Financial wellness technology company EarnUp reached a new milestone last quarter, helping millions of Americans schedule mortgage, auto, and student loan payments through its Payday to Payday program and technology. The company says it processed more than 50 million payment transactions worth $43 billion in total as of Q1 2023.

The growth of EarnUp follows a surge in interest from companies seeking smart programs designed to help employees achieve a more well-rounded financial picture.

“We’re seeing an interesting trend gaining momentum among companies, who are now placing an emphasis on helping employees achieve a holistic sense of wellness: physical, mental, and now financial,” said Nadim Homsany, co-founder and CEO of EarnUp. “By offering tools that help employees achieve greater financial well-being, businesses are enhancing employee satisfaction and supporting their employee recruitment, DEI, and retention efforts.”

EarnUp powers financial wellness programs for employers, financial institutions, municipalities, and nonprofits. Lending and servicing organizations turn to EarnUp to reduce risk and streamline operations.

EarnUp’s suite of products include a smart financial wellness program with a digital user experience that enables borrowers to schedule loan payments to sync with their payday and accelerate payments to principal. This eliminates monthly payment shock and helps borrowers meet the obligations of their loans with less of a struggle.

Using EarnUp’s systems, the company says borrowers can reduce the likelihood of defaulting on a loan and paying late fees, according to the company, and can potentially pay off their mortgage and other loans years faster.

“EarnUp proves that in today’s challenging economy, people are interested in cutting-edge tech solutions that offer flexible payment strategies to eliminate undue stress and make budgeting easy,” said Homsany. “We now have had more than three million borrowers use the EarnUp platform and have seen borrowers reach out directly to sign up with us when their lender or servicer does not offer our services. In fact, more than a quarter of these direct requests are from customers returning to EarnUp following a refinance or purchase of a new home.”

EarnUp was recently recognized for the impact of its revolutionary technology, winning a HousingWire Tech100 award and a 2023 Innovator Award by Progress in Lending. It also made the Financial Technology Report’s Power 300 list, which tracks the most important companies in the financial technology sector, including PayPal, Mastercard, and Fiserv.

Investors in EarnUp include Bain Capital Ventures, SignalFire, Blumberg Capital, LendingTree, KeyBank, and Flourish Ventures. The company has earned recognition from Deloitte, JP Morgan Chase, Duke University, and Forbes Fintech 50.

This content was generated using AI, and was edited and fact-checked by HousingWire’s editors.



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Movement Mortgage has tapped Brady Yeager to join the team as national sales director, a role that will lead the expansion of Movement across the country.

“I’ve always been passionate about helping loan officers grow their business to serve more families in our communities. Movement is an incredible place, and I cannot wait to show everyone what makes this company so special,” Yeager said. “I can already feel the energy and momentum behind the work we’re doing and I’m so excited to be part of it.”

In his role as national sales director at Movement, Yeager will focus on the company’s growing sales team. He will oversee expansion across the country by bringing on new teammates and will add value to all sales teammates through strategic initiatives designed to drive volume, the company said in a statement.

“As Movement continues to experience record-setting growth in a declining market, the need is greater than ever for alignment and collaboration across all people and all teams,” said Movement President Mike Brennan. “Brady is just the person to lead that charge for our sales team – he is 100% dedicated to team mentoring and support and has one of the most impressive recruiting and retention track records in the industry.”

With over 21 years in finance and mortgage lending roles, Yeager’s experience spans investment banking, residential retail mortgage, and private mortgage lending.

After launching his career at UBS in New York City, Yeager returned to the Pacific Northwest to open his own brokerage, which merged with Cobalt Mortgage in 2008.

At Cobalt, Yeager oversaw $5 billion in production. When a major lender acquired the company’s assets in 2014, Yeager was named divisional vice president, managing 2,200 employees, including 900 loan officers in 15 states. In 2020, his division originated and funded over $21 billion in mortgage loans.

“Brady embodies everything we look for in a leader at Movement: excellence in our profession, coupled with an unparalleled passion for serving others,” said Movement CEO Casey Crawford. “We have the utmost respect for his achievements, and we know that our organization is stronger with him on our team.”

The national top 10 retail mortgage lender funded more than $20 billion in residential mortgages in 2022. The company employs over 4,500 people, has more than 550 branches in the U.S., and is licensed in 50 states.

After funding its balance sheet and investing in future growth, Movement’s profits are used to support the Movement Foundation. To date, the Movement Foundation has received more than $370 million of Movement’s profits to invest in schools, communities, and global outreach.

This content was generated using AI, and was edited and fact-checked by HousingWire’s editors.



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Real estate vs. stocks. Cash flow vs. consistent dividends. Equity vs. price-to-earnings. If you’re reading this right now, chances are that you’re more of a real estate investor than a stock picker. But maybe you’re on the wrong side. Does the passivity of stock investing beat buying properties? Or do things like depreciation, tax write-offs, and the ability to use leverage while having tangible assets take the cake when it comes to the stock vs. real estate debate? And what about investing in 2023 as the economy continues to falter?

We brought on return guest, stock investing expert, and host of We Study Billionaires, Trey Lockerbie, to put him head-to-head against some of the most famous names in real estate podcasting. Rob Abasolo emcees this battle of investment strategies as Dave Meyer and Henry Washington bring in the housing heat. And while no physical jabs are thrown, Trey and our real estate investing experts put these two popular asset classes head-to-head to see which is a better bet for today’s investors.

And if you’re trying to scoop up deals at a discount, we touch on whether stocks or real estate are better bets during a recession, which comes out on top, and the risks you MUST know about before investing in either asset class. So, if you’ve got some cash burning a hole in your pocket and don’t know what to do with it, we may have the exact answers you need!

Rob:
Welcome to the BiggerPockets Podcast, show number 758.

Dave:
In real estate, if you don’t have adequate cash flow, then you can become a forced seller, and that’s the worst position to be in. So I agree with Henry. As long as you have the cash flow to be able to withstand any short-term downturns, then you can absolutely buy real estate in pretty much any business cycle.

Rob:
I’m soloing the intro up all by my lonesome today, and today, we get into some really good stuff. We’re going to be getting into real estate versus stocks. Now, I’m going to fill you in on the episode in a little bit, but I wanted to point out a few key highlights that we’re going to be talking about like risk versus reward over time, over 45 years of historical data to be more specific, how to evaluate your risk profile, and which asset class could best fuel your wealth-building goals. Today’s episode is going to be an awesome panelist lineup, including Dave Meyer, Henry Washington, and we’re even having Trey Lockerbie back on. Before we get into today’s episode, I want to give a quick tip which is if you’re looking to educate yourself and become more savvy in the world of stocks, go listen to Trey Lockerbie’s podcast, We Study Billionaires, available everywhere that you download your podcasts. Oh, and bonus curveball quick tip. Consider investing in bonds. If you listen to the end of the episode, you’ll find out why. Now, let’s get into it.
A recent top-performing article from the BiggerPockets blog is the inspiration for today’s show, Real Estate Versus Stocks. To bring you up to speed, I’m going to read the intro line from this article and to set the tone of today’s conversation. Let’s get one thing straight. Everyone should hold both stocks and real estate in their portfolios. Diversification is the ultimate hedge against risk, but that doesn’t mean that we can’t pit stocks and real estate against each other in a classic mortal combat style matchup. Which earns the best return on investment, real estate or stocks? While asking this grandiose question, which investment is safer?
There are a few call-outs here though. One, diversification is the ultimate hedge against risk. Risk and the fear of risk is what paralyzes so many investors, or being too risky is what puts people in the poor house. Two, running with the mortal combat theme here, both stocks and real estate have their combo moves for building wealth, but can equally sweep an investor off their feet so fast that their head will spin. We brought this powerhouse group of investors together to evaluate the risk versus reward over time in stocks and real estate, share how to evaluate your risk appetite, and to determine if there’s a clear winner for the safest way to build wealth. Excited to dig in here with our good friends, Dave Meyer, Henry Washington, and today’s guest, Trey Lockerbie. Trey, how are you doing today, man?

Trey:
I’m doing great, Rob. Thanks for having me back. I’m excited to… I’m still a real estate noob, so I’m just excited to represent the stocks, I think, in this discussion. So, I’m excited.

Rob:
Well, awesome. Well, for all the listeners that did not listen to our amazing podcast that we did with you a few months back, can you give us a quick 30-second elevator pitch about who you are and your background?

Trey:
Sure thing. Yeah. I’m primarily a business owner. I own Better Booch Kombucha, a national kombucha tea company, and that got me really interested in Warren Buffett because he says he’s a better investor because he’s a businessman and a better businessman because he’s an investor. So, I said, “I need to learn how to invest because it’s capital allocation at the end of the day,” and that got me really into the study of Warren Buffett, and it led to me becoming the host of We Study Billionaires, which is a podcast really focused on the Warren Buffett and value investing style of investing.

Rob:
Well, awesome, man. Well, thanks for being on the show today. You sent me a box of Better Booch, and I can confirm for all the listeners that it is the best kombucha I’ve ever had. But with that, I want to get into the first question here, which is for everybody. When was the last transaction that all of you had in either asset, whether it’s real estate or stocks? Henry, I’m going to go to you first here.

Henry:
Absolutely. So my last real estate purchase transaction was Friday of last week. I purchased a single family home, and we are going to actually keep that one as a rental property. My last stock transaction was this past Tuesday where I bought a stock for the sole purpose of the dividend that it’s projected to payout.

Rob:
Okay. All right. Dave, what about you?

Dave:
I think last week for both. I just have automatic deposits into index funds every two weeks, and I think when one of them went last week. I guess it’s real estate. I mean, it is. I invested in a real-estate-focused lending fund just last week as well.

Rob:
Okay. Cool, cool, cool. Trey, what about you?

Trey:
Similar to Dave, I have some weekly automated dollar cost averaging system set up, but my more active investment was in late December. I invested in a Warner Bros. Discovery stock. So, AT&T recently let go of Warner Media. It merged it with Discovery. It’s an interesting stock. It was about $9 when I bought it. It’s at about $15 now, so doing all right so far.

Rob:
Maybe after the exposure from this podcast, maybe it will be at $15.50, so let’s hold out for that.

Dave:
Oh, we could definitely move markets here.

Rob:
So can you quickly share your overall position, Trey? Are you stock curious, but mostly real estate, close to equal mix, stocked up in the sense of mostly stocks and REITs?

Trey:
Yeah. So it’s interesting because I don’t know if I’m like most of the audience here, but my net worth, if I broke it down, is about 60% in my business that I started because a lot of it is tied up there. My wife and I bought a house. That was our first big real estate investment, so that’s about… Let’s call it 30%, and then the remaining 10% is broken out, really, with a cash buffer, some Bitcoin, and some stock. So it’s still getting relatively new with the investments beyond, I would call, the fundamentals.

Rob:
Yeah, and actually, you mentioned this. I know you’re very involved in the stock side of things, but you mentioned dollar cost averaging. Do you think you could just give us a quick explanation of what that is? I assume that will probably come up a few times in today’s episode.

Trey:
Yeah. It’s a fancy word for basically automating investments. So you want to basically just put money passively into, let’s say, an ETF, or you could even do Bitcoin. You can do all kinds of stuff with this, and the idea is that you’re agnostic to the price at the time and the belief that the price will appreciate over a longer period of time. So, let’s say, the stock market. There’s interesting studies that show with over a year, it’s a little bit more unpredictable, but within 20 years, it’s almost… I think it’s actually around 100% guaranteed that you will have made money. Right? So, over a longer period of time, it proves to be the case that you make more money. So just being agnostic to the price, you’re going to capture a lot of the opportunities that come to you just through the price appreciation or depreciation.

Rob:
So it’s like the concept of consistently investing. Sometimes you’re going to buy when it’s high, sometimes you’re going to buy when it’s low, but it averages out to basically make you money in the end, right?

Trey:
Well said. Exactly right.

Rob:
Awesome, awesome. Dave, what about you, man? Where do you fall on the real estate slider versus stocks? How diversified are you in all of those?

Dave:
I guess fairly diversified just probably in the opposite of most people. I’d say about a third of my net worth is in the stock market and two-thirds are in real estate or real estate adjacent things.

Rob:
Okay. All right. Cool. Henry, what about you?

Henry:
Yeah. I would still define myself from a percentage perspective as stock curious, right? I’m fully immersed in real estate, and I just took a look. About 3% of my net worth is invested in the stock market. So everything else is real estate.

Rob:
Yeah. I’m probably in the 5% to 10% area. I mean, honestly, it could be three, but there’s a lot to go over today. So, Dave, I actually want to turn it over to you to give us the big picture here, right? Some of the historical data over the last 45 years because you’re much smarter than me and can say it a lot more succinctly than I could. So are you going to share some of that?

Dave:
Definitely not smarter, but spend way more time reading this nerdy stuff. So, basically, the data about whether real estate or the stock market has better returns is… I feel like it’s one of those things like reading nutritional information. Every study contradicts the other one. It’s like if you read, and try and figure out if eggs are good for you or bad for you, you just get completely contradictory information. This is like what you see in stocks versus real estate. The stock market is generally easier to measure and understand, and I can tell you with pretty good confidence that over the last 45 years, the average return on the S&P 500, which is just a broad set of stocks, returned about 11.5%. Then, when it comes to real estate, it’s just harder to evaluate. It’s relatively easy to measure the returns on real estate if you only look at price appreciation, but as anyone who invests in real estate know, there are also other ways that you earn returns such as loan paydown and cash flow.
When you factor those things in, some studies show that they’re about at par with the stock market. Some show that they perform better, and that’s mostly when it comes to residential real estate. When it comes to commercial real estate, I’ve seen some data that shows that… REITs, for example. Some REIT studies show that they come in at around 9%, so that would be lower than the S&P. While others show that REITs have return around 11.6%, which is about at par with the S&P. So it really is all over the place, but there are a few themes that do seem to be consistent from study to study, and that’s that.
In any given year, the stock market has much higher potential and more risk. So it’s just a more volatile asset class. You have a greater risk of loss on the stock market in a given year, but you have higher upside. So that’s one thing, and the second thing is that over time, as Trey just alluded to, both asset classes go up over time. So if you hold both of them for a long time, both of them are pretty high-performing assets. For example, both of them do better than bonds and a lot of other types of asset classes. So they’re both good, but there is no conclusive answer which is I guess why we’re here on this podcast debating which one is best.

Rob:
Yes. That’s honestly very… I think you’re right, the way you said about nutrition and how there’s always a study that contradicts it. I feel that way too when I get into some of the numbers. I’m curious, and you may not have the answer off the top of your head, but you mentioned that when you look at debt paydown and cash flow, it actually ends up being possibly hand in hand with stocks. Did that study at all take into consideration some of the tax benefits of real estate? Because for me, when I look into this, that seems to always be what puts real estate right over the edge for me.

Dave:
So that study is one I did myself, and because I was curious, Trey cited a stat that over 20 years, it’s… Historically, if you own stock for 20 years, you don’t lose money, and I was curious because I’m weird like what the stat was for real estate. So I did this whole analysis, but it did not include the tax benefits. It just looked at how inflation adjusted housing prices, cash flow, and loan paydown contributed to your probability of a loss in real estate. Spoiler. If you want to point for real estate, the probability of a loss in a given year in real estate is lower than stock according to my personal, but not academic, not peer-reviewed study.

Rob:
Hey, anecdotal evidence counts for me, Dave, in my heart. So I know that there are some risks in both asset classes, right? Whether one is more volatile or not, that’s obviously what we’re going to get into. So what is less risky, real estate or stocks in today’s general economic climate? Trey, I know that you… Obviously, you’re coming more from the stock background, and this is what you study. So I’d like to start with you and get your point of view on this.

Trey:
Yeah. So the article we’re referencing talks a lot about how volatility is often described or what defines risk, and I think that’s what you’d find the most academia. But just through my studies and people I’ve researched with investors, especially in the stock market, the consensus in that community seems to be more around defining risk as the permanent loss of capital, which is another fancy way to say, “Will this thing go to zero or not?” If you look at it that way, you could make an argument that real estate is probably the less risky asset class because it’s hard for a home to go to zero, unless maybe it burns down without insurance or something. But with stocks, that’s a little bit more common. Now, if you are applying it to, say, an index where you’re owning the top 500 companies in the US, and those companies are constantly changing out for the next best thing as some fall away, it’s hard for that to go to zero, unless there’s some apocalyptic event. Right? So it’s interesting because if you look at it that way, it might net out even, but I would just say because of the nuance with individual stock investing, you could argue that real estate might actually be better.

Rob:
Yeah, yeah. I mean, even in your example of the house burning down, for example, you still technically have the land and the land value associated with that house. So, in that aspect, I would agree. I would say that overall, the risk of real estate going to zero is relatively slim. Dave, what do you think? Do you have an opinion on whether stocks or real estate? I know you mentioned that real estate typically is going to be a little less volatile, but yeah, curious to hear your thoughts.

Dave:
I think what Trey just said is spot on. If you look at and you define risk like what Trey said as a permanent loss of capital, then I agree, but the data, just to argue against real estate, just to play devil’s advocate for a second, if you want to consider the risk of underperformance or opportunity cost as well, then I think there’s something to be said for the stock market because there are times when real estate does grow much slower than the stock market, and so you can risk under underperformance by only investing in real estate, which is why, personally, I think diversification is important.

Rob:
Sure, sure. Henry, you mentioned you’re 3% into the side of stocks and mostly into real estate, so does this have any… Is this because you feel real estate is less risky, or is it just because you like real estate more?

Henry:
Yeah. I think it more comes down to the level of understanding that I have with real estate versus the level of understanding that I would want to have with stocks or different strategies with investing in stocks because… Yeah. I think we can talk back and forth all day about what’s more risky or less risky, but the truth of the matter is it’s what strategy are you employing in either, and how risky is that strategy because yeah, real estate is typically not going to go to zero, and the stock can, but you can buy something, and then get upside down. Right? Nobody wants that either, and that can happen with stocks or real estate, depending on where you buy and what’s going on in the market where you’re buying, and the same thing with the stock.
So, for me, it’s just I understand real estate, and I understand the strategy that I employ within real estate, and I typically stick very close to my strategy. I do the same thing with the stock market, but because I haven’t researched a plethora of companies or a plethora of index funds even, my stock strategy is very, very, very high-level and not very risky because I only invest for long-term with the exception of the dividend investment I made recently. That’s more of a test, but that for me. Again, I invested in that dividend stock, A, as a test, and B, if I lost that money, I’m not risking more than I’m willing to lose there. Where with real estate, it’s a much more educated investment for me.

Rob:
Yeah, that makes sense. Actually, you brought up a good point that I’m going to backtrack a little bit because I did say that real estate doesn’t go to zero based on what you were talking about, Trey, but Henry is absolutely right. You could be upside down on an investment. you could flip a home and sell it at a loss. In that instance, it didn’t go to zero or in the negatives. Right? So it’s very similar in that you lose money on the sale. If you were to hold onto that piece of property, probably over time in 30 years, you’re not going to be upside-down, and I think it’s probably similar with stocks, too. Right? You lose money on the sale, unless the company itself goes underwater, but I understand what you’re saying, Henry. There’s so much out there, and we know real estate. For me, I hear all these terms like blue chip market, growth stocks, dividends, and so I want to toss it to you, Trey, and just ask, how do you categorize the different equities by risk?

Trey:
Yeah. So it’s probably what you would expect to some degree because lots of people categorize things as micro-cap, small-cap, mid-cap, large-cap when you’re talking about stocks, and those are just the ranges of revenues. So micro-cap is $50 to $300 million, and on the other spectrum, large-cap, you’re talking about $2 trillion or so if you’re talking about Microsoft, Google, that kind of thing. So it’s a very large spectrum, and I would say that there is actually more risk when you’re looking at things like micro-caps because they’re just subject to different factors. For example, liquidity or just… They’re still trying to grow and get market share. Whereas another business might have a large majority of market share like Google who has, I don’t know, 90% search or whatever. So they’re still trying to grow, and I would say those are more risky for that reason, and they also tend to have more volatility if you’re looking at it in that way as well.

Rob:
Yeah, yeah. Actually, speaking in this world of the different equities and everything, Dave and Henry… Actually, Trey, you may need to help out here, but what I’d like to do is actually line up the different equity types to the different housing types. So find the respective spirit animal of each. So I’ll just kick us off to solidify this, but imagine a mutual fund is like a multi-family. Those two would come together.

Trey:
Yeah, and I would say that micro-caps, as I highlighted there, would be like house-hacking or maybe flipping your first Airbnb, something like that.

Henry:
Yeah. I would say a dividend stock is investing in a single family home for the cash flow because you’re buying something in hopes that it appreciates, but really, what you’re wanting is that monthly or quarterly cash flow.

Rob:
What about commercial? Commercial, commercial real estate. How would we pit that up, or what spirit animal we’d choose on the stock side?

Dave:
It depends what type of commercial. If you’re talking about office commercial, right now, that’s the Silicon Valley Bank of real estate. They’re both just nose-diving right now. If you’re talking about retail that’s like tech, it’s not doing great, but it will probably do okay in the long run, or if you’re talking about multi-family, I don’t know what you would compare that to, but it’s doing okay right now, but there are some concerns. Trey, I don’t know if there’s any type of stock that you would compare that to.

Rob:
What about penny stocks? Are those the government foreclosures like the HUDs of real estate?

Trey:
Yeah. A lot of times, micro-caps are penny stocks. So I was thinking about that house-hacking thing where you’re just getting that extra income, but it’s just maybe a little bit more volatile because you have a roommate, and who knows how that’s going to go?

Dave:
I have one other way that I think about this is that in stock world, you talk about blue chip stocks, or value stocks, or growth stocks, and I look at certain geographic locations in the same way. There are certain real estate markets that are extremely predictable and don’t have the best returns, but they’re relatively low-risk. I primarily invest in Denver. I think of something like that. It’s no longer this great cash-flowing market, but it’s still going to offer you pretty solid returns. Then, there are markets that are up and coming. There are the value ones that, I would say, where Henry invests in Northwest Arkansas. It’s probably a value opportunity that has some upside. So I think it’s not just the asset class within real estate, but also the geographic locations that can be… People can think about geographic locations and assess risk based on where you’re physically investing.

Trey:
I think that’s a great point actually because something that sold me on buying our first home was looking at the data around the 2008 GFC. I live in California, specifically Los Angeles, and there was this fact around… Yeah, I think across the country, the average decline was something like 50%, but in California, especially Los Angeles, homes over a million dollars, which most homes here are just because it’s ridiculous, the decline was only around 25%, so about half just going to that point about the less risky aspect depending on where you are because people like to live near the beach and with good weather.

Rob:
Yeah, and I can’t blame them. I’d like to move in to a bigger question here since we’re on the topic which is, what has produced better in times like this? Would it be pre-recession or recessionary times that have yielded the best returns? This is a question for everybody, but if you need me to choose somebody, then I’ll choose you first, Dave Meyer.

Dave:
Oh, god. So the question is like, during economic uncertainty like we’re in right now, which asset class is better?

Rob:
No. I think it’s just from a return standpoint of each asset class, do you typically see better returns in pre-recession times or in recessionary times?

Dave:
Oh, I think we’re in the worst part. So I think if you think about the business cycle, people call them different things, but I would say that we’re in what’s known as, at least in real estate, the peak phase where things are still priced really high or people have expectations of high prices, but they’re unaffordable, and so I think we’re still… Prices haven’t bottomed out, and so I think this is a dangerous time to buy real estate, unless you know what you’re doing. You don’t want to “catch the falling knife” because I personally believe prices are going to continue to go down this year. That said, I participated in a syndication where the operator bought it for 30% below peak value value, and I’m feeling pretty good about that. So it’s not like you can’t buy things right now. You just do need to be careful.
I think if you could theoretically time the bottom of the market, which you can’t, that would be a better time to buy, but I don’t think we’ve hit bottom yet. Unfortunately, it’s impossible to time because we won’t know when we hit bottom until after that has already happened. So I caution people against trying to time the market, and instead, trying to think further ahead and to buy undercurrent market value if you, like I do, believe that prices are going to go down. I think Trey probably knows better about the stock market, but yeah, I think real estate is a little bit different and that price has just really started to go down on a year-over-year basis, whereas the stock market has been down for at least a couple of quarters now.

Rob:
But is there a similar concept? I mean, if we talk about stocks which… We went over the idea of dollar cost averaging with stocks. Wouldn’t that same theory technically apply in real estate? If you’re buying real estate every single year consistently, then in 30 years, theoretically, all that real estate should be worth a lot more. Is the reason that maybe we don’t look at it that way because the stakes are a lot higher and you’re spending a lot more on a house than you might on an individual stock?

Dave:
I think yes. I mean, I do think. I try to dollar cost average. I continuously buy and try to invest similar amounts into real estate. I change what types of real estate strategies I use a bit based on the macro climate, but I totally agree. The whole concept behind dollar cost averaging is that the value of these assets go up over time, and if you can basically hitch yourself to that average over time, you’re going to do well, and that is true both in real estate and in the stock market.

Rob:
Yeah. Dave, sorry. Henry, were you going to say something?

Henry:
Yeah. Dave’s train of thought I think just triggered my train of thought to say I think you can get… I don’t know about percentage of returns, but from a dollar perspective, it seems like you would get a better return with real estate because you can use debt to buy real estate, so I can get a loan and buy large amounts of real estate in the market now which can produce a very high return when the values go back up if I can hold that property. Meaning, that property is going to produce some level of cash flow that covers that debt service, and so I can get a higher return in real estate. Whereas if I go into the stock market, right now, yes, the stock market is down, which is a great time to buy because over time, you’re essentially going to recoup that money, and then obviously, make more money, but I can only buy with capital on hand, and so the return is smaller.

Dave:
That’s a great point Henry just made that when you buy a stock, traditionally, you’re not leveraged. So, once you own it, you do have an easier time holding onto it through any market downturns or volatility. In real estate, if you don’t have adequate cash flow, then you can become a forced seller, and that’s the worst position to be in. So I agree with Henry. As long as you have the cash flow to be able to withstand any short-term downturns, then you can absolutely buy real estate in pretty much any business cycle.

Rob:
Yeah. Okay. What about you, Trey? What do you think?

Trey:
Well, because we were highlighting the volatility of real estate, I’m sure we might talk more about that where because of the illiquidity of that asset class, you probably just see naturally less volatility because it’s harder to get in and out in the stock market, but I wanted to provide some interesting facts around the stock market when it comes to recessions. This is interesting because the stock market, to your point, Dave, has been down pretty significantly over the last year, but there’s still some debate around whether or not we’re in a recession, and so that’s unique. Most of the time, there’s a recession, the stock market decline shortly thereafter, but what’s interesting about the stock market is that most recessions only last about a year. In fact, three of the 11 recessions since 1950 went on for more than one year. So it’s almost rare for it to go any longer than that, and for every recession, the stock market recovering by the time the recession ends is about half. So five of the 11 times we’ve had recessions, the stock market has actually recovered by the end of the recession.
So to the point around maybe real estate fared better throughout the recession, but stock markets tend to bounce back, and there’s only been a couple of recent recessions that have been unique. For example, 2008 was by far the deepest and worst stock market because of the Global Financial Crisis. So that was the longest bounce-back. But then, 2020, if you guys remember, was the steepest selloff almost ever, I think, but the shortest recovery, about 60 days. So it’s interesting to weigh out the pros and cons in that way knowing that, “Hey, we’re going into a recession. Stocks will probably naturally not fare too well because the recession is going to affect the underlying earnings of those companies.” But it seems like over the long run, you’ve got a lot of other momentum built-in. For example, 401(k)s, pension plans, all these things that are actually act or passively flowing money into the stock market just through weekly or biweekly payrolls from different corporations. You have lots of inflows just naturally going in because of that dollar cost averaging we mentioned that helps, I think, keep propelling the stock market up and helping it recover over a shorter period of time as well.

Rob:
Yeah. That is interesting because as you were taking us through that journey, I was like, “Well, it honestly seems ideal that the stock market is really low,” because if you’re an investor, you’re like, “Okay. Great. Everything is cheap. I’m going to buy it.” But I think the flip side of that is you really don’t necessarily want that for a relatively large portion of the population that relies on dividends, and retirement accounts, and everything because that’s typically the stuff that’s really taking a hit.

Trey:
Yeah. Exactly. It’s important. I think everyone understands this idea, but price is not value. Right? So there’s a lot of these companies that may have deserved to have a price correction, but there’s probably a lot of companies in there and similar to real estate where the value is actually much higher than the price. I remember in the 2001 dot-com bubble, Amazon’s price went down 90-something percent. I think it was like 96%. Obviously, the fundamentals of that company were still strong and improving every single day even throughout that period of time. So you’d ideally want to find companies like that who are affected maybe by the price, but to your advantage. That’s the philosophy that the market is mostly efficient, but the market is also reflexive, so these downturns can actually gain momentum over time, and that can work into your advantage so you can find these opportunities.

Rob:
Well, I want to move into another niche within all of this, and so Dave and Trey, I’ll toss it to you guys on this as well. But given the current conditions of the economy and what we’re seeing in 2023, do bonds offer any better cash flow than indexes, or REITs, or anything like that?

Dave:
Okay. So I brought this up because I think it’s interesting to see that a lot of commercial real estate assets, which are easier to track, like if you look at multi-family, a lot of them are trading at cap rates which are below bond yields. So that’s basically saying that you would buy a multi-family asset to earn 3% or 4% cash flow when you could buy a government bond that yields over that, which is a better cash-on-cash return with much less risk than multi-family investing. I mean, multi-family investing is great, I do it, but if you’re asking which has a better chance of giving you that cash flow, I would trust the US government to pay back their bonds than I would a multi-family operator, especially right now. So I just think it’s interesting to see that.
With rising interest rates, there is this silver lining, which is that “risk-free assets” which no investment is… or excuse me, “risk-free investments,” and there’s no such thing as a real risk-free investment, but they call bonds or savings accounts risk-free because they’re so low-risk. They’re at 4% right now, and so you have to ask yourself if you’re, for example, a commercial real estate investor, “Is it worth getting a 5% cash-on-cash return and taking on all the effort and risk of buying that property when you could do basically nothing and get 4% from a bond?” So I just think that’s an interesting dynamic in the market. I’m curious what Henry and Trey think about that, and Rob, you as well.

Trey:
Yeah. it’s an interesting time because for the last decade, to Dave’s point about risk-free rates, it was actually more rate-free risk because these bonds were yielding so low, and you actually saw this play out. The risk was there, right? You’ve mentioned Silicon Valley Bank. I mean, their fault was having all this money from depositors, putting it into treasuries at these low rates, and those were locked in for, say, 10 years, whereas rates started to go up really aggressively, and so there was this duration risk that I don’t think people were really thinking about until it occurred, but now everyone is becoming aware to that actual risk.
So there is some risk, but today’s point, we’re at a certain, unique, I think, place where inflation is coming down and rates are going to probably cap around 5% would be my guess. At that point, you have a really good opportunity because you’re getting that more of a risk-free rate because the odds of rates continuing to go up from here, I think, are actually lower because of inflation decreasing. If they do go lower, then the bond you’re actually holding will appreciate as well. So not only are you getting that 5%, but you’re going to get some price appreciation from it.
So I find myself even surprised to say this and be pro-bonds after the last decade we’ve just had, but I actually think that if you’re only needing to have something like a 4% or 5% right now, and you really want low risk, it’s probably a good option. Then, furthermore, I would go as far to say go check out Vanguard or some other options that do these ETFs where it’s very liquid. You can get in and out of them. You don’t have to ladder your own bond portfolio to make this happen. So there’s options like that out there.

Rob:
Totally. Who would have thought on BiggerPockets, we’re like, “Bonds? Maybe. Actually, it might make sense?”

Dave:
I know. I just want to caveat that. I’m saying like commercial real estate if you’re looking at a REIT, for example, or buying a really low-cap multi-family unit. I’m not talking about a lot of the strategies we talk about on BiggerPockets like value add or buying a small multi-family or even single family. I’m just talking about commercial assets.

Henry:
I don’t know though, Dave, because if you think about… We talk about a lot of new investors are struggling to find deals, that cash flow, or hit the 1% rule. Right? So I bet you find a lot of newer investors in the market right now running numbers on deals, and they’re seeing 4%, 5%, 3% cash-on-cash return deals even in the single family space. So, yeah. I can see why looking at bonds, why take on the real estate risk. Now, there are other benefits of real estate that you would get the tax benefits and the appreciation over time that is also going to be a benefit to you, but way less risk, so it’s like, “What’s more important to you?” So it’s a weird time.

Rob:
Yeah, yeah. I’m sure a lot of this comes down to what your overall risk profile is. So if you don’t mind, Dave, do you think you could help people understand their risk profile, and maybe let’s just start off with what risk profile even is?

Dave:
Sure. Yeah. I just encourage people to think about… Now, I’m sure this happens to all three of you. People ask you for advice about what they should be investing in. It’s really hard to answer that question, unless what type of risk the person is comfortable with. So when I talk to people about risk, I generally say, “There’s three things that you should be thinking about.” The first is your overall comfort with risk like, “How comfortable are you risking money in the service of making more money?” People often stop at that. Just like, “How comfortable are you with risk in general?” But there there’s more to it than that.
I think the second thing you need to think about is your risk capacity. So some people are really tolerant of risk and comfortable with it, but they don’t have the capacity to do it. Maybe they only have $20,000 in an emergency fund, but they’re super comfortable with risk. I wouldn’t risk all $20,000 of yours even if you are really comfortable with risk generally, or perhaps you have children or some family members to support or some other obligation, I wouldn’t risk all of your money. So I think you have to think about like even if you’re comfortable with risk, are you in a good position to take risk and to absorb any potential losses?
Then, the last thing, I think, almost everyone overlooks is your timeline like, “Are you investing for the next three years, the next five years, or the next 30 years?” because I think that makes a really big difference in what type of assets you should be looking at. If you’re investing for the next six months, maybe you should buy bonds. I don’t know, but that’s probably a pretty good bet. If you’re investing for the next 20 years, you should probably buy real estate or the stock market. So I think those are three things that people should think about. Unfortunately, there’s no objective way to measure your own risk tolerance. There are all these subjective things, and there are a lot of really good websites that you can go to and take some tests, but I encourage people, especially in this type of market, because it is riskier than it was, let’s say, in 2014 to really think about what type of risk you’re willing to take, what capacity risk you’re willing to take, and what the time horizon is for your portfolio.

Rob:
Actually, that leads me to what I want to end with. We’ll call this the final game of today’s episode, which is thinking about today’s current conditions. If you had $50,000 available, if I just handed each of you $50,000 in a briefcase, it would be an underwhelming briefcase because… Have you ever seen $50,000 in person? It’s a little Dodgeball reference there, but if I gave you $50,000 each in a briefcase, what would you invest it in for the next five years?

Trey:
Yeah. So mine is probably going to be a little bit different if I’m making some assumptions here, but I would probably put a quarter of it into Bitcoin. We talked about this last time on the show, Rob, where we defined Bitcoin as digital real estate. I find right now that no one is talking about Bitcoin I think because it’s had a big decline, but you have to remember, it had a huge run-up just like everything else when everything was a wash and all this liquidity that was going around. So, for example, in early 2020 till now, it’s still up about 300%. It peaked around 800%, but it’s still up. It’s actually still beaten most other asset classes. So if you look at… I have a chart from last August that shows that Bitcoin is up, to date, around 125% versus the S&P at 17%, the NASDAQ at 6%. Gold, -5%. Bonds, -17%. Silver, -22%. So not comparing to real estate, but across other liquid assets that I consider, it’s actually done quite well, and I think there’s a lot of macro things happening right now that would create a tailwind for Bitcoin.
So I would do that, and then the $40K that’s remaining is, actually, I’m going to say, real-estate-focused, but farmland is actually still interesting to me because of inflation, where it is and with these rentals, and I’ve been looking at that kind of thing. What I can’t really get over is the just amount of interest you’re paying right now on a real estate property. I know you’re not married to it. Right? If rates go down, we can refinance, but there are these pools that you can get into on farmland which might have different levels of leverage behind it depending on what structure it is, but there’s different platforms out there that you can look into to do something like that, and I’ve had a lot of interest in that lately.

Rob:
Okay. All right. That’s good. All very, very good answers. Bitcoin, the underdog. It’s back.

Dave:
Oh, I didn’t see that coming.

Rob:
Neither did I, but I like it, and I don’t disagree. Henry, what about you? You got a plan carved out for the $50K I’m going to give you tax-free?

Henry:
Oh, tax-free, $50K. Yeah, man. So the caveat there when you asked the question is for the next five years. So when you said that, my immediate push is I’m going to take that money, and again, right? So I am in a… I guess you would call it a lower cost market. So I could take that $50K, and I could most likely buy two to three houses with that $50K. So I’m going to buy two to three houses that are going to… They’ll most likely cash flow, not a ton, but they will most likely cash flow, but I’m going to hold it for the appreciation because the appreciation in my market… I’m in one of those rare markets where I get cash flow and appreciation, and so I can buy two assets that are going to pay for themselves, plus pay me a little bit of money each month for owning them, and they’re going to go up over the next five years if you zoom out. So if I have to invest for five years, that’s where I’m going to put the money. I mean, that’s not even a question for me. That’s where it’s going.

Trey:
Rob, sorry. I missed that five-year point. Can I change my answer slightly?

Rob:
Ooh, you already hit the final button just a bit, but we’ll allow it. We’ll allow it.

Trey:
Well, I’ll keep in spirit of the discussion and cover some stock stuff because that will be, I mean, just more aligned. So, of the remaining $40K, I would probably just be looking for opportunities that come up on a per-company basis. So there’s some nuance to stock investing, and what’s interesting is that even through recessions, what they call good and cheap stocks actually do well. So the broad liner stocks, the big tech companies, as rates fluctuate, those will continue to struggle in my opinion, but you’re going to find really durable, defensible companies out there that will actually perform well. Berkshire Hathaway. I got to rep Warren Buffett for a second, but great option I think during this current environment, and he’s got a whole portfolio of these kinds of companies that you might want to look at. So I would probably put something into Berkshire Hathaway. Markel is very similar. Other either critical energy infrastructure, material type stocks, but it has to be on a case-by-case basis, and it has to be the right price.

Rob:
All right. All right. Yeah. Okay. I’m glad you changed your answer. That was very insightful. I’m glad I allowed it. Well, to finish up here, I mean, would anyone here say there is a clear winner as a safer investment? Did anybody sway their opinion here over the course of the last 45 minutes?

Trey:
Can I jump in and just say…

Rob:
Please.

Trey:
The nuance to that question, in my opinion, is what Warren Buffett would say, “What’s in your circle of competence?” Right? So, for a lot of you guys, real estate is what you know, and I think that is… Actually, Buffett, to quote him again, says, “Diversification is for when you don’t know what you’re doing,” which I just love because it’s like if you know what you’re doing, you can go concentrate it. You can concentrate heavily. I know a lot about kombucha, so my portfolios, as I highlighted, very concentrated in that one stock. But if you look at things like stocks, if you don’t have the time to commit to studying and researching this business or the interest of doing it, then I can’t sit here and be like, “Yeah, that’s going to be the least risky,” because it just depends on the person. If your circle of competence is real estate, then by all means, go for that.

Henry:
I would say this as something to end on for me. It’s that this market or this economy is forcing us all in every investment niche to get back to the basics and the fundamentals. Right? Two years ago, you could accidentally make money in the stock market or in the real estate because things were on the up. Now, that’s not the case. You can really damage yourself, and so when you talk about circle of competence, I wholeheartedly agree. Right? I have to rely more now on my fundamentals as an investor, rely more heavily on my underwriting to make sure that I’m very, very confident that I’m buying a good quality deal. Right? I would want to do the same thing if I was investing in the stock market. If I was going to put a significant amount of money into the stock market, I would want to be as sure as I could be that I was making the best, most low-risk investment to yield me the best return.
So we’ve just got to get back to the basics, especially with real estate because the market is not forgiving anymore. Right? You’re going to have… but at the same time, you want to buy when things are down because that gives you the most upside in the long-term, and so I agree. I don’t know that I can say there’s a clear winner between stocks or real estate, but what I can say is you better invest the time to educate yourself on whatever strategy you’re going to do, and then take the action because no market is as forgiving as it was two years ago.

Rob:
Yeah, yeah. I mean, I was going to also ask, is there a clear winner for building wealth? But I think you both summarized it. Play to what you know, and if you’re diligent and you study what you know, that’s ultimately going to be both the safest investment, but also the best investment for building wealth. So I think we can end it there, fellas. If we want to learn more and connect with you online, Trey, where can people connect with you, or reach out, or learn more about Better Booch?

Trey:
Well, if you’re stock curious, that’s a term I heard for the first time today, definitely check out theinvestorspodcast.com. We have a plethora of podcasts there. A lot of it pertaining to stock investing and just amazing free courses and some other resources you might want to check out. My podcast is called We Study Billionaires, and there’s a lot of content every week with that, and I’m on Twitter, @treylockerbie. Then, if you’re kombucha curious, you can go to betterbooch.com.

Rob:
Awesome. For everybody that missed our episode with Trey Lockerbie on BiggerPockets, that was show 646. I would definitely recommend going to check that out. Henry, where can people find out more about you?

Henry:
Best place to reach me is on Instagram. I’m @thehenrywashington on Instagram, or you can check out my website at www.henrywashington.com.

Rob:
Okay. Dave, what about you?

Dave:
Well, Henry forgot to mention that he’s on an amazing podcast called On The Market that comes out every Monday and Friday, and you should check that out. But if you’re looking for me, Instagram is also great. I’m @thedatadeli.

Rob:
Okay. Awesome. You can find me, @robbuilt, on Instagram and on YouTube. Please feel free to leave us a five-star review on the Apple Podcasts platform, wherever you listen to your podcasts. Dave, I skipped you on the final word for building wealth and what’s the safest investment, so I’m going to let you close us out with any final thoughts you have for our awesome, awesome audience at home. You got anything?

Dave:
Man, no. I think Henry and Trey did a good job. I think that the idea of the staying in your sphere of competence or whatever Warren Buffett called it is super important, but I do encourage people not to limit themselves and think that there’s just one way to invest. If you do the work to learn enough and can diversify comfortably across asset classes, I think that is wise whether that’s 97%, 3% like Henry does, or 60%, 40% or something else. I think it’s admitting that you don’t know which one is going to do better, but that both are good is a good way forward in exposing yourself to the risks and rewards of both asset classes.

Rob:
Hey, that was really good, man. I call this the David Green effect. I David-Greened you where the guest will say an amazing final thing, then he’s like, “Hey, Rob, do you have anything to say?” and I’m like, “Uh, no, they said everything already,” but you really closed this one out. So thanks everybody at home for listening today. Thanks everybody for joining us. Trey, Henry, Dave, always a pleasure, and we’ll catch everyone on the next episode of BiggerPockets.

 

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Arizona-based lender On Q Financial will form a multi-partner mortgage banking joint venture with HomeCo Partners, a consortium of real estate brokerages and a builder, HousingWire has learned. HomeCo Partners had created a JV with New Rez, which is permanently winding down.

The JV, named Partners United Mortgage, has partners consisting of real estate brokerages and builders — including Dilbeck Real Estate in Pasadena, California; Lisa Burridge and Associates in Casper, Wyoming; Rockford Homes in Columbus, Ohio; Weichert ABG in Louisville, Kentucky; Weichert Space Place Huntsville, Alabama; Stark Real Estate in Madison Wisconsin; Weichert Advantage Plus in Knoxville, Tennessee; and Weichert Griffin in Fayetteville, Arkansas.

On Q Financial was originally looking to buy New Rez’s share of a joint venture created with HomeCo Partners, Pat Lamb, CEO of On Q Financial, said in an interview. After the deal fell through due to regulatory filings, HomeCo Partners suggested forming a new JV with On Q Financial.

“This JV actually, because it’s a consortium, allows real estate firms and home builders that don’t quite have enough size to go the full joint venture route to still get into the mortgage side of the business by becoming one of the partners in the JV,” Lamb said.

Unlike a traditional JV model, the consortium model doesn’t require real estate brokerages or builders to make a large upfront investment to start. It also gives the JV a geographical and business model dispersion. 

“If one of our partner’s business slows down for a year, it doesn’t affect the seven other partners, and it doesn’t affect the overall performance of Partners United the same way it would if there was only one partner,” Bob Shield, president of Partners United Mortgage, explained. 

On Q Financial is looking to benefit from servicing its referral partners throughout their lifecycle. The retail channel – which accounts for 85% of the lender’s entire business – is On Q Financial’s bread and butter, and the remaining 15% of production comes from the correspondent and wholesale channel, Lamb noted.

“We are constantly out building relationships with our referral partners, and doing it from initial introduction, where you’re doing a single transaction to try and to grow those relationships to become a preferred lender. Having the ability to do a consortium joint venture like this gives us the ability to grow with our clients,” Lamb said.

About 25 loan officers are expected to join the multi-partner JV with Partners United Mortgage, paying for On Q Financial’s backroom, HR and financial support.

“When the company makes money, they (the eight partners of HomeCo) split based on their percentage of ownership, not their contribution to the business. Maintaining strong compliance is important for On Q, and properly structuring ownership and distributions is critical from a Real Estate Settlement Procedures Act (RESPA) perspective,” Shield noted.

Most recently, On Q Financial brought on former employees from Celebrity Home Loans.

A deal to acquire eight production divisions of Celebrity fell apart due to a mass layoff at Celebrity in February. Afterward, On Q Financial brought over about 20% of what Celebrity was producing after several of Celebrity’s retail businesses transitioned to Luminate Home Loans in December and January, Lamb said.

On Q Financial, which originated $2 billion last year in 46 states, is in acquisitive mode, Lamb added.

“We’re actively looking and in the market to acquire other companies that are deciding that maybe it’s time to leave the business or consolidate,” he said.



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Mr. Cooper Group‘s profits strongly increased in the first quarter of 2023, as forecasted by its executives. The servicing portfolio again propelled the quarterly performance, but this time, the origination segment also contributed to the results by returning to profitability.

The company reported on Wednesday that it delivered $37 million in net income from January to March, compared to $1 million in the fourth quarter. The result included a mark-to-market of $63 million, a $1 million severance charge and $10 million losses with equity investments.

Mr. Cooper’s chairman and CEO Jay Bray said the operating results are due to a “balanced business model” between servicing and origination, according to a news release. He added executives are “positioning the company to navigate a volatile environment.”

The company’s servicing portfolio ended the quarter with a pretax operating income of $157 million, compared to $159 million in the previous quarter.

Mr. Cooper had 4.1 million customers and $853 billion in unpaid principal balance (UPB) at the end of March, compared to $870 billion at the end of December. The reduction resulted from a client that decided to take the portfolio in-house, executives said during a call with analysts. 

But the servicing portfolio is expected to grow. Mr. Cooper announced it agreed to acquire Rushmore Loan Management Servicess special servicing platform, which has $37 billion in sub-servicing contracts. The platform has 244,500 loans and will be combined with RightPath, bringing 100 employees to Mr. Cooper.

Regarding its origination business, which focuses on acquiring loans through the correspondent channel and refinancing existing loans through the direct-to-consumer channel, Mr. Cooper had a $23 million pretax operating income, compared to a $2 million loss in the previous quarter.

Mr. Cooper’s funded volume declined to $2.7 billion in the first quarter of 2023 from $3.2 billion in the previous quarter. Direct-to-consumer comprised $1.4 billion and correspondent was responsible for $1.3 billion.

“Servicing continued to produce consistent stable predictable results, while originations outperformed on strong DTC execution,” Chris Marshall, vice chairman and president, said in a statement. “We continue to see exciting opportunities to grow our customer base, while our focus on positive operating leverage will help us generate higher returns.”

According to a team of equity analysts at Jefferies, the first quarter earnings “showed stability of servicing performance in a higher-rate environment.” Meanwhile, performance in the originations segment “was a welcome surprise to the upside after several quarters of tightening gain-on-sale margins and declining volumes.”

Acquisition mode for Mr. Cooper

Bray told analysts that Mr. Cooper expects to increase its servicing portfolio. Despite the reduction in the unpaid principal balance in the first quarter of 2023, Mr. Cooper won deals that will include $57 million in MSRs in the next few months, the executive said. 

“You’re familiar with our strategic target of growing the portfolio to $1 trillion, but I’d share with you that we think of that as an absolute minimum for where we can go,” Bray said.

The recent banking crisis adds some opportunities to acquire MSRs, but the market is still in a “state of transition as everybody digests what has happened in the last month or two,” according to Bray. “But we expect more to come from the banks. And we expect to be active there.”

Regarding the appetite of bidders in the MSR market, executives said it’s smaller for Ginnie Mae’s portfolio than for the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.

Overall, “there’s not a significant number of bidders, but it’s competitive,” Bray said. Marshall added, “As the pools get larger, certainly as they get above $10 or $20 billion, there’s a handful of potential buyers.” 

To support its acquisition mode, Mr. Cooper said it has strong liquidity. The company had $2.4 billion in liquidity at the end of April, including $534 million in unrestricted cash.

“Since the year-end, we’ve upsized several of our MSR line facilities, increasing aggregate capacity by $1.5 billion,” Kurt Johnson, the company’s CFO, told analysts. “Given the turmoil in the financial markets, we’re very pleased that our banking partners continue to see us as a sound counterparty with strong capital, risk management, and controls and were eager to support our growth throughout the quarter.”

Looking forward, Mr. Cooper continues to provide a forecast of $600 million EBIT for 2023.  



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Most Americans believe that homeownership is the cornerstone of the American dream. Studies have shown the emotional and psychological benefits that homeownership has on a person’s health and self-esteem, and that children of homeowners do better in school and have fewer behavior problems. Home equity is also the primary source of wealth for most Americans. Wealth can be used to start a business or educate children. According to the Federal Reserve, the median net worth for a homeowner is $254,900 compared to $6,270 for a renter.

Homeowners also tend to be more active in their local communities and schools and are far more likely to vote than renters.

In January, the U.S. Census Bureau released the homeownership rates for 2022. The overall U.S. homeownership rate stood at 65.8% but broken down by race, whites have a 74.4% homeownership rate, Blacks are at 45.9% and Hispanics come in at 48.6%. Despite efforts by some in the housing industry, the minority homeownership gap has barely improved in the last 30 years.

Why is there such a large gap?

Before we can solve the problem, it is important to understand how we got here. Parts of the gap can be attributed to past discriminatory practices. Other parts are due to the youth and financial status of minority families. After the 1930s, President Franklin D. Roosevelt enacted the Federal Housing Administration (FHA) as part of the New Deal to provide small down payment home loans for working-class Americans.

The program helped a generation of Americans purchase their first home, however, due to a government policy known as “red-lining,” banks were effectively prohibited from issuing FHA-insured loans in neighborhoods that were predominantly Black or Hispanic. In addition, some white neighborhoods had zoning laws that legally banned non-white buyers from owning homes in those neighborhoods. Between the launch of FHA in 1934 and when President Lyndon B. Johnson signed the Fair Housing Act in 1968, millions of mostly white families were able to take advantage of government programs to purchase homes and build wealth, while most minority families were legally excluded from having the same opportunities.

Today, white families have on average six to ten times more wealth than minority families. Much of this disparity can be traced to red-lining policies.

Age and income also account for part of the minority homeownership gap. The median age for Hispanic Americans is 30 years; a full 13 years younger than white Americans. Blacks and Asians are also much younger than their white counterparts. Younger people earn less money and have less wealth, making homeownership more difficult. The relationship between age and homeownership is illustrated by the fact that the minority homeownership gap narrows when you control for age. For example, the homeownership rate for minorities over the age of 50 is still less than the homeownership rate for white Americans over 50, but the gap is smaller by 5 percentage points.

Becoming a nation of stakeholders

Anyone who has driven through a neighborhood made up of predominantly homeowners has probably recognized that there is a difference in the look and feel of that neighborhood compared to a predominantly renter neighborhood. When families own their homes, they have roots in their neighborhood and have a financial and societal investment in the well-being of their community.

President George W. Bush spoke of the benefits of homeownership, noting the virtues of homeownership and homeowners’ inherent investment in the well-being of their community and the nation. That is why the Bush administration endeavored to create 5.5 million new minority homeowners when the president launched the Blueprint for the American Dream in 2002. The Blueprint was successful in creating more awareness about the challenges in minority homeownership, and it rallied the industry around its goals, but it didn’t have any money behind it. The outcome was mixed at best.

Demographic shifts will drive homeownership

Americans are getting older. Every year a more significant percentage of the U.S. population advances to retirement age. Many soon-to-be retirees are planning on selling their homes to fund their retirement and move into something smaller for their later years. They are counting on someone to buy their home at a fair price when they retire. Demographers estimate that by 2050, the U.S. population will become majority-minority.

The Urban Institute projects that over the next 20 years, homeownership growth in America will rely almost exclusively on Hispanic and Asian homebuyers. This means that the most likely buyer for many of these new retirees will be a minority family. However, if minority homeownership rates do not increase, the overall homeownership rate in America will plummet.

Lower homeownership rates mean there will be fewer buyers. Less demand for homes will cause home values to drop in many neighborhoods. Falling home prices will not only make it more difficult for retirees but will impact existing homeowners that may want to purchase something larger or in a more desirable neighborhood.

The relationship between diversity, economic growth, housing and GDP

The housing market is large and varied. New construction, resales, refinances and home improvements account for approximately 16% of the U.S. GDP, roughly $3 trillion. When the housing market crashed in 2008, it almost took the entire global economy down with it. Conversely, while the country was shut down during the COVID-19 pandemic, it was the strength of the housing market that prevented the country from falling into a massive recession.

For decades, the U.S. commitment to homeownership has been the envy of the world, but today’s access to homeownership is more challenging. Decades ago, U.S. Policymakers correctly recognized homeownership as the gateway to the middle class. As the country and workforce become even more ethnically diverse, economic growth and the overall prosperity of our nation will be fundamentally connected to our continued ability to facilitate homeownership opportunities for future generations of working-class Americans.

Gary Acosta is the co-founder and CEO of NAHREP.

This piece was originally published in the April/May 2023 issue of HousingWire Magazine. To read the full issue, click here.



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The federal Housing Choice Voucher (HCV) program is a powerful tool to help low-income families find apartments they can afford, but the program isn’t reaching its potential because far too few landlords participate in it.

Landlords who refuse to participate cite several reasons, including what they regard as undue regulatory burdens and concerns about tenant “quality.”

Fortunately, lawmakers of both parties are proposing legislation that would relieve pain points for landlords while providing new incentives for them to participate. The challenge at hand is ripe for bipartisan action.

The HCV program currently provides rental assistance to 2.3 million households. Due to federal funding limitations; however, only one in four eligible households receives a voucher and the waiting lists to get one are often very long. Even with a voucher, a low-income family can find it extremely hard to locate an affordable apartment because so few landlords participate in the program.

Some landlords don’t accept vouchers

In fact, a 2018 Urban Institute study found more than 70% of landlords in Fort Worth and Los Angeles did not accept vouchers. Even more strikingly, over 80% of landlords in low-poverty areas in Fort Worth, Los Angeles and Philadelphia did not accept them. The latter figure is particularly disturbing because vouchers are supposed to enable low-income families to move to low-poverty, higher-opportunity neighborhoods.

Why don’t landlords participate? The Department of Housing and Urban Development (HUD) surveyed them and heard complaints about:

  • Regulatory requirements – including the requirement that housing units be inspected before voucher holders move in, which can extend vacancies between tenants and force landlords to make costly repairs.
  • PHAs – which landlords believe should side with them more often in landlord-tenant disputes.
  • Tenant “quality” – which could, in part, reflect a mistaken belief among landlords that PHAs rigorously screen potential tenants in the HCV program, causing them to skip their own screening process. PHAs only screen for criminal records and evictions, unlike experienced landlords who typically look at credit reports, call previous landlords, and check employment records.

HUD enticing landlords

To its credit, HUD recently took steps to entice more landlords to rent to voucher holders. For instance, the Department raised its estimates of Fair Market Rents, which increases the maximum value of a voucher in a geographic area and, thus, the revenue that landlords receive from voucher holders after renting to them.

Also, HUD has expanded Small Area Fair Market Rents, which sets voucher amounts at a neighborhood level rather than a metropolitan area level. That increases the value of vouchers in high-rent relative to low-rent neighborhoods, enabling voucher holders to live in more expensive, higher-opportunity neighborhoods if they choose to.

Congress has helped, as well. In 2016, lawmakers directed HUD to add 100 PHAs to its Moving to Work (MTW) Demonstration program – which enables PHAs to design and test innovative strategies to help residents with housing and other needs, and which exempts PHAs from many public housing and voucher rules. Currently, according to HUD, 126 PHAs participate in the MTW program.

Now, Senators Chris Coons (D-DE) and Kevin Cramer (R-ND) have introduced the bipartisan Choice in Affordable Housing Act, which proposes to give landlords a host of new incentives to participate in the HCV program.

Specifically, the bill would offer a financial bonus to PHAs that retain a dedicated landlord liaison to manage PHA-landlord issues and disputes. The bill would also reduce the burden of inspections by enabling landlords to meet voucher inspection requirements for their units if they were inspected in the past year. Importantly, it includes some direct incentives, including signing bonuses to landlords in low-poverty areas and security deposit assistance to protect against damages.

In enacting reforms, the administration and Congress should not require PHAs to do more work to improve the implementation of the HCV program without giving them greater resources; their staff capacity is already very limited and unfunded mandates will further burden them.

The HCV program is highly effective, but its reach is far too limited. Increasing the program’s impact should be an urgent, bipartisan priority.  New incentives for landlords to participate, as well as enhanced flexibilities for PHAs, would prove a win-win for landlords and voucher holders alike.

Dennis C. Shea is the executive director of the J. Ronald Terwilliger Center for Housing Policy. Owen Minott is senior policy analyst for housing and infrastructure at the Bipartisan Policy Center. 



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The housing market shoots up different signals every so often. For most investors, though, these fly under the radar. But for data-driven housing market experts like Mike Simonsen, these signals are hard not to notice. If you want to know where prices will go next, when inventory could spike, and whether or not demand will start to fall (or rise), you MUST know what these signals are and how to find them. Today, we’ll let you in on the not-so-secret way to predict housing market moves so you can invest better than the rest.

Altos Research’s Mike Simonsen didn’t start as a housing market enthusiast. He was in Silicon Valley, working with data, just trying to buy his first overpriced house. But, through getting his foot in the door of real estate, he uncovered that no one had the data he needed to make better investments. So, he started Altos Research to finally give real estate investors, realtors, and everyday homebuyers the tools to make their best buying decisions.

Over the past seventeen years, Mike has been analyzing, segmenting, and qualifying housing market data for some of the most prominent investors in America. And now, he’s here today to share his time-tested secrets with you. No matter your skill level, you’ll be able to pinpoint the housing market signals Mike showcases so you uncover where the market is moving before the masses. Whether you’re an investor, homebuyer, realtor, or renter, this data will help you build wealth better than ever.

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Watch the Podcast Here

https://www.youtube.com/watch?v=ULzs1Ywwo4o123????????????????

In This Episode We Cover

  • The housing market “signals” that can predict home prices, demand, and more
  • Where to find FREE housing market data that’ll help you make the BEST investment decisions
  • “Segmenting” your market and why you’re probably looking at homes all wrong
  • The biggest housing market surprise of 2023 and why the unexpected happened
  • What could cause homebuyer demand to DROP (and whether it’s possible this year)
  • Housing inventory and why SO many homebuyers are hanging on to their houses
  • How Mike single-handedly saved the US economy from imploding
  • And So Much More!

Links from the Show

Links from the Show

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected].

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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The trading volume of mortgage-rights servicing (MSRs) so far this year is on pace to meet or exceed last year’s robust mark, when MSRs on some $1 trillion worth of home loans exchanged hands — then fueled by the spike in interest rates, industry players say.

As of late April 2023, mortgage interest rates, though still volatile, have been on a downward trajectory since the start of the year. That should be a drag on MSR pricing and trading, given MSR values tend to decline as interest rates drop because lower rates prompt more refinancing — lowering the long-term payout for the asset.

That trend, however, is not materializing in the market so far, according to several MSR market experts interviewed by HousingWire. The main reason for that is that the bulk of the MSRs now being traded are linked to solidly underwritten mortgages originated in 2020 and 2021, when interest rates were in the 3% range — hence they represent quality MSRs that are now at very low risk of prepayment.

“Given the volume that we’ve seen in the market so far this year, I expect another really strong year in [MSR] brokerage activity,” said Mike Carnes, managing director of the MSR valuation group at the Mortgage Industry Advisory Corp. (MIAC). “We hit nearly $1 trillion dollars last year, and I would say you could potentially have another $1 trillion year this year.”

Carnes said MIAC currently has in the pipeline MSR offerings worth a total of some $14 billion — based on the total loan balance serviced — with deals representing about $4 billion of that total slated to close this month. That figure doesn’t include a pending deal in the works that he said would “significantly move that number.” 

Tom Piercy, managing director of Incenter Mortgage Advisors, said there is “a tremendous amount of capital focused on MSR assets” now, with a good mix of buyers and sellers — including banks and independent mortgage banks (IMBs) as sellers and buyers, plus there is a healthy mix of institutional players (including insurance companies, private-equity firms and real estate investment trusts, or REITs) bolstering the ranks of buyers this year.

Piercy said Incenter has some $130 billion in MSR offerings that have gone to bid so far this year or are in the pipeline, including public bulk-auction offerings and private directly negotiated deals.

“When you look at our numbers right now relative to where we were a year ago, we are certainly on track to replicate it [last year’s healthy performance], and we may even exceed it given some of the deals in the pipeline,” Piercy said. “We have been very pleased with the manner in which this market has responded since the anticipation earlier in the year of this being a buyer’s market.

“There is a tremendous amount of capital committed to this space, which is creating, I think, competitive factors that have maintained an elevated pricing market.”

Among the active buyers prepared to participate in the market, according to industry observers who spoke with HousingWire, are the following:

• Annaly Capital Management [a REIT that controls Onslow Bay Financial].
• Bayview Cos. [which controls Lakeview Loan Servicing]. 
• Rice Park Capital Management.
• Prophet Capital Asset Management.
• Voya Investment Management.
• Mr. Cooper (formerly Nationstar Mortgage).
• Rithm Capital (also known as NewRez);
• Two Harbors Investment Corp.

Of course, there are many other players active in the MSR market, including banks and IMBs. In fact, according to mortgage-data analytics firm Recursion, leading the charge in bulking up their all-agency MSR portfolios (involving Fannie MaeFreddie Mac and Ginnie Mae loans) between the end of 2021 and April of this year are the following lenders:

  • Pennymac
  • JP Morgan
  • Lakeview Loan Servicing 
  • Freedom Mortgage
  • Mr. Cooper
  • Rithm Capital 
  • US Bank

The growth in the lenders’ MSR portfolios includes both servicing retained on new loan originations as well as MSR acquisitions. The lenders rank among the top 10 in terms of market share in the all-agency MSR market, according to Recursion’s data.

Lenders among that top 10 that recorded a decline in their MSR portfolios over that same period include Wells FargoRocket Mortgage and United Wholesale Mortgage (UWM), according to Recursion’s data.

Nick Smith, founder and CEO of Rice Park Capital Management, said his firm is an active buyer in the MSR market this year, adding that there is a huge supply of attractive MSR assets in the pipeline that he expects will be traded over the next 12 to 18 months. 

That includes, he said, some $1.5 trillion (UPB) in legacy MSRs from loans made in 2020 and 2021 primarily by IMBs. Some active bank sellers are in the market as well — such as Wells Fargo, which announced recently that it had finalized a deal to sell some $50 billion in MSRs.

“So, you’ve got a $1.5 trillion [in legacy MSRs expected to trade] which is like the rat going through the snake, plus you’ve got the new production volume [at current market rates] that’s going to trade, let’s call that $1 trillion to $1.25 trillion,” Smith said. “… It’s a really low-risk, high-quality asset that I would say, for investors, is sort of a dream asset to buy.”

Not everyone is bullish on the MSR market, however. Ben Hunsaker, a portfolio manager at Beach Point Capital Management, an alternative-credit investment firm, said MSR prices are too high now “relative to other asset classes.”

“Prepayments [via refinancing] can get a lot faster,” he said. “They can’t get a lot slower.

“Expenses [due to rates and inflation] can get a lot higher, and so it feels like MSRs are priced pretty tightly in the grand scheme of investable assets in 2023.”

Azad Rafat, senior director of MSR services at Mortgage Capital Trading (MCT), said his firm, in conjunction with advisory firm Prestwick Mortgage Group, has marketed four MSR offerings so far this year valued in total, based on UPB, at $838 million. Rafat said MCT typically works with smaller MSR offerings under $1 billion. 

At least another two MSR offerings to date, with a combined value of about $1.4 billion, were marketed exclusively by Prestwick, bid documents show.

“We’re seeing very much interest from private equity funds, or companies backed by private equity funds,” Rafat said. “That’s the typical players [MSR buyers] we’re seeing right now.”

Rafat added a note of caution about the future course of the MSR market, however, or at least its unknowns. The biggest of those unknowns is whether a recession is in the offing. If so, that could impact borrowers’ refinancing choices as well as the value of MSRs — assuming the downturn is severe enough to prompt an increase in loan-prepayment speeds even among legacy borrowers.

“Consumer debt has risen from $11 trillion to $12 trillion to a little over $16 trillion as of the end of 2022,” he said. “The question is how much will that [increasing debt] put pressure on them to refinance, even though it’s difficult for them to give up those 3% loans? 

“Right now, the whole industry is under the assumption that those prepayment speeds are going to remain low for a long time. The question is what will happen when you have a recession [and rates likely decline further].”

Smith concedes that both current MSRs as well as the huge pool of MSRs tied to low-rate legacy loans from 2020 and 2021 will be impacted by declining interest rates. But he adds that because the legacy-loan MSRs are now so far out of the money in terms of refinancing, interest rates would have to decline drastically from where they are now to drag down MSR pricing significantly.

“If rates drop 100 basis points from here [to the low 5% range, as the Mortgage Bankers Association predicts will happen by year’s end], the legacy MSRs go down by 4% [in price] while new [prevailing-rate] origination [MSRs] go down by 25%,” he said. “It’s just a much different order of magnitude.

“So they [legacy-loan MSRs] have a big buffer, and even though rates dropping … will have a negative price impact, it’s dampened. There is much less price volatility for rate drops for those MSRs, compared with new-issue stuff.”

Carnes points out that of the estimated $10 trillion-plus in mortgage originations from 2020 and 2022 “over $8 trillion of that was originated in 2020 and 2021.”

“There’s still a significant amount of saturation of that legacy product,” he added. “Even if interest rates go down by around 150 basis points from where we are today [to around 4.5% from the low 6% range now], these Covid-era originations [some at rates below 3%] are still out of the money and not at significant risk for refinancing.

“… Right now, there’s a good number of buyers in the market, including some new buyers, and as long as the demand for MSRs remains strong, I think so too will the value of MSRs. It’s a very attractive asset, particularly the legacy MSRs.”



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The US dollar is in danger. For decades, trading in USD (US dollars) has been the standard for almost every country on the planet. Thanks to America’s consistent economy, stable government, and growing global market share, the USD has become the most sound currency on earth. But things are starting to change. USD dominance is being threatened by BRICS countries (Brazil, Russia, India, China, and South Africa), looking to ditch the dollar for a currency they control.

But why are most countries trading in USD? When was USD chosen to be the world’s reserve currency? And what does “reserve currency” even mean? Dave Meyer breaks it down in this episode of On the Market, as he details the history of USD dominance, the post-World War rise of a reserve currency, and why the “petrodollar” may be losing steam as other economies grow larger.

Dave will also go in-depth on the economic effects of leaving a USD standard, when the USD could be replaced, which currencies are competing, and why dollar dominance (probably) won’t be over anytime soon. American or not, decoupling from a USD standard could have huge effects on your investments, wealth, and spending power.

Dave:
Hello, my friends, and welcome to On The Market. I’m your host, Dave Meyer, and today it’s just me. We’re going to be doing an episode where I deep dive into one of the most requested topics we’ve ever had, and I’ve actually been surprised about how many people have reached out to me about this topic because it is not actually directly related to real estate, but it is a huge economic question that, of course, impacts investors and real estate indirectly, so I do think it is a really worthwhile and pretty fascinating topic to talk about. What we’re getting into today is all about the United States dollar and its position as the dominant reserve currency in the world. The reason so many people seem to be asking about this of late is that there has been a lot of news about this topic recently, that has prompted the question.
Just a couple of weeks ago, France and China completed their first natural gas transaction using Chinese currency instead of US currency, which is a really big deal for reasons we’re going to get into. We’ve heard the, quote, unquote, “BRICS nations,” which are Brazil, Russia, India, China, and South Africa. They’ve announced that they’re going to start exploring a new reserve currency to challenge the US dollar. Saudi Arabia’s finance minister has said that they’re willing to trade oil in non-dollar denominations, so there is a lot going on with regard to the United States dollar’s position as the global currency. Of course, this is an important question, and it’s really interesting because, honestly, the US dollar has been the dominant world currency for every one of our lives since the mid 1940s, and we’ll get into that story in a little bit. But basically, none of the people, myself included, anyone listening to this really knows or understands a world where the United States dollar is not the dominant currency.
Basically, none of us have lived through that. Maybe we have a few listeners who are in their 80s, which would be great. Hopefully that’s true, but something tells me that’s a limited number. But most of us basically take for granted that the US dollar is the dominant reserve of currency, but maybe, given all of the news that we’re hearing, we shouldn’t. That’s what we’re going to talk about today. We’re going to get into how the US dollar became the dominant world currency. We’re going to talk about removing the US dollar from the gold standard back in the 1970s. Why being the dominant reserve currency in the world even matters in the first place. We’ll talk about why the USD dominance is under threat right now. Could the US dollar realistically lose dominance, and when might that happen? If that actually happens, what might happen in the United States if the USD is no longer the world reserve?
There is a lot to this, and I’m super excited to get into it. But we have two housekeeping items I just need to get to quick. First, a big thank you to Pooja Jindal. Currency is not my area of expertise. I do have a pretty good understanding of economics, but currency, not my real focus, so I spent, actually, a few weeks expanding my knowledge about this topic before recording. Pooja, who is an On The Market researcher, did an incredible job helping me create this episode. She has a master’s degree in economics. She’s also in real estate in Southern California and is just generally amazing, so a big thank you to her.
Secondly, the whole reason this episode exists is because listeners, just like you, requested it. I got a ton of people reaching out to me on Instagram for this episode. If you have other thoughts for shows that you want to hear researched and discussed, hit me up. I am on Instagram @thedatadeli, that’s T-H-E D-A-T-A D-E-L-I, and I am pretty responsive there, so if you have ideas for the show, let me know. But let me just tell you a couple of guidelines. When we’re making these shows, we want to make them broadly appealing. We are not going to go do some deep dive into a really specific market. I’m sure you’re interested in what’s going on specifically in your area, but this show is meant to help investors from coast to coast, so make it really broad.
Secondly, we also want broad questions, not necessarily opinion. This episode got made because people reached out and asked. They said, “Is it possible the USD loses world dominance, and what could happen?” They didn’t say the USD is losing world dominance. That’s an opinion. Our goal on the show is to explore these broad questions and try to be as objective as we can about them. Those are my two hints. If you want to get something you’re interested in made into a show, make it broad, make it a good question, and we’ll take seriously any requests that you have.
All right, so we’re going to get into the whole situation with the US dollar, but first we’re going to take a quick break.

Speaker 2:
(singing.)

Dave:
To understand what is going on with the US dollar today, we need to look a little bit backwards and establish a little bit of context, understand a little bit of history, we’ll make our conversation about what’s going on right now a whole lot easier. The first question we need to answer is, “What the heck in the first place is a reserve currency?” Because, as I’ve said, we’re talking about the US dollar being the, quote, unquote, “dominant currency.” What we’re really talking about when I say being dominant, I’m talking about being it the dominant reserve currency. Reserve currencies are currencies that are not currently in circulation. It’s not like these are being spent out at a store. It’s not cash held in your wallet or in a business’s bank account. It is currency that is held in a country’s central bank. Most major economies, most major countries in the world have a central bank. In the United States, we call ours the Federal Reserve, which is a very commonly discussed topic here on On The Market, but most major economies have a central bank.
There’s one in Europe. There’s one in China and Japan. All over the world, these countries have central banks, and they control monetary policy. The specific reason that central banks across the whole world hold currencies in reserve is basically to facilitate international commerce and trade. It’s a complicated topic, but basically, if two countries who are trading with one another are using the same currency, it makes it a lot easier for them to trade with one another. There are also secondary benefits for holding foreign currency reserves. Basically, different governments can stabilize their own currency and their exchange rate when needed. But basically, most sophisticated economies hold currency reserves, and every country decides for themselves which kinds of currency they want to hold and reserve. But across the entire world, most central banks are very heavy in US currency.
As of 2022, which is the last data I could find for this, but I think it’s probably still pretty similar, the USD, and just as a side note, I’m going to be calling the US dollar, the United States currency, USD, throughout this episode. I’m basically just talking about our currency as Americans. As of 2022, the USD was about 59% of total reserves throughout the world. That sounds like a lot, and it is a lot because the next highest is just a third of that. The euro, which is the second most common reserve currency, only holds 20% of reserves across the world. US is almost 60%, Euro is at 20%, so those two combined, the United States dollar and the euro, are 80% of the reserve currency in the entire world. Third, we have Japan, which drops all the way down to 5%. Then we have Great Britain, and we also have the Chinese renminbi, which is only about 3%. It’s fifth place, but it’s only about 3%. We’re going to talk about China in a little bit.
What you need to know right now is that the US is truly, truly dominant in terms of reserve currencies. Just for context here, 60% is huge because the US has about 4% of the world’s population, really punching above its weight class there. The US economy is by far the biggest in the world, still. It makes up about 20 to 25% of the world’s GDP, but yet it makes up 60% of the world’s reserve currency. The USD is huge in terms of reserves even compared to the United States major role in the entire global economy, and being the major reserve for the world does have both benefits and a few drawbacks. The major benefit is that it reduces transaction costs. Basically, when you’re trading with another country, if the reserve currency you’re using is your own currency, like it is for the vast majority of deals the United States does, it reduces the transaction costs, which is obviously beneficial.
Second, it lowers borrowing rates for the United States government. This is just basically supply and demand because so many countries want United States currency, which are often held in the form of US bonds. The US can issue bonds and treasury bills at a lower interest rate. So many people want it. That’s really high demand. That means that they can offer it at a lower price, which means the US tends to be able to borrow at very low interest rates.
The third benefit, which we’ll talk about a bunch, is that it actually provides some leverage over other countries. If you control the reserve currency in the world, it allows you to exert power in some interesting ways over other countries, which is something we’re going to talk about a lot and is one of the major reasons why dollar dominance is being called into question right now.
There are a few drawbacks. Generally speaking, most economists believes the benefits of being the world’s reserve currency outweigh the drawbacks. But I do want to just mention that there are some drawbacks, and basically, it can lead to loose spending due to cheap borrowing. Like I said, the US government can borrow at a very low rate and run a deficit relatively easily compared to other governments. I’m not saying that’s necessarily a good thing. I’m just saying, compared to other governments, they can run a deficit relatively easily, and that can lead to the negative impacts of debt. Basically, you can have asset bubbles and large government debt, both of which we’ve seen in the United States in the 50… In the 80 years, excuse me, that the USD has been the dominant world currency.
That is just a primer on reserve currencies and what they are. We’re going to get back to reserve currencies in a little bit and what is happening to the US role as a reserve currency. But first, it is helpful to understand how the United States became the dominant player in terms of reserve currencies, because this is going to help us later understand if and how the emergence of alternative reserve currencies will impact the US. Here’s a very brief overview of the history of dollar dependence. If you’re interested, you can learn way more about this. If you’re a nerd like me, I found this really interesting. I knew a little bit about this, but I dove really deep into it, and it’s a pretty fascinating story. There’s actually a great Planet Money podcast episode. If you don’t listen to that podcast, it’s an NPR production. You can check it out. It’s Planet Money number 553. They go all into basically how this happened if you want to learn about this in more detail. But let me just give you a brief background.
US dollar dependence or the dominance of the USD as a currency goes back to the Bretton Woods Monetary Conference back in July of 1944. Basically, back then, it was after D-Day, the allies were starting to feel pretty confident that they were going to win the war. It’s still a good year away, but they were starting to feel confident that they were going to win the war, and they were turning their attention to how they were going to rebuild the world economy after World War II. 44 different countries sent representatives to this giant hotel up in Bretton Woods, New Hampshire. That’s why it’s called the Bretton Woods Monetary Conference, and the system that came out of it is called the Bretton Woods System.
It’s a long story again of how they argued, who the key players were, but basically what happened at the end of this conference is an agreement that lasted for almost 30 years. In this agreement, they decided that the United States would basically be the dominant world currency. The US’ role would be to fix the value of the US dollar to gold at $35 an ounce. This basically returned the United States to the gold standard, which, if you haven’t heard, the gold standard is basically when a currency like the USD has a corresponding amount of gold held in reserve. For every dollar paper money out there circulating, there was a corresponding dollar’s worth of gold held in reserve by the US government. That is the gold standard.
The US had been on the gold standard for a while, but they moved away from it during the depression in the 1930s. But in 1944, at the Bretton Woods Monetary Conference, the US agreed to go back onto the gold standard, and in exchange, other countries would essentially peg their currencies to the dollar. Everywhere in the world, people knew the US dollar could be exchanged for an agreed-upon amount of gold, and the other countries would set a fixed exchange rate to the US dollar. This agreement put the USD at the center of the currency world because it meant that other countries had to hold USDs in reserve to maintain their exchange rate. Remember, we just talked about how countries before could really choose what reserves that they wanted to have in their central bank, but this agreement for most of the major economies in the world meant that they really had to focus their currency reserves on the US dollar. This is basically how dollar dependence started across the world.
This went pretty well for the US for a while. It helped the US enjoy an enormous economic expansion in the 1950s. It also allowed the countries, including the US, to participate more easily in trade with one another due to the stability of exchange rates. For a while, it actually went pretty well. However, problems started to arise in the 1970s. The US basically no longer had enough gold to back all of the dollars held abroad. Almost all countries in the world needed USDs as reserves because of this system. For each of those dollars out there, the US needed real gold to back it, but it just didn’t have enough gold. There were also some other factors that were impacting the value of the dollar. Inflation was starting to pick up in the late 1960s, and that was eating away at the perceived value of the dollar.
The US started to run a deficit due to an increase in domestic spending and to fund the very expensive Vietnam War that had been going on for a while and was ongoing. Basically, the system was no longer working very well. To solve this problem, the president at the time, Richard Nixon, decided to devalue the US dollar relative to gold. He intended, back in 1971, just to do this temporarily, but the whole system basically collapsed over about a year or two after he did this, people lost faith in the system. After Bretton Woods System collapsed, basically, no other countries were no longer obligated to fix their currencies to the dollar, and they were no longer obligated to hold the USD in reserve. As a result, many economists anticipated that the dollar’s role abroad was going to decline. But instead, what happened was in the decades following the end of the Bretton Woods system, the dollar actually became even more dominant globally.
There were a lot of complex reasons for this, but let me just give you some of the highlights. First and foremost, to make a good reserve currency, you’ve got to have a big economy. The US is, by far, the biggest economy in the world. It is still, like I said, 20 to 25% of the world’s GDP, but back in the ’70s and ’80s, it was actually even bigger, so there was a good reason why people wanted to stick with the USD as the reserve. Secondly, they already had a lot of USDs in reserve, so moving might have just been a hassle unless there was an attractive alternative. Third, there wasn’t really an attractive alternative. We also saw a couple of different things. High interest rates in the 1980s made the US treasuries very attractive for an investment in the US in the 1980s was really high because the US was in a major economic boom. Lastly, there was a system, the pseudo-system set up that is known as the petrodollar system.
We’re going to get back to this in a little bit. I just want to call it out now, but basically the petrodollar system is an agreement where all oil and gas transactions, which you probably know are huge in nature and scope, are conducted in United States dollars. Saudi Arabia, one of the biggest oil-producing countries, up until recently, has always, always, for the last 50 years, even since the collapse of the Bretton Woods System, when they are selling oil, they sell it in USDs. A lot of countries need to buy oil from Saudi Arabia or for other countries that participate in this petrodollar system, so that gives countries across the whole world a very strong reason to be holding USDs in reserve. Even after the Bretton Woods System, the USD remained the dominant currency reserve, and how dominant it is has certainly fluctuated over time. It’s been 50 years. But again, the USD is still, by any estimation, the dominant reserve. But I do want to say that it has been declining.
The dollar share of global foreign exchange reserves fell below 59% back in 2022. It’s hovering around 59% from what I understand. But back in 1999, for example, so almost 25 years ago, it was about 71%, so this has been a long but relatively slow decline. Again, the US is still three times higher than the Euro, 12 times higher than Japan, and 20 times higher than China, so it’s still really dominant. But obviously, there is a reason this stuff is in the news, so let’s get into what is actually happening now because there’s been all this buzz about the USD losing its dominance.
There are a bunch of reasons we’re going to get into, but the theme among all these reasons is that other major economies just don’t want to be entirely dependent on the United States Reserve. There are certain downsides for every country that is not the US in being reliant on the US. Countries, basically, if they have more diversity among their currency reserves, they can reduce their exposure to currency fluctuations, interest rate changes, and economic instability from the United States, and that can reduce the risk of financial crisis or financial contagion like we saw in 2008. Let’s just look at a couple of the key players here who are talking about diversifying away from the US.
The first is China, and China has been actively looking to establish its currency globally, and this has been going on for several years now. This is not necessarily a new thing. There has been a trade war with China over the last six or seven years or so. As that is heated up, China has increased its focus on moving away from the USD or being entirely reliant on USD. Something notable happened just a couple of weeks ago. Back in March of 2023, China and France completed China’s first settlement for a liquid natural gas trade in March of 2023. Basically, they used the Chinese renminbi rather than USD, and this is one of the first big gas trades in the last 50 years that has not used the USD. Remember, I was talking about the petrodollar system and how basically all oil and gas trades have been using the US dollar.
China and France basically just completed a trade that did not use the US dollar, so that’s one of the reasons you’re hearing about this in the news. The second reason you’re hearing about this in the news is the, quote, unquote, “BRICS countries,” which again stand for Brazil, Russia, India, China, and South Africa. There are five of the largest emerging economies in the world, and basically, these five economies have announced that they intend to develop a reserve currency. That won’t depend on the USD or the Euro. This, and I’ll explain why the euro’s in there too in just a minute, but I just first want to say that this actually hasn’t happened yet, but they’ve been talking about it a lot. There is an intention to pursue a new reserve currency. Brazil has actually already begun to accept trade settlements and investments in Chinese currency, the renminbi.
Actually, while I was researching this over the last couple of weeks, the president of Brazil came out and gave a big speech about how they intend to get away from using the US for all of their trade, so they seem pretty serious about this, but it hasn’t happened yet. The third major thing that’s been going on in relation to dollar dominance is the Russia-Ukraine War. In the wake of Russia’s invasion of Ukraine, the US government actually seized the US dollar reserves of the Russian Central Bank, and that was worth nearly $300 billion. The US just seized it. They took it. That was an enormous amount of money. That was the accumulated savings of Russian nation, and it was a really strong illustration of the risk other countries are taking by holding the US dollar, because obviously, the Russian government, the US government, there’s a lot of tension right now.
Basically, the US pulled the big flex, and they were like, “We’re just going to take your US reserves.” They basically did that at the flip of a switch. Now, Russian and US relations are worse than most other countries, but I imagine that other countries around the world are looking at that and thinking, “Man, we don’t want that to happen.” They’re not necessarily saying they’re going to get rid of all their US currency reserves, but they’re saying, “Wow, if the US is willing to do that to Russia, maybe they would do that to us too, and it would be smart for us to diversify away from that.” We’ve also seen a lot of trading with Russia recently in different currencies. The trading between the Chinese currency, the renminbi, and the Russian currency, the ruble, has increased 80 fold since the 2022 invasion of Ukraine, so we’re already seeing some of these countries, obviously Russia, trading in other currencies other than the USD.
The last player here I want to mention is Saudi Arabia. Again, they’re at the center of the petrodollar system. But just a couple of months ago at the 2023 World Economic Forum, for the first time in 48 years, Saudi Arabia’s finance minister said, “The nation is open to trading in other currencies besides the US dollar.” If Saudi Arabia starts accepting trade in other currencies, it could have a negative effect on the dollar’s role as the global currency in international trade, because as we’ve been talking about, oil and gas trades are massive. They’re a huge part of the economy. If Saudi Arabia starts using a different currency, they’re not necessarily saying that they’re going to stop using the USD. I want to make that clear. They’re basically saying they’re open to using other currencies in addition to the US dollar, but even that still could have an impact.
Whether we’re talking about Russia, Saudi Arabia, China, the rest of the BRICS countries, a lot of countries are signaling that they want to end or at least reduce their dependence on the US dollar. We need to answer the question, “Will it happen?” All this intention around the world to dethrone the US dollar, or at least create parity. Again, I want to say people aren’t necessarily saying they’re not going to use the US dollar, they want to end this dominance that the US has, and there’s a lot of intention to that. It seems grim, but we don’t know if that’s actually going to happen. To be honest, I’m going to get to the point really quick here, and then I’ll explain why.
From everything I’ve read and researched over the last several weeks, it seems that replacing the US dollar is going to be very difficult. The first question is, who will replace the US dollar? Because most competitor currencies face limitations that the dollar simply doesn’t have. First, the size of the economy of the country supplying the currency really matters. Reserve currency status is closely dependent on the issuing country’s economy, and as we’ve talked about, the United States economy, which is roughly $21 trillion, is the largest in the world measured by nominal GDP, and that is followed by China, which is the second-biggest economy in the world, which comes in just under $15 trillion. So it’s about two-thirds of the US economy’s size. China theoretically could be in the second position here in terms of economy, but I’m going to talk about some of the specific restrictions that China faces in the near future.
But just so you know, other GDPs, like Japan, which is one of the biggest economies in the world, is only $5 trillion. That’s huge, but it’s a quarter of the US. Germany is under $4 trillion. The UK is under $3 trillion. India is at $2.7 trillion. I’m just saying all these numbers so you’ll see that although these countries have large relative economies relative to the rest of the world, when you compare them to the US, they are still relatively small. That’s factor number one. It’s just the size of the GDP. The US is dominant. China is about two-thirds of the side, so feasibly they can, and we’ll talk about that in just a second. But first, I want to talk about the euro.
The euro is the second-biggest reserve currency. Again, it’s about 20%. US is 60%, so it’s about a third. But adoption of the euro as the world currency just doesn’t seem that likely. First, the euro is a really strong currency. It is widely used for trade in Europe. It’s viewed as safe and stable. But the fact is that the eurozone together is not a single country. It is a unification of dozens of countries and therefore doesn’t have a single fiscal policy. This lack of a unified fiscal policy limits its ability to produce enough euro denominated assets to satisfy global demand, so that is a really big restriction. The second one is that Europe and US are really close allies. They often work in partnership. Switching to the Euro would not necessarily offer any additional protection over the dollar for countries like Russia, India, Brazil, or China who are trying to hedge their dependence on the US. Moving from the US to the Euro probably doesn’t really offer them the protection they want because the US and the eurozone tend to act really closely together.
That’s the reasons why economists don’t believe the euro is likely to be adopted. Let’s turn to China, and why China isn’t likely to be an alternative at least anytime soon. First, the thing China does have going for is the size of its economy. Again, second-biggest economy in the world, and China is really trying hard to establish its currency as the global currency, but it has a problem. It has a lot of order, known as foreign exchange controls, in place. In China, companies, banks, individuals, they have to comply with what is known as a, quote, unquote, “closed capital account policy.” This basically means that money cannot be freely moved into or out of the country unless it abides by strict foreign exchange rules. Some people would call this currency manipulation or exchange rate manipulation, but basically, China has very strict rules about how its currency is used, so that is not very attractive for countries that are not China. They don’t want to be dependent on a currency that is really closely monitored and manipulated by the Chinese government.
China has these capital controls in place so it can control the value of its currency. By becoming the international reserve, China would have to give up that control over the value of its currency, and that would expose it to both unwanted appreciation and/or depreciation devaluations basically of their currency. China has said that they are going to liberalize its foreign exchange market. They’ve said that to the World Trade Organization, but those changes are being introduced gradually, and until they come into play and other countries see them being implemented, it seems unlikely that the Chinese currency is going to be picked up in a major way that could actually rival the US.
It will probably grow in terms of its share of currency reserves, but it’s probably not going to challenge the US right now. The third thing is, yes, the BRICS countries have said that they plan to introduce a new reserve currency that could compete with the US, but they haven’t even done that yet, and that’s a long way off. I think it would take years and years, even after they introduce it, for it to compete with the US, so that’s just something we’ll have to keep an eye on. This could obviously change, but as of now, I haven’t found any research that really supports the idea that the US dollar is being threatened in the immediate future. Long term, there is definitely a chance that the US loses ground as the dominant currency, but in the immediate term, it doesn’t look like this really pressing issue.
Now, over the long term though, let me just get back to that and say that many economists speculate that we could be heading towards a, quote, unquote, “multipolar” or more plurality in the terms of currency reserves where different currencies are competing to be the major reserve currencies in the world. Now, if that happens and the US does lose some of its basically “market share,” quote, unquote, like its share of global reserves, it could create some issues in the US. Remember, back at the beginning, I talked about some of the benefits of being the world’s reserve currency, and some of those were reversed, so that could increase borrowing costs for the US. It could lessen power projections and influence on the global stage. Remember, we saw how the US basically inserted some influence by seizing US reserves from Russia, so if countries are doing that less, the US would lose that ability, and it could also create competition for currencies.
That’s actually not something we’ve seen in quite a while, competition to be the dominant currency. Basically, for the last 80 years, most of the world has basically just accepted the USD, but we don’t know what would happen if different countries were sort of competing to try and be that reserve currency. The last time we saw this was back in the inter-war years between World War I and World War II, when the US and Britain were actually competing, and it created a lot of instability and difficulty for trade. Obviously, it’s a very different world than what it was 90 years ago, so we don’t really know exactly what that would happen, but there is obviously some risk if there is competition. There are some benefits. Some economists think that there are some advantages. Basically, less dependence on the US dollar would lessen the global impact of US financial issues.
As we saw in 2008, the global recession that rippled, really, all over to every country in the world started in the US, and the reason it was able to ripple out to all these other countries and cause this big global situation was because the whole world is dependent on the US dollar and the US economy, so less dependence could actually help stabilize the global economy, but not necessarily help the US, but just basically, it wouldn’t ripple out. That could help the US in some ways because if US has a financial crisis but, say, Africa, Europe, Asia, and South America are still doing really well, that could lessen the severity of a recession or financial crisis in the US because there’s growth elsewhere in the world.
The other advantage is, it could lessen imbalances in the US and help reduce trade deficits. It could also incentivize the US to close its spending deficits a little bit because borrowing would be more expensive, so there are some advantages, there are some trade-offs. But basically, we don’t really know because the last time the US dollar was not the dominant reserve currency was before World War II, and the world has changed so much that it’s really difficult to speculate what’s going to happen. That is where we stand today. Let me just summarize what we’re talking about right now. The US is still the dominant reserve currency by a very large margin, and there is no current evidence that another currency is coming along to replace the US dollar anytime soon. There definitely will be people trying. That seems evident that other countries are going to try and increase their influence as a reserve currency, but those contenders seem to have a long way to go.
To me, and this is just my gut feeling, this is just after studying this for a couple of weeks, my gut feeling is that it does seem likely that the USD will probably lose some share as a global reserve in the coming years, given that other nations have stated their intention to reduce their dependence on the USD. But this doesn’t necessarily mean that the US dollar will be replaced as the number one currency. It just basically means that there might be some more parity. We don’t know how bad or maybe good that might be right now because it’s just something that hasn’t happened in so long.
But I think the comforting thing to me is that it will probably happen slowly if it happens at all, so there will be time for the global financial system to react. The reason I think this is because right now there just isn’t really a good contender challenging the US dollar in a real way, and until one gains momentum, it just doesn’t seem like this is going to be a pressing issue. But of course, that can change. Now that I’ve learned about this, I find it fascinating. It’s something I’m going to be following into the future, and I will certainly update you all if there is anything that comes up that you should know about.
Thank you all so much for listening. We appreciate it very much. If you have any feedback about this, please hit me up on Instagram, where I’m @thedatadeli. You can also send requests or ideas for shows there as well. If you like this particular episode, please share it with a friend. Share it on social media. We’d love for you to help us spread the word about On The Market and help other people just like you better understand the housing market and better understand the economy. I’m Dave Meyer, and I’ll see you again next time.
On The Market is created by me, Dave Meyer, and Kalin Bennett, produced by Kalin Bennett, editing by Joel Esparza and Onyx Media, researched by Pooja Jindal. A big thanks to the entire BiggerPockets team. The content on the show On The Market, are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

 

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