September 27, 2022

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TOGETHER WITH

Good Tuesday to you. Can you guess which of the following drove over 60% of the increase in US rent & housing prices recently? a. surging lumber prices, b. shortage of supply, c. shift to remote work. Follow the wave 🌊 below for the answer.

Topics for today:

The return of the zero-down mortgage
Where to invest $10K right now
Money trends that make us uneasy

HOUSING

The Return of the Zero-Down Mortgage

For those who lived through the 2008 housing market crash, the words “zero-down mortgages” might need to come with a trigger warning.

Now in 2022, no downpayment mortgages are making a return, but let’s not give in to the slippery slope fallacy and panic before reading the fine print.

What’s going on?

Word has gotten around that zero-down mortgages are back mostly because of Bank of America’s new “zero downpayment” program. BofA and others like JP Morgan Chase and TD Bank have also created similar programs, with each bank allocating billions to the cause.

The program aims to provide select groups of first-time homebuyers from mostly black and Hispanic neighborhoods the opportunity to become homeowners to close the homeownership gap in the US. Instead of requiring a credit report, programs like these will evaluate applicants based on things like income, rent and bill payment history, and other financial measurables not accounted for by a simple credit check.

The name is a slight misnomer though because BofA is helping homebuyers with the down payment via a grant of up to $10,000-$15,000, giving buyers real equity in the property from the start.

Then and now

What happened in 08’: Zero-down mortgages and subprime lending are sore subjects for many Americans because of the wreckage those practices caused in 2008. A confluence of events including low rates, lax lending, adjustable rates, and rampant speculation in the secondary markets (MBS & CDOs) created a disastrous situation when rates rebounded and home prices dropped. The tide went out with millions skinny dipping, and the markets collapsed across the board.
How it’s different now: Leading up to the crisis back in 2005, adjustable rate mortgages (ARMs) made up about 35% of the mortgage market — now they account for 10%. Household debt relative to disposable income was also at all-time highs back then and is now the lowest it’s ever been. Additionally, lending requirements for both borrowers and lenders are much more stringent now.
It’s important to note that zero-down programs like those being offered now aren’t representative of something as infectious as the widespread lending practices of 2008, so there’s no need for panic. Nevertheless, these programs do come with their own unique risks, so they should be evaluated carefully before being accepted.

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

Mortgage Fundamentals

Housing

5 mins

INVESTING

Where to Invest $10K Right Now

Likely one of the most common questions ever asked in the investment world is “where should I invest $X amount right now?” And for good reason, we’re all searching for ideas that can help generate the best ROI possible on our money.

Before you invest though

Having $10K saved does not mean having $10K to invest. Before we plow money into a market of any kind, it’s important to make sure we secure all the basics.

What’s that? Having an emergency fund of at least 3 months worth of expenses, paying off high-interest debt, and consistently investing for retirement. Once those boxes are checked, sure, invest whatever amount is left over as you please.

Ideas for the present

Focus on income: The markets are in the midst of a unique situation sponsored by a unique array of negative catalysts we’re eagerly waiting out. If you’re not a fan of risk, it might be best to focus your extra cash on more stable, income-producing assets like Series I Bonds, Treasuries, CDs, and high dividend blue chip stocks or stock funds.
Find the loners: If you’re in the mood for a little extra legwork in the research department, venturing out to try and find some laggards might be a worthwhile exercise for you. If you can identify a stock, sector, or strategy that’s beaten down disproportionately and due for a good bounce over the long-term, this might give you a great bang for your ten thousand bucks.
Go private: Despite the abundance of options listed on the public markets, the overwhelming majority of US businesses are still privately owned. Private equity is a bit detached from the public markets in several ways and has recently become more accessible than ever to the average investor. Now might be a good time to “venture” into venture capital if you’re comfortable with high risk and enjoy the hunt.
Simply wait: Periods of rising rates and quantitative tightening have not been kind to investors historically, and many economists are calling for an ongoing contraction for the foreseeable future. This means we could be waiting a while for prosperous conditions to return, and it might be best not to fight the Fed with active investing right now.

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

What is Fundamental Analysis?

Advanced Investing

6 mins

TOGETHER WITH DEFI SAVER

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Learn about automating your DeFi management.

MONEY MINDSET

Credit Trends That Make Us Uneasy

It’s becoming increasingly common for Americans to be straddled with credit card debt. Is it an indicator of financial hardship, a result of welcome bonuses spreading like wildfire, or somewhere in between?

The data behind the trend

Debt overall: Total consumer debt rose another $23.8B in July of this year to top $4.64T in aggregate, a number that’s risen precipitously over the last few years.
Keeping debt around: CreditCards.com conducted a survey a year ago that showed 50% of respondents saying they’d been in credit card debt for more than a year. Now, that number has risen to 60%, directly in lockstep with the share of debtors who’d been in credit card debt for 2+ years, which rose from 32% to 40%.
The reasons behind it: 46% of survey participants cited having to cover emergencies or unexpected expenses as key reasons for carrying a balance. Almost a quarter (24%) said their reason for carrying a balance was due to their inability to afford day-to-day expenses.

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

Plan Your Way Out of Debt

Debt Management

7 mins

🔥 TODAY'S MOVERS & SHAKERS

Verve Therapeutics (+10.8%) as Cathie Wood recently added shares of the biotech company specializing in gene-editing therapies to treat cardiovascular disease to 2 of its ETFs ($ARKK and $ARKG)
Retailers are preparing for a challenging holiday shopping season. To prepare, Amazon (-0.8%) is running a second Prime Day on October 11-12, Walmart (-0.7%) wants to lure in younger shopping through its Roblox store in the metaverse, and Macy’s (+2.3%) will hire only half the seasonal workers it did last year.
Bitcoin (+2.8%) to $19,789.60 (1D)
Ethereum (+1.7%) to $1,359.85 (1D)

This commentary is as of 9:00 am PDT.

🌊 BY THE WAY

📈 Answer: The shift to remote work drove over 60% of the housing-price surge, according to the Federal Reserve Bank of SF (Bloomberg)
💲 A strong US dollar threatens to cut the profits of a third of the companies in the S&P 500 this quarter/Q3 (Bloomberg)

💵 ICYMI. Why is the US dollar going up? (Finny)
₿ IRS steps up efforts to target U.S. taxpayers who failed to report and pay taxes on cryptocurrency transactions (CNBC)
💳 How can you outsmart your high-interest credit card debt? Tally's lower-interest line of credit was designed to get people out of credit card debt faster and save big. Check your rate without hurting your credit score (Tally)
💰 Finny lesson of the day. About that S&P 500... find out what the index is and how it's calculated:

What is the S&P 500?

Investing Basics

6 mins

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Finny is a financial wellness platform on a mission to make your money work for you. The Gist is Finny's twice-a-week (Tues & Thurs) newsletter covering personal finance & investing insights and money trends. The content team: Austin Payne, Carla Olson, Chihee Kim. Finny does not offer investment and stock advice.

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