February 09, 2023

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TOGETHER WITH

Good Thursday to you. Today's trivia: Can you guess how many babies are born per minute around the world? a. 250, b. 1,250, c. 2,500. Follow the wave 🌊 below for the answer.

The topics for today are:

For the markets, January matters
Timing the housing market
What to expect from interest rates this year

MARKET OUTLOOK

For the Markets, January Matters

After 21 months of market euphoria, 2022 swiftly suffocated our bonfire and brought a harsh reality check to investors. It was a year filled with inflation, conflict, uncertainty, and subsequently, a very red market.

2022 had us asking "when will it end?" and thus far, 2023 has answered that question.

The year's kind start

January effect: It's well known that getting off to a good start lends itself to finishing well too. In fact, according to Bloomberg's outcome analysis looking back over the last 50 years, a green January and a green year overall is the most likely outcome out of all scenarios at 48%, with an average return of 20%.

The year so far: The S&P 500's total return for 2022 was -19.4% while the Nasdaq dropped a whopping -33%. These two indexes were down -5.8% and -8.8% in December alone, yet they've quickly rallied 6.2% and 10.7% in January. Year-to-date and as of yesterday's market close, the S&P 500 has already advanced 7.7% alongside the Nasdaq at 15%, and the Dow Jones at 2.5%.
Behind the move: As is with most market sentiment catalysts, the boost behind the move is vague but also understandable. Continuously lowering inflation numbers combined with news of the Fed lifting off the rate hikes a bit has given the markets a new sense of hope, and although this euphoria won't last forever, it's a nice start.

Going forward

Heading into the year, most analysts project somewhere between moderate growth and a mundane year, but we know these are nothing more than guesstimates. It's entirely impossible to say what the rest of the year may hold, and a lot of it depends on how investors weigh the economic data coming down the pipeline on any given day.

Markets must still navigate things like waning inflation, rates trickling north, costly debt, conflicting job reports, layoffs, and more. Thus far though, they're doing a good job.

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

Time In The Market Beats Timing The Market

Investing Basics

1 mins

REAL ESTATE

Timing the Housing Market

After a wild few years that's seen home prices skyrocket, flatline, and now falling in some locales, we find ourselves at a confusing apex point.

For prospective homebuyers who find themselves on the outside looking in, it's more difficult than ever to decide if now is the right time to buy.

Let's review

The run-up: In just three short years, the median sale price of homes across the US rose 37% — up from $327,100 in Q4 2019 to $467,700 in Q4 2022. Home prices tend to appreciate over time, but never this much in such a brief period of time.
The pause: Fueled by pandemic stimulus and near-zero rates, most knew this boom was unsustainable, and they were right. The Fed stamped out that fire in 2022 when it raised rates by 400% and subsequently drove mortgage rates to their highest point since 2007. Home sales, mortgage applications, and overall interest dampened to stop the frenzy.
Apex point: The climb has halted, for now, and we're awaiting the housing market's next move. Is it down, and if so, is it a little or a lot, fast or slow? Is it continuing upward, and if so, when and how quickly? The uncertainty is causing more prospective homebuyers to try and time the market.

Evaluating your situation

Long-term: The reality is that emotionally, timing the market is tempting, but logically we know it doesn't make sense for most of us. If you're seeking to buy a house to make it a home, or simply a property you intend to keep for the long term, then chances are it won't matter whether you buy it tomorrow or next year.
The realities: Save for certain locations and situations, home prices in aggregate are known to appreciate over time, and it's hard to make a bad investment in a long-term property as long as you keep up the mortgage payments.
Unique scenarios — profit-motive: Buying a home as an investor or a flipper may be the only scenario where, in some cases, it does make sense to try and time the market. If the success of a real estate purchase is contingent upon its ability to make a profit within a shorter period (sub 5 years or less), then in this case it might make sense to pick your time more wisely.

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

ECONOMY

What to Expect From Interest Rates This Year

The Federal Funds Rate has been on a tear over the last 12 months — rising from effectively 0% last February to now 4.00%, the fastest rise yet. The trickle-down effect this has had on debt vehicles across the financial world is emphatic — the bane of a borrower's existence right now.

Luckily for us, those rate hikes are expected to begin slowing this year. But this doesn't mean rates will go back to where they were, and many types of debt may even see their interest rates continue to rise.

So what can we expect from 2023?

Headlining the numbers

Mortgages: From January 2022 to January 2023, the average 30-year mortgage rate nearly doubled — rising from about 3.8% to 6.1% today. That's an unforeseen spike, and we don't expect the same for this next year. As interest rate hikes slow, the National Association of Realtors (NAR) projects that this number will slump to around 5.2% by the end of the year. For some perspective, this means interest payments over the life of a loan on a $400,000 home would decrease from $378,000 at 6.1%, down to about $312,000 at 5.2%.
Auto loans: The average rate on a typical 60-month auto loan was around 3.94% last January, whereas now it's 5.27%. This number has fallen notably from its November peak of 6.05%, meaning it's finally getting cheaper to buy a new car again. But unlike mortgage rates, auto loans are expected to rebound and become even more expensive this year, with BankRate estimating 6.9% by the end of the year.
Credit cards: The average interest rate on credit card accounts jumped from 14.56% last February to now 22.70%, representing a 55% climb over the last year. Although there's much less forecasting regarding these rates, they're important nonetheless as consumers rely more and more on their credit cards during these expensive times.

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

Decode Debt Jargon (Part 1)

Debt Management

6 mins

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🌊 BY THE WAY

🌍 Answer: "On average, there are 250 babies born every minute around the world. This adds up to over 130 million new human beings entering the world every year. Then it's no surprise that the world's population, which now stands at a whopping 8 billion, has more than tripled since the mid-20th century" (Visual Capitalist)
🍳 Wholesale egg prices have collapsed from record highs in December (CNBC)
🛒 How to save money on groceries, according to a store manager (Well+Good)
✨ ICYMI. Declutter to save some more money (Finny)
📉 Half in the U.S. say they are worse off, highest since 2009 (Gallup)

📄 Finny lesson of the day. Speaking of saving more, have you checked your credit report lately? Review it at least annually as your credit score may be impacted by errors on your credit report:

Credit Report Basics

Credit Scores

8 mins

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

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