August 30, 2022

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TOGETHER WITH

Good day—hope it's going well. Can you guess which of the following areas was the most competitive US rental market in the first half of 2022? a. San Diego, CA, b. Grand Rapids, MI, c. Miami-Dade County, FL. As usual, follow the wave 🌊 below for the answer.

Here are our money topics for today: 👇🏽

Fintech lenders feeling the rate squeeze
The broken rental market
Tips to avoid making impulse purchases

ECONOMY

Fintech Lenders Feeling the Rate Squeeze

When it comes time for a loan, it’s great to have an array of options to choose from, and we can thank the fintech industry for that.

Although a fintech’s sleek UX might make it feel like an overly simple tool for borrowers, it’s good to know there’s a lot that goes into getting us those loans, and that includes getting access to the money to lend out in the first place.

And now, in the wake of quickly rising rates and an overall tighter environment, fintech lenders are feeling the pressure on all sides to keep their products afloat and affordable. Loans provided by these lenders are usually unsecured and require a personal guarantee from borrowers.

Some insight

The rate ricochet: Typically, fintech startup lenders aren’t banks, which means they can’t fund their loans with cash on hand, but instead they have to borrow it themselves first. When interest rates rise, borrowing money becomes more expensive, especially when they are borrowing a lot.
The bonds problem: These companies can and do raise funding through asset-backed bonds (ABS), which are bonds backed or collateralized by income-generating assets like those loans. The problem is that buyers for this type of security have grown skittish, making this source of funding harder to come by. This clampdown on financing has also caused a slowdown in lending, pushing companies like Upstart and others into a loss last quarter.
Why it crunches fintech: These fintech lenders are feeling the brunt of these impacts for several reasons, primarily because of their business model and some of the subpar consumer credit profiles they’re built to serve. While democratizing lending and getting funds to consumers that typical lenders might overlook is noble and good, it comes at the cost of increased wariness from investors, as seen from their performance in the public markets.

Their purpose is still noble — just evolving

Creative fintech lenders like those feeling the heat in times like these weren’t born for no reason—they were made to fill apparent gaps in the financial system and influence progress in global finance.

Alternative lending is projected to top a total transaction value of $361B in 2022 alone. This valiant sub-industry is currently valued at about $450B with a lofty compound annual growth rate (CAGR) of 27.4% through 2030. Suffice it to say it’s not going anywhere.

The pressure they’re enduring right now is hopefully a stepping stone along the way to a more well-rounded future in the world of lending, and though some companies may falter in the process, there’s light at the end of the tunnel.

HOUSING

The Broken Rental Market

We’ve been watching the rate of home price growth slow for some months now, and while that might be comforting, it’s nowhere near a solution to this inherently unsustainable environment.

And it’s not just unaffordable for buyers, but renters too. Everyone knows that right now is a nightmare time to venture out on your own, but the problem is that we can’t quite foresee a reconciliation in sight.

The reality is that most seemingly sudden problems developed over a long time, and the housing market is one of them.

Vanishing affordability

Owning a home: Per data from the St. Louis Fed, the median home sale price in the US is now $440,000, up 27% from this time 2 years ago. If we blend the interest rates and the other costs of owning a home, the average monthly cost of home ownership was about $1,364 in August 2020, not too bad. But, if we crunch those same numbers now, the total comes to $2,273 a month, a 66% increase in cost.
This flows to rentals: As a result, national median rent jumped by a record 17.6% in 2021, far and above the 8.86% annual average increase. Although the typical rent in 2020 was just $1,104, that number is now $1,326, and those looking to move in now have it even harder with the average asking rent topping $1,900.

Supply & demand contributes to this

Shortages: It’s widely known that the US is experiencing a housing shortage in the millions of units. It’s estimated that US households grew by 1.48 million last year, yet we only saw the supply of new rental units increase by 330,000. Housing starts aren’t helping much either. They fell off a cliff in 2006 and are still trying to recover, all the while we’ve got supply shortages, labor shortages, expensive materials, restrictive zoning laws, and lobbying all in the way of progress too.
Domino effect: All of this has created an inescapable toppling of negative events. More expensive housing causes more people to rent, more people renting drives up the demand, and therefore prices in the rental market too.
We can’t tech our way out either: There are a lot of proposed anecdotal, tech-oriented solutions out there that involve even more companies (both startups and large firms) buying up property than people, and they often think their innovation is the key to solving the housing crisis, but the reality is that macro-level change is the only real answer to these problems.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

Buy vs Rent?

Housing

6 mins

TOGETHER WITH THE ENTRUST GROUP

Investing in Real Estate for Your Retirement

Imagine being able to invest in real estate in the same retirement account as your stocks and ETFs.

This is where a self-directed individual retirement account (SDIRA) comes in really handy. With an SDIRA, you can invest in actual real estate, and not only REITs.

Real estate is one of the most popular investments among SDIRA holders. Adding it to your portfolio can help increase diversification and provide a hedge against inflation.

The Entrust Group provides the necessary account administration to let you simultaneously invest in real estate, stocks, bonds and mutual funds and keep it all legit in the eyes of the IRS.

Learn more about investing in real estate with an SDIRA.

MONEY TIP

Tips to Avoid Making Impulse Purchases

Impulse spending used to be an occasional thing, maybe when you went shopping twice a month or during your weekly trip to the grocery store. Now though, it’s easier than ever to fall into the trap not only because of our growing overzealous demand for stuff (thanks Covid), but also thanks to tech as all you need to do is scroll on an app and click “buy.”

49% of users that participated in a recent Bankrate survey admitted they’d engaged in impulse buying on a social media platform (or other) that they use, and a more concerning 64% of them said they regretted at least one of those purchases.

A few ways to side-step impulsive buying

Procrastinate: When you see something you’re tempted to buy, wait at least 24 hours... better yet, 36. The key here is to wait however long it takes you to forget about it, and then reassess how much you wanted it. If it’s still on your mind, add it to a wishlist of sorts and purchase it when it fits within your budget.
“Ask app not to track:” Social media is one of the biggest drivers of impulse spending nowadays, and that’s largely because advertisers know what you like, and therefore what to show you. If you have an iPhone, you can somewhat dodge this by telling your app not to track your data which should end up showing you ads less relevant to you, thus reducing the temptation.
View the item in a vacuum: They say comparison can be the thief of joy, so it’s important to ask yourself if you really want something for yourself before buying. Oftentimes, we make purchases just based on what we imagine others might think of us if we had X, Y, or Z, and not based on solely if we want or need it.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

Budgeting Basics

Budgeting & Saving

6 mins

🔥 TODAY'S MOVERS & SHAKERS

Bed Bath & Beyond (-6.4%) after shares skyrocketing by 25% yesterday. The company will share its strategic business update tomorrow.
Twitter (-1.2%) as Elon sent a second deal termination notice to pull out of his $44b deal to buy Twitter. A whistleblower's report (by former executive Peiter Zatko) is another reason why he doesn't want to buy the company.
Best Buy (+2.9%) as the consumer electronics retailer reported a 13% sales drop in Q2. The company is seeing a real pullback in spending from inflation-weary shoppers.
Bitcoin (-2.8%) to $19,719.30 (1D)
Ethereum (-1.9%) to $1,522.03 (1D)

This commentary is as of 8:45 am PDT.

🌊 BY THE WAY

🌅 Answer: Miami-Dade County, FL. Grand Rapids, MI came in at #6, and San Diego, CA was #16. A large influx of new renters seeking warm weather and looser pandemic restrictions, topped off by a wave of remote workers, has turned Florida into the most sought-after region by renters in 2022. Miami-Dade County is now the hottest rental market in the US (RentCafe)
⚾ How about them collectibles? A mint condition Mickey Mantle baseball card sold for $12.6 million last Sunday (AP News)

🏠 ICYMI. Getting equity rich (Finny)
🍿 'National Cinema Day’ in the US to offer $3 movie tickets for one day—this Sunday, Sept 3rd (CNBC)
📑 Finny lesson of the day. Speaking of collectibles, they have different capital gains tax treatment. And with the year-end fast approaching, it's probably a good time to brush up on your capital gain & loss tax knowledge here:

Capital Gains & Losses

Taxes

5 mins

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The Gist is Finny's twice-a-week (Tues & Thurs) newsletter covering personal finance & investing insights and money trends. Finny does not offer investment and stock advice or endorsements. The Gist content team: Chihee Kim, Austin Payne, Carla Olson.

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