate is prime plus 2%, while Bank B says it’s prime plus 1%.

If we take today’s prime rate of 8.5%, that’d be a HELOC quote of 10.5% versus 9.5%.

Obviously, you’d want the 9.5%. Also keep in mind that as prime changes, your rate will go up/down accordingly.

So if prime goes down .50%, those rates would drop to 10% and 9%, respectively.

In other words, that margin is stuck with you for the life of the loan.

Ultimately, you just want to hunt down the lowest HELOC margin, since that’s all you can control.

Again, you need to compare margins from these different lenders since the prime rate will always be the same.

As a real-world example, I recently saw a company advertising a HELOC with a margin ranging from prime +1.55% (currently 10.05% APR) to prime + 7.50% (currently 16.00% APR). That’s quite a range.

Another bank was advertising prime plus a margin between 0.25% – 1.375%, while another was offering prime minus 1.01%. Yes, below prime.

These margins can be higher or lower depending on their risk appetite and hunger for HELOCs.

Also Consider HELOC Fees and Closing Costs

The HELOC’s margin aside, one final thing to consider is any fees and closing costs.

Often times, fees are pretty limited on HELOCs, though it can depend on the bank/lender in question.

This means there’s probably not a HELOC origination fee, though you might see costs for title insurance or an appraisal, depending on the loan amount.

You might also be charged an annual fee or an early closure fee, or potentially charged for recouped closing costs if you close your loan within a few years (early termination fee).

Lastly, pay attention to the minimum draw amount, which is the amount you must take out upon funding the loan.

This can result in additional interest charges if you don’t actually need the money, but rather are opening the HELOC simply as a rainy day fund.

But in the end, margin is probably the biggest pricing factor and one you should keep the closest watch on.

And like a regular mortgage, those with excellent credit will be afforded the lowest rates on their HELOC too. But be sure to shop around as you would your first mortgage!

Read more: The Top HELOC Lenders in the Nation

(photo: Jorge Franganillo)

Source: thetruthaboutmortgage.com