Proprietary Data Insights
Financial Pros Top Cryptocurrency Searches This Month
Is The Grumpy Old Man At It Again?
On the heels of Fidelity saying they’ll let you put Bitcoin in your 401(K), Warren Buffett says he wouldn’t take all of the Bitcoin in the world for $25.
A bit dramatic, are we?
Another Out Of Touch Billionaire
Forget Buffett’s core point. Let everybody else argue for or against it until they’re blue in the face.
That core point being when you buy Bitcoin, you get nothing in return. Bitcoin, according to Buffett, doesn’t produce anything. It doesn’t deliver anything to anybody.
Buffett’s alternatives: Find a way to invest in 1% of all available farmland or rental income in the U.S. He’d do it in a heartbeat. Because these investments represent something of tangible value.
Here’s what Buffett fails to understand, in part because he’s out of touch. You and I don’t have the luxury to think about things this way.
Buffett could actually make the above-mentioned deals. For goodness sake, last year we discovered Bill Gates is America’s largest farmland owner, at 242,000 acres. Buffett could be like Bill. He could also take a huge stake in those apartment REITs we love to talk about.
We can’t do this.
And it’s part of why we’re attracted to Bitcoin and other digital assets.
Because it opens us up, as consumers and investors, to a world of untapped opportunity.
Even though we’re not exactly sure what crypto is or will become from a utilitarian standpoint, we’re willing to roll the dice.
If Bitcoin ends up the new gold, fantastic. We’re using it as an excellent place to stash some cash as a store of value.
If Bitcoin becomes the new currency of choice – or even gets meaningful traction at the consumer retail level – we’re in on the ground floor of the next big thing.
And, if Bitcoin hurtles toward $100,000 again, we’ll be there for the ride, treating it simultaneously as a great way to make cash trading and one of our core long-term investments.
Or maybe it does all of these things for us. There’s beauty and excitement in the uncertainty.
Warren, stick to talking about Coca-Cola. Leave Bitcoin alone.
Are You Sitting On A Pile Of Cash?
Source: The New York Times
It must be difficult as a homeowner to look at these numbers – the average tappable equity you have in your home – and not think you’re rich. House rich, at least.
If you’re house rich and cash poor – or even close to the latter – it might be even more difficult to resist the urge to pull the trigger on a home equity loan. If nothing else, you can take that money to Vegas and put it all on red.
In total, U.S. households have more than $26 trillion in equity in their homes. Thanks to rising housing prices, that number has increased $6 trillion in the last two years.
As data from the Fed shows, one thing that hasn’t followed, yet – an increase in home equity loans. Or are we in the early stages of something few people talk about? A home equity boom followed by a potential bust.
Source: St. Louis Fed
The average homeowner sits on $185,000 in available equity, that is the amount of money you can access in your home while maintaining at least 20% equity. So you’d think something’s gotta give.
In fact, on his company’s recent earnings call, Bank of America (BAC) CEO Bryan Moynihan made an interesting comment: “you’re seeing home equity come back up even though mortgage will fall off.”
BAC’s numbers from the quarter support this statement:
Source: Bank of America
When asked, most homeowners say they use home equity proceeds to fund home improvement.
However, we hit the slippery slope when you see the most common subsequent answers – debt consolidation, investment, or retirement income.
Source: The New York Times
We’d hate to know what the people in the other/unknown category classify as other/unknown. Going to Vegas and putting it all on red or, a long shot on the Jets to win the Super Bowl?
One other thing from BAC data – the average credit score of the folks holding home equity loans is 800. That’s strong. However, all it takes is one false move to flush things down the drain.
If you’re taking on new debt to pay off old debt – not good form. Same goes for using an asset – your home – to invest in the stock market or cover a retirement shortfall.
This is good news for the banks, particularly if home equity loans can help offset the decreases they’re seeing in mortgage activity, as weekly mortgage applications continue to drop.
Banks make money when you take out a loan. Take one out against your home and fail to pay, well, you know the rest of the story.
If you believe enough consumers are robbing Peter to pay Paul – chasing bad debt with good – it might be a sign of trouble, at least in a subset of the consumer economy.
There’s more data from Bank of America. It shows that while still nowhere near pre-pandemic levels, credit card balances are at least on an uptick.
The Bottom Line: If we’re seeing an increasing number of consumers return to carrying balances. If we’re seeing some of these same people turn to home equity loans for breathing room. This could be the writing on the wall that makes BAC stock attractive on increased fee and interest activity.
It should also serve as a warning to homeowners tempted by this massive expansion of their home equity. Even though you use your home – an asset – as collateral, debt is debt. And it’s probably never a good idea to finance life with potentially risky debt without a clear path to as guaranteed a return as possible.
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