October 06, 2022

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TOGETHER WITH

Good Thursday to you. Can you guess what FICO credit score usually will get you the best loan rates in the US? (FICO scores range from 300 to 850.) a. 680, b. 760, c. 830. Follow the wave 🌊 below for the answer.

Today's finance & investing topics are:

The stock market isn't taking new applicants
What's a home purchase cancellation?
The 28/36 mortgage rule

MARKET OUTLOOK

The Stock Market Isn't Taking New Applicants

In 2021, companies in the US raised over $155B in funding from their public offerings. Now, money is scared and businesses are apprehensive. Having raised just $7.2B this year with 159 IPOs, the stock market is on pace for its lowest number of new entrants since 2016.

The IPO reckoning

The culling: We set IPO records in both 2020 and 2021. With a new high of 480 notched in 2020, last year smashed this record with 1,035 newly listed companies. That rapid expansion has cooled just as fast, and we’re on pace for a 79% decline from 2021.
Do not enter: The market has hung its hurricane flags to warn potential suitors of the danger that could befall them if they venture in. About 87% of businesses that went public last year are down, and most of them are down tremendously — the average loss is almost 50%.
Patience makes perfect: Hundreds of companies have either abandoned or postponed their IPO plans, with many taking it month by month. Others with enough interest and cachet like Klarna have relegated themselves to private equity for now, which is also downtrodden.

The bigger picture

The reality is that this isn’t anything new. We only saw 47 IPOs back in 2008 during the financial crisis when the S&P 500 fell over 30% that year; it’s entirely normal for businesses to retreat when the market is suffering.

Things like this hurt retail traders buying individual stocks the most though, and serve as a reminder to invest, and speculate, with caution — especially during tumultuous times like this.

HOUSING

What's a Home Purchase Cancellation?

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Fresh data points out that around 72% of recent homebuyers who purchased within the last couple of years are now regretting their decision. The reasons vary from home cost to feeling rushed, but the end result is remorse.

This has bled into the number of purchase cancellations we’ve seen recently too, with 15.2% of contracts being canceled in August — up from 12.1% a year ago. It’s better to change your mind about a home sooner than later, for sure. However, there are some things to know first.

FYI — Home purchase cancellations

Canceling risks: Homebuyers are usually required to put down some earnest money upon agreeing to purchase, usually 1% to 5% of the home price. If you choose to cancel, you might risk losing this earnest money and anything else you’ve spent so far if the cancellation isn’t warranted by unmet contingencies.
Leverage contingencies: Contingencies are items specified in your purchase agreement that must be met for the contract to bind. These are things like your financing, appraisal, home inspections, title search, and other requests that either party can make. If you think cancellation is possible, avoid compromising on contingencies, and use them to your advantage — unmet contingencies provide a valid cancellation request and shouldn’t lose your earnest money.
Proceed with caution: Ultimately, the best thing any homebuyer can do is take the time to carefully consider their options and eventual decision to buy. If there are potential threats to your purchase on the horizon, make an effort to accommodate those in your contingency requests.

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

Mistakes to Avoid When Buying a Home

Housing

7 mins

TOGETHER WITH THE DAILY VALET.

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MONEY TIP

The 28/36 Mortgage Rule

There’s a limitless number of “rules of thumb” out there in the world of personal finance. The reality is that everyone’s exact ratios will be a little different, but these rules can be great guidelines to follow anyway, nudging us in the proper direction.

Continuing in the spirit of homeownership, let’s zoom in on another mortgage-related rule, the 28/36 rule.

The ins and outs

28/36 overview: The 28/36 rule simply suggests that a borrower shouldn’t use more than 28% of their gross monthly income on housing expenses, and no more than 36% toward total debt servicing.
Put into practice: Let’s say you make $5K per month. That means you’d ideally spend no more than $1,400 a month on housing, and no more than $1,800 on debt including housing.
The reasoning: This rule combines both your housing costs and total debt obligations because your debt-to-income ratio (DTI) is very important to lenders, and an indicator of how likely you are to meet payment obligations. It’s possible to exceed this “ideal” ratio, but the higher you go the higher your interest rate will be.

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

Buy vs Rent?

Housing

6 mins

🔥 TODAY'S MOVERS & SHAKERS

Li Auto (-11.5%) despite no new announcements today; last week however, the Chinese EV maker cut its Q3 delivery guidance by 2,500 vehicles or 9% on supply chain constraints.
McCormick (-1%) as quarterly earnings were lower than the street's estimate (revenue was in-line); the spice maker said that expenses outpaced product price increases and that it was now recovering costs through pricing actions.
S&P 500 Index (-0.4%) to $3,769.91 (1D)
Nasdaq Composite (-0.2%) to $11,132.32 (1D)
Bitcoin (-0.5%) to $20,070.80 (1D)
Ethereum (+0.9%) to $1,364.85 (1D)

This commentary is as of 8:40 am PDT.

🌊 BY THE WAY

✨ Answer: 760 is the magic number. “The best published interest rates for auto loans are 720+ and for mortgages 760+,” says financial expert John Ulzheimer, formerly of FICO and Equifax (CNBC)
🛒 Walmart is holding a “Rollbacks and More” sale event to counter Amazon’s Prime Early Access Sale. It'll start on October 10 at 5am EDT and end on the 13th (TechCrunch)

🥴 ICYMI. Homebuyer’s remorse: why recent homebuyers are regretful (Finny)
⤵️ Mortgage applications plummet 14% as higher interest rates and Hurricane Ian crush demand (CNBC)
🍻 The #1 perk that will bring Gen Z and millennials into the office (CNBC)
🎯 Finny lesson of the day. With rates going up, the difference between a good credit score and a fair one can mean thousands of dollars of savings, depending on our purchase. Here's a refresher on some basics:

Credit Score Basics

Credit Scores

8 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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