On The Agenda

1. Finding a 3% mortgage

2. Something is wrong and we’re not sure why

3. How investment losses reduce your taxes

4. The incoming government shutdown

5. How fast is the economy growing?

A 3% mortgage in this economy?

From Nate Hoskin, Founder & Lead Advisor

Here’s a way to get a 3% mortgage right now while prevailing rates are above 7%.

The crazy housing market in 2021 and 2022 led a lot of people to compromise on a house that doesn’t actually serve them.

Even though it’s so tempting to keep the house just to keep the 3% mortgage, people are starting to list their homes at the highest rate since last November.

This means the home you’re considering buying might have a 3% mortgage on it right now, and you could assume that mortgage instead of getting a new one.

Any mortgage from the FHA, VA, or USDA is assumable by default and because the mortgage is only a few years old you won’t have to find hundreds of thousands of dollars to make up the difference between the purchase price and the mortgage.

For sellers, this makes it easier to sell the home, but they have to make sure it’s a clean break otherwise they might be responsible if you miss a mortgage payment.

For buyers, it’s a huge win and it might make it worth it to find other ways to make a 20 or even 30% down payment to pay the seller for their equity. That said, you might have to jump through some hoops if you have to get a second mortgage to make up the difference. The other potential issue is that you need to be able to qualify for their mortgage. If you have a shaky credit score or DTI, you may not be able to.

This will not be an option for anyone but it is absolutely worth asking a seller if they would be willing to negotiate. If they are trying to get out quickly, they might even be willing to seller finance the remainder of the purchase price so you can bring a smaller down payment.

Something’s Wrong

From Jon Scott, Lead Author 

Last week, I had a short exchange with Claudia Sahm on her Substack. For those unaware of who Claudia Sahm is, the first thing you need to know is she has her own rule, the Sahm Rule Recession Indicator, named after her. For economic nerds out there like me, having her respond to two of my comments was pretty cool.

The point of her post was that the current macroeconomic picture when looking at GDP and jobless claims indicates that the economy is running at a healthy clip. However, the rosy macroeconomic data does not match what many individual consumers are facing. The economy is strong, yet many people feel like they are in a worse economic position than the previous few years. A quick look at credit card balances tells a starkly different story from the strong economic data.

In fact, balances are growing at, “the fastest pace in close to three decades, outside of the Global Financial Crisis, according to Goldman Sachs.” People are clearly borrowing more and more money which indicates that consumers do not have the cash on hand to afford what they are purchasing, and are making up that difference with charging purchases to their credit card(s). Credit cards have one of the highest interest rates (usually more than 20%) for unpaid balances. Therefore, the rise of credit card debt and the rising number of unpaid balances means consumers will end up paying even more in the longterm. Therefore, it’s crucial to avoid these balances fees by paying off your statement balance on time, each and every month.

How your losses in the stock market can turn into gains  ^{LUMINARY SECTION}

 Government Shutdown?

From Bennett Fees, Economic Research Associate

One of the big pieces of news this week is the stress related to a looming government shutdown. To avoid this, Democrats and Republicans must reach a deal before October 1, the day current funding for federal operations runs out.

Of course, shutdowns are not new to the American public. Under Trump’s presidency, there were two, the second of which was the longest shutdown in US history (35 days) as a result of his plans for a US-Mexico border wall.

But what are the economic effects of a shutdown?

This depends principally on the length of the shutdown. One estimate from Goldman Sachs predicts that every week of a shutdown reduces quarterly annualized growth by .2pp. In the shutdown just mentioned, the Congressional Budget Office estimated that it cost the economy $11 billion dollars, $3 billion of which permanently lost economic activity. While this isn’t the end of the world, the PIIE estimates that real GDP will remain underpotential for the next two years, a trend that is not helped by these complications.

This turmoil is certainly not welcome, as a soft landing becomes more likely, though not guaranteed. For more on the prospects for economic growth, check out my luminary section for this week.

What’s the trajectory for economic growth?^{LUMINARY SECTION}

As it stands, 2023 has shown promising signs for economic growth, however, three issues may complicate this picture for the rest of 2023. These are

1. A potential government shutdown

2. The UAW strike

3. Restart of student loan payments

They are visualized by Goldman Sachs as follows.