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Tuesday, July 25, 2023

🏡 What's Next For The Housing Market?

July 25, 2023 View online | Sign up
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Good day. We all have a pretty good idea of what a "good" credit score is, but do you think most Americans have one? One of these answers is the average FICO score in the U.S. a. 655 b. 698 c. 714. Follow the wave 🌊 below for the answer. 

Here are the topics for today:

  • What's Next For The Housing Market?
  • Mutual Funds are Falling Prey to ETFs
  • Concerning Credit Trends

HOUSING

What's Next For The Housing Market?

Most of the time, the housing market is a pretty boring machine — chugging along in a slow and steady fashion, reliably increasing its value in aggregate and over the long haul. 

In recent years, that's been anything but the case. Just like everything else, home prices have become higher and more volatile over the last 24 months. 

So, as a result, here we are again with another housing market update. And yes, this one is just as perplexing as the rest. 

What to know

  • Recap: The median sale price of homes across the U.S. leaped by 46% from Q4 2019 to Q4 2022 — the largest three-year leap in this metric's tenured history. 
  • A slowdown: Eventually a reality check was ushered in by rising interest rates, tapped-out buyers, and an overall contractionary environment. Median sale prices fell by almost 9% in Q1 of this year, and subsequent, anecdotal data showed signs of a slowdown too. 
  • Rate hikes: Average going rates on a 30-year, fixed-rate mortgage topped out at just over 7% in November of last year, meandering between 6.5% and 7% since then. Since spring, rates have trickled upward again and now sit around 7.1% according to Bankrate. 
  • But this hasn't been, nor is it likely to be, a drastic downturn for the housing market. Sure, rates are higher than we're used to and homes are still expensive, but there are other factors at play. 
  • Like what? Inventory is still very low, the National Association of Realtors (NAR) estimated that there was only a 3-month supply of homes on the market as of May. Homebuilders also can't keep up with demand, equity is cushioned, so foreclosures are low, and lending standards are strict as ever, meaning there's no fluff in these prices — the median credit score for mortgage borrowers in 2023 is 765.
  • What does this mean for us? A likely slowdown, but nothing dramatic. Fannie Mae recently released its revised housing market forecast which projected a 1.2% decline in the Fannie Mae Home Price Index this year and a 2.2% decline in 2024.

INVESTING

Mutual Funds are Falling Prey to ETFs

Exchange-traded funds (ETFs) first began with a disruptive idea challenging their mutual fund counterparts, but maybe at the wrong time. Investment banks were resistant to the newcomer and not a fan of the funds' seemingly low-cost, free-range structure that made it more difficult to profit on. 

Despite its eventual success, the first-ever mutual fund $SPY was a slow burner just like its counterparts, and ETFs as a whole had only $2.4B under management by 1996.

Things would soon begin to change quickly though. By 2003, there were 123 U.S.-listed ETFs, and about 1,000 by 2011. Today, there are over 2,800 publicly traded U.S. ETFs, collectively holding more than $6.4T in assets under management (AUM). 

That same trend toward change has persisted as ETFs continue to knock on the doors of mutual funds around the market, slowly displacing them in popularity.

Recipe for change

  • ETFs have been on a tear over the last decade. Total net assets under management (AUM) by U.S. registered ETFs has grown by roughly 284% between 2013 and the end of 2022, while mutual funds have bloomed by just 47%. 
  • To be fair, mutual funds were already a heavy boat — coming in at $15T AUM back in 2013 and just over $22T as of now Eventually though, that barge is likely to find competition in the form of a younger, faster, more efficient cruiser — ETFs. 
  • Investors and fund managers alike are swapping their mutual funds in favor of ETFs. Fidelity is planning to convert 6 of its actively managed mutual funds (worth $13B) into ETFs this November, a move that would bring the total value of similar conversions to $100B over the last two years.
  • Recent data corroborates this trend, showing mutual funds are en route to finishing the year with net outflows for the sixth consecutive year while ETFs continue to tack on the cash, already $200B in 2023.
  • Why the shift? Basically, investors are starting to feel like less is more. ETFs often offer a lower expense ratio combined with greater liquidity relative to their mutual fund cousins, and fund managers are taking note of this. 
  • For now though, mutual funds aren't exactly going anywhere, but it's certainly worth noting the movement of the tides here and evaluating your own portfolio accordingly. There's a good chance you could be paying more in fees than you would be if you converted your mutual funds to a similar ETF.

Take this related lesson and earn 🟡 Dibs:
ETF Investing: Getting Started
Investing Basics
5 mins

MONEY TIPS

Concerning Credit Trends

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 answer is likely a confluence of factors, but these catalysts can easily be avoided if we're aware of what's going on and take preventative measures for our own finances. 

What's happening?

  • Higher balances: According to a Northwestern Mutual survey, 35% of Americans say they're carrying their highest level of debt yet, with the number one source (minus mortgages) amongst respondents being credit card debt. 
  • Higher interest costs: Consumers' average credit card balance is up to $5,910, and record interest rate costs aren't helping to decrease it. With rates now at 20.55% APR on average, (the highest since, well, ever) the average consumer with the average balance would end up accruing over $1,200 worth of interest over the course of a year. 

How to combat this

  • A reliable plan that you can commit to following is the most reliable way to dig yourself out of debt. Whether you take the avalanche method, the snowball method, or something in between, the most important thing is to allocate a portion of your budget to pay it down each and every month.
  • Do a balance transfer: There is no shortage of 0% APR for X number of months balance transfer offers out there. If you foresee yourself carrying a balance for an extended period of time, it might be worth opening a new card to avoid that interest burden.
  • Consider consolidating: Most credit cards carry an interest rate of 20% or more, some even ranging as high as 29%. If a balance transfer is off the table, another option could be to consolidate all your credit card debts into one loan with a fixed, often lower, interest rate.

🌊 BY THE WAY
  • 💳 Answer: 714. Pretty good, right? While averages vary widely by state, age cohort, and scoring model, a nationwide average of 714 puts most cardholders in the "good" category (Experian)
  • 🦾 Microsoft inks another $2B AI partnership (Axios)
  • 👩🏻‍🎓 ICYMI. Plan for student loan repayments (Finny)
  • 🍩 McDonald's is ending its McCafe Bakery items (NY Post)
  • 📊 Finny lesson of the day. Mutual funds, ETFs, or both? Take lesson one on ETF investing basics and follow it up with this one on mutual fund IQ to learn even more about both:
Mutual Funds IQ
Investing Basics
5 mins


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