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how much does medicare part a cost | for those who receive benefits from the hospital insurance trust fund or medicare part a most people don t pay a part a premium because they paid medicare taxes while they were employed however those who don t qualify for free part a may pay up to 505 each month in 2024 11 | |
how do i know what benefits i can receive from medicare | to understand the benefits and costs of medicare part a individuals can visit medicare gov or call 1 800 medicare 1 800 633 4227 will the hospital insurance trust fund be depleted by 2031 according to the 2023 report from the social security and medicare boards of trustees it is projected that the hospital insurance trust fund will be able to pay 100 of the total scheduled benefits until 2031 however the congressional budget office projects the fund will be solvent until 2033 12the bottom linethe federal hospital insurance trust fund is also known as medicare part a part of the united states health insurance program for those 65 and older the fund pays for healthcare services like hospital stays and hospice care for medicare recipients it is overseen by a board of trustees and is projected to be depleted in 2031 | |
what is a hospital revenue bond | a hospital revenue bond is a type of municipal bond that finances the construction of new facilities or upgrades for existing hospitals and is secured by the revenues that hospitals receive in the course of their normal operations understanding hospital revenue bondshospital revenue bonds can also be used to purchase new equipment for these facilities generally bondholders receive payment only after paying the expenses of running the hospital is complete which can create risk for bondholders if the hospital is not as profitable as anticipated hospital revenue bonds are considered to be among the riskiest types of municipal bonds as their name suggests revenue bonds are generally backed by the revenue that the specific project can generate if this revenue is insufficient municipalities have no obligation to use other funds to pay back bondholders unlike municipalities hospitals cannot tax residents as a way to cover expenses or repay debt this inability to raise revenue through taxes means the hospital revenue bonds typically command higher yields the high yield is due to their default risk being higher than a general obligation bond rating firms evaluate a revenue bond issue and assign a ranking indicating the probability that the obligation pays out on schedule hospital revenue bonds that are reliant on government funded programs such as medicaid and medicare are a higher risk investment uncertainty surrounding possible changes to the healthcare market and insurance laws create an unpredictable environment for hospitals and the bonds used to support them still when there is a decrease in supply in the municipal bond market investors are more likely to consider hospital bonds that present a higher risk tax considerations for hospital revenue bondsincome received from a hospital revenue bond may be exempt from state local and federal taxation however this varies by location and the impact of current tax law which is subject to change a tax plan introduced by congress in 2017 initially included an amendment that would prevent hospitals from issuing tax exempt bonds this plan prompted many hospitals to rush to seek funding before the proposed legislation could take effect several major hospital groups strongly objected to the proposed change warning that eliminating the tax break would result in higher borrowing costs the increased cost would in turn limit or reduce their ability to expand renovate or build new facilities which would be detrimental to the local communities the final tax plan dropped the proposed legislation other kinds of municipal revenue bondsrevenue bonds have backing from the money streams created by a specific project other types of revenue bonds are issued by municipalities may fund projects like toll rolls airports or harbors public housing projects or public utilities these bonds have a higher risk than go bonds but because of that they can sometimes pay a higher rate of interest revenue bonds also contrast to general obligation bonds go which are debt obligations repaid through a variety of tax sources holders of go bonds must rely on the full credit of the issuing municipality as no assets are used as collateral for example in the case of an airport revenue bond the municipality issues a bond to build a new terminal the bond depends on the income generated from airport activities to back the debt once completed airport landing fees terminal rents concession revenue parking charges and other income streams will generate revenue that the city will use to pay off the bond | |
what is a hostile bid | a hostile bid is a specific type of takeover bid that bidders present directly to the target firm s shareholders because management is not in favor of the deal bidders generally present their hostile bids through a tender offer in this scenario the acquiring company offers to purchase the common shares of the target at a substantial premium understanding hostile bidshostile bids can lead to major changes in the organizational structure if a board pursues defensive action to stop the merger a proxy fight can occur in this scenario the acquirer will often attempt to convince the target shareholders to replace management certain investors such as activist investors are known for using hostile bids to force takeovers and buyouts for example activist investor carl ichan made several hostile bids for clorox in 2011 12the acquirer and the target company use a variety of solicitation methods to influence shareholder votes shareholders receive a schedule 14a with financial and other information on the target company and the terms of the proposed acquisition in many cases the acquiring company hires an outside proxy solicitation firm that compiles a list of shareholders and contacts them to state the acquirer s case the firm can call or provide written information detailing the reasons the acquirer is attempting to make fundamental changes and why the deal could create more shareholder wealth in the long term individual shareholders or stock brokerages submit their votes to the entity assigned to aggregate the information e g a stock transfer agent or brokerage the corporate secretary of the target company receives all votes before the shareholders meeting proxy solicitors may scrutinize and challenge the votes if they are unclear 3hostile bid vs friendly bidunlike a hostile bid a friendly bid is approved by management an offer that s accepted by management and the board of directors is considered a friendly bid as things are amicable in this case the acquiring company generally has more access to the company and relevant information on the flip side a company undertaking a hostile takeover may have to do so with little internal information about the company as the management has been unwelcoming example of a hostile bidin october 2010 french pharmaceutical company sanofi aventis offered shareholders of u s biotech company genzyme 69 a share after being rebuffed multiple times by genzyme management 4 simultaneously sanofi ceo chris viehbacher sent genzyme chief executive henri termeer a letter in which he claimed to have the support of genzyme shareholders possessing more than 50 of outstanding shares 5shareholders were given until december 2010 to accept sanofi s offer as many analysts predicted the majority of shareholders considered sanofi s offer low and the bid was unsuccessful a deal was finally approved by genzyme s board of directors in february 2011 when the company agreed to a price of 74 a share plus contingent value rights tied to the performance of genzyme s experimental multiple sclerosis drug lemtrada 6 | |
what is a hostile takeover | a hostile takeover happens when an entity takes control of a company without the knowledge and against the wishes of the company s management a hostile takeover is an acquisition strategy requiring that the entity acquire and control more than 50 of the voting shares issued by the company it is considered bad business etiquette investopedia matthew collinsunderstanding hostile takeoversa hostile takeover allows the new majority shareholder s to control the acquired business the company being acquired in a hostile takeover is called the target company while the one executing the takeover is called the acquirer reasons that hostile takeovers occur from the acquiring party s point of view often coincide with those of any other acquisition or merger such as hostile takeovers are generally initiated in two ways the williams act of 1968 regulates tender offers and requires the disclosure of all cash tender offers 1defendes against a hostile takeoverto deter unwanted takeovers companies may have preemptive defenses or employ reactive defenses to fight back some of these defenses are to protect against hostile takeovers a company can establish stock with differential voting rights dvrs where some shares carry greater voting power than others this can make it more difficult to generate the votes needed for a hostile takeover if management owns a large enough portion of shares with more voting power shares with less voting power can also pay a higher dividend making them more attractive investments establishing an employee stock ownership program esop involves using a tax qualified plan in which employees own a substantial interest in the company employees may be more likely to vote with management as such this can be a successful defense however such schemes have drawn scrutiny in the past in some cases courts have invalidated defensive esops on the grounds that the plan was established for the benefit of management not shareholders 2in a crown jewel defense a provision of the company s bylaws requires the sale of the most valuable assets if there is a hostile takeover thereby making it less attractive as a takeover opportunity this is often considered one of the last lines of defense this defense tactic is officially known as a shareholder rights plan it allows existing shareholders to buy newly issued stock at a discount if one shareholder has bought more than a stipulated percentage of the stock resulting in a dilution of the ownership interest of the acquiring company the buyer who triggered the defense usually the acquiring company is excluded from the discount there are two types of poison pill defenses the flip in and flip over a flip in allows existing shareholders to buy new stock at a discount if someone accumulates a specified number of shares of the target company the acquiring company is excluded from the sale and its ownership interest becomes diluted a flip over strategy allows the target company s shareholders to purchase the acquiring company s stock at a deeply discounted price if the takeover goes through which punishes the acquiring company by diluting its equity the term poison pill is often used broadly to include a range of defenses including issuing additional debt which aims to make the target less attractive and stock options to employees that vest upon a merger sometimes a company s management will defend against unwanted hostile takeovers by using several controversial strategies such as the people poison pill a golden parachute or the pac man defense a people poison pill provides for the resignation of key personnel in the case of a hostile takeover while the golden parachute involves granting members of the target s executive team benefits bonuses severance pay stock options among others if they are ever terminated as a result of a takeover the pac man defense has the target company aggressively buy stock in the company attempting the takeover hostile takeover examplesa hostile takeover can be a difficult and lengthy process and attempts often end up unsuccessful for example billionaire activist investor carl icahn attempted three separate bids to acquire household goods giant clorox in 2011 which rejected each one and introduced a new shareholder rights plan in its defense 3 the clorox board even sidelined icahn s proxy fight efforts and the attempt ultimately ended in a few months with no takeover an example of a successful hostile takeover is that of pharmaceutical company sanofi s sny acquisition of genzyme genzyme produced drugs for the treatment of rare genetic disorders and sanofi saw the company as a means to expand into a niche industry and broaden its product offering after friendly takeover offers were unsuccessful as genzyme rebuffed sanofi s advances sanofi went directly to the shareholders paid a premium for the shares added in contingent value rights and ended up acquiring genzyme 4 | |
how is a hostile takeover done | the ways to take over another company include the tender offer the proxy fight and purchasing stock on the open market a tender offer requires a majority of the shareholders to accept a proxy fight aims to replace a good portion of the target s uncooperative board members an acquirer may also choose to simply buy enough company stock in the open market to take control | |
how can management preempt a hostile takeover | one of the ways to prevent hostile takeovers is to establish stocks with differential voting rights like establishing a share class with fewer voting rights and a higher dividend these shares become an attractive investment making it harder to generate the votes needed for a hostile takeover especially if management owns a majority of shares with more voting rights | |
what is a poison pill | a poison pill which is officially known as a shareholder rights plan is a common defense against a hostile takeover | |
what are other defenses to a hostile takeover | companies can use the crown jewel golden parachute and the pac man defense to defend themselves against hostile takeovers the bottom linea hostile takeover is where a party attempts to purchase a controlling share of a company s voting stocks or influences shareholders to vote out current management and replace them reasons hostile takeovers occur are a belief that a company may be undervalued or the desire to access or own a company s brand operations technology or industry foothold it might also be a strategic move by activist investors looking to effect change in a company s operations | |
what is a hostile takeover bid | a hostile takeover bid is an attempt to buy a controlling interest in a publicly traded company without the consent or cooperation of the target company s board of directors if the board rejects an offer from a potential buyer there are three possible courses of action for the would be acquirer make a tender offer initiate a proxy fight or buy up company stock in the open market understanding the hostile takeover bida takeover bid is most often launched by a company that wants to expand its business eliminate a rival or both the company may want to expand its customer base gain access to new distribution channels grow its market share or gain a technological advantage a bid may also be made by an activist shareholder who sees an opportunity to improve the target company s performance and profit from its stock price appreciation the usual first step is to make an offer to the board of directors of the company to purchase a controlling stake in the company the board of directors may reject that offer on the grounds that it is not in the best interest of the company s shareholders at that point a hostile takeover bid might be launched hostile takeover bid tacticsthe would be acquirer can attempt to buy enough shares of the company s stock on the open market to achieve a controlling share that is far from easy given the fact that the acquisition of large amounts of a company s stock inevitably pushes its price progressively higher since the reason for the price rise has no relationship to the company s performance the aggressor is likely to overpay that leaves two major tactics the would be acquirer may make a tender offer to the company s shareholders a tender offer is a bid to buy a controlling share of the target s stock at a fixed price the price is usually set above the current market price to allow the sellers an incentive to sell their shares this is a formal offer and may include specifications such as an offer expiry window paperwork must be filed with the securities and exchange commission sec and the acquirer must provide a summary of its plans for the target company 1companies can adopt takeover defense strategies to protect themselves against tender offers in such cases a proxy fight might be used the goal of a proxy fight is to replace board members who oppose the takeover with new board members who favor the takeover this requires convincing shareholders that a change in management is needed if shareholders like the idea of a change in management they are persuaded to allow the potential acquirer to vote their shares by proxy in favor of a new board member or members if the proxy fight is successful the new board members are installed and vote in favor of the target s acquisition a comeback for the hostile takeover the hostile takeover was to some extent a creature of the 1980s with a rash of well publicized attempts by takeover specialists who became known as corporate raiders since then they have occurred primarily in the aftermath of market downturns that have left some corporations looking like attractively priced targets in late 2020 the harvard law school forum on corporate governance predicted another wave of hostile takeovers in the wake of the 2020 covid 19 crisis 2 sure enough mergers and acquisitions activity broke records in 2021 according to a pwc report 62 000 deals totaling 5 1 trillion were disclosed globally in 2021 and 130 of those deals were megadeals valued at more than 5 billion 3 | |
what is the hot hand | the hot hand is the notion that because one has had a string of successes an individual or entity is more likely to have continued success for example if one flipped a fair coin and guessed correctly that it would land on heads three times in a row it might be said that they have a hot hand under such circumstances a person believes that their odds of guessing which side the coin will land on next are greater than the 50 they actually are when there is a series of failures the same concept works as the cold hand while the hot hand feels like it happens all the time academic research has shown this phenomenon to be purely psychological newer studies however do show some support for the hot hand in certain sporting events 1 | |
how the hot hand works | the belief in a hot hand is one shared by many gamblers and investors alike and is believed by psychologists to stem from the same source the representative heuristic for example there is data to suggest that the decision of an investor to buy or sell a mutual fund depends largely on the track record of the fund manager even though there is evidence that this factor is highly overrated 23 hence it would appear that such investors are making decisions based on whether or not they feel the fund managers are hot or not the hot hand fallacy is the psychological condition that people believe an individual is hot or cold depending on past performance when that performance has no bearing on future outcomes for instance rolling a die is independent of how you rolled it in the past evidence for and against the hot hand | |
when gambling as in investing it is possible to experience a winning streak driven by what seems to be momentum however the idea that favorable outcomes are a result of a hot hand is purely a psychological phenomenon in reality once an investor or a gambler begins to think they have a hot hand many proven biases can arise several common behavioral gaps which can be brought on by a hot hand include overconfidence confirmation bias the illusion of control recency bias and hindsight bias just to name a few from the growing list of the popular market psychology factors | new research using modern statistical analysis supports the bit of evidence for the hot hand in certain sporting events 1 the supreme court s may 2018 decision to ease federal laws prohibiting commercial sports betting in most states opened the door to legalizing the estimated 150 billion in illegal wagers on professional and amateur sports in the u s every year 45 as sports betting becomes more mainstream it s not unthinkable that investment strategies explicitly following a hot hand will pop up | |
what is a hot issue | in finance the term hot issue is used to describe an upcoming initial public offering ipo that is particularly popular among the investing public hot issues are typically oversubscribed by investors meaning that their demand outstrips their supply in those instances many speculators may be attracted by the prospect of short term speculative gains as opposed to being convinced of the company s long term prospects | |
when a company is preparing itself for an ipo its executives and investment banking partners will take the company on a so called roadshow touring several institutional investors in an attempt to promote excitement for the new issue in some cases such as when the company is viewed as a leader or disruptor in an exciting new industry these roadshows occasionally succeed in producing widespread interest in the new ipo | typically investors interested in a hot issue will be split into two basic camps in the first group are those who genuinely believe in the company s long term potential and wish to buy in on the ground floor on the other hand many investors are attracted to hot issues simply because they believe they can buy and then flip the shares for a short term gain this kind of speculative enthusiasm can sometimes produce bubble like conditions sometimes to the detriment of longer term investors in theory any kind of company could become a hot issue when undergoing an ipo in practice however this phenomenon is typically associated with high tech companies or those engaged in otherwise glamorous industry sectors established companies in mature industries tend not to attract the same level of investor enthusiasm perhaps because their business models are more stable and predictable than their hot issue peers real world example of a hot issuexyz corporation is a successful biotechnology startup that is preparing for its ipo with the help of its investment banking partners xyz successfully files form s 1 with the securities and exchange commission sec a necessary first step in the ipo process then it proceeds to meet with a wide variety of institutional investors in order to make the case for their company and justify a desired ipo valuation if xyz is successful in its investor presentations it could face a situation where its ipo is significantly oversubscribed in this situation its ipo would be seen as a hot issue with long term and speculative investors competing for the limited number of shares on offer although the actual price of the ipo is set after the market close on the ipo date the share price will often change significantly on the following day in the case of hot issues it is not uncommon for the share price to climb significantly sometimes by double digit percentages in a single day although it is by no means guaranteed this historical phenomenon has encouraged the tendency of speculators to bid up hot issue ipos in the hopes of securing a large short term gain | |
what is a hot ipo | the term hot ipo refers to an initial public offering with significant demand these ipos are popular drawing a tremendous amount of interest from investors and the media even before they hit the market this hype and attention generally lead to a significant rise in share prices after the company goes public hot ipos may be risky especially when it comes to investing in companies that don t have a proven track record of success | |
how hot ipos work | private companies that want to go public often do so by issuing stock through an initial public offering they can raise a substantial amount of money in a short time particularly if the issuance attracts public attention and becomes a hot ipo an ipo gives a private company a chance to cash in on the public s demand for its shares the first step is for the company to find at least one investment bank to act as an underwriter the underwriter s markets the ipo helping the company set a per share price banks assume a specific number of shares which they will offer to their buyers who are either institutional or retail investors 1 the banks collect a portion of the sale proceeds as a fee which is called the underwriting spread ipos are considered hot if and when they draw a great deal of attention from the media which can lead to a lot of interest from investors by going through the hot ipo process companies can raise a lot of capital in a short amount of time this allows them to pay off their debts fund their operations and set aside money for future growth the increased demand for shares in a hot ipo often leads to a sharp rise in the price of the stock soon after it begins trading this sudden increase in share price is often not sustainable which means the price drops 2 this pattern can have a big impact on the market itself sharp price moves can affect initial shareholders after trading opens on the secondary market underwriters may give preferential treatment to high value clients when offering shares in a hot ipo so they bear some risk if they overprice the stock a hot ipo is not a guaranteed win for investors because the hype doesn t bear the planned fruit for the investor special considerationshot ipos appeal to investors who anticipate that the demand for shares will outstrip the number of shares offered ipos with more demand than supply are considered oversubscribed making them a target for short term speculators as well as those who see a long term opportunity in holding the equity 3because a hot ipo is likely to be oversubscribed companies often allow their underwriters to increase the size of the offering to accommodate more investors and make more money underwriters must balance the size of the ipo with the appropriate price for the level of interest in the offering when done correctly this balancing will maximize profit for the company and its underwriter banks if a hot ipo is an underpriced issue it will usually see a rapid rise in price after the shares hit the market and the market adjusts to the high demand for the stock overpricing the ipo can lead to a rapid fall in prices even though the higher price benefits the underwriting bank issuing the stock since it only makes money on the initial issue companies have other ways they can go public including a direct listing or a direct public offering examples of a hot iposocial giant facebook s initial public offering is commonly considered a hot ipo in early 2012 analysts indicated that its long awaited ipo seeking to raise about 10 6 billion by selling more than 337 million shares at 28 to 35 per share could generate such significant interest from investors 4those analysts predicted an oversubscribed ipo | |
when the market opened on may 18 2012 investor interest showed a higher demand for the company s shares than it offered to take advantage of the oversubscribed ipo and fulfill investor demand facebook increased the number of shares to 421 million but it also raised the price range to 34 to 38 per share 4 | facebook and its underwriters effectively raised both the supply and price of shares to meet demand diminishing their oversubscription however it quickly became clear that facebook was not oversubscribed at its ipo price as the stock fell precipitously in its first four months of trading the stock failed to trade above its ipo price until july 31 2013 | |
what is hot money | hot money signifies currency that quickly and regularly moves between financial markets that ensures investors lock in the highest available short term interest rates hot money continuously shifts from countries with low interest rates to those with higher rates these financial transfers affect the exchange rate and potentially impact a country s balance of payments in law enforcement and banking regulatory circles the phrase hot money can also refer to stolen money that has been specially marked so that it may be traced and identified understanding hot moneyhot money not only relates to currencies of different countries but it may also refer to capital invested in competing businesses banks seek to bring in hot money by offering short term certificates of deposit cds with higher than average interest rates if the bank lowers its interest rates or if a rival financial institution offers higher rates investors are apt to move hot money funds to the bank offering the better deal in a global context hot money can flow between economies only after trade barriers are removed and sophisticated financial infrastructures are established against this backdrop money flows into high growth areas that offer the potential for outsized returns conversely hot money flows out of underperforming countries and economic sectors china as a hot and cold money marketchina s economy provides a clear example of the ebb and flow of hot money since the turn of the century the country s rapidly expanding economy accompanied by an epic rise in chinese stock prices established china as one of the hottest hot money markets in history however the flood of money into china quickly reversed direction following substantial devaluation of the chinese yuan coupled with a major correction in the chinese stock market the royal bank of scotland s chief china economy analyst louis kuijs estimates that during the brief six months from september 2014 to march 2015 the country lost an estimated 300 billion in hot money the reversal of china s money market is historic from 2006 to 2014 the country s foreign currency reserves multiplied creating a 4 trillion balance partially accrued from long term foreign investment in chinese businesses 1 but a significant chunk came from hot money when investors bought bonds with attractive interest rates and accumulated stocks with high return potential furthermore investors borrowed heaps of money in china at cheap rates in order to purchase higher interest rate bonds from other countries although the chinese market became an attractive destination for hot money thanks to a booming stock market and strong currency the influx of cash slowed to a trickle in 2016 because stock prices peaked to the extent that there was little upside to be had additionally since 2013 the fluctuating yuan also caused broad divestments during the nine month period between june 2014 and march 2015 the foreign exchange reserves of the country plummeted more than 250 billion similar events occurred in 2019 when according to estimates by the institute of international finance more than 60 billion in capital was taken out of china s economy between may and june of that year due to increased capital controls plus the devaluation of the yuan hot money activity is generally funneled towards investments with short horizons | |
what is the hot waitress economic index | the hot waitress economic index is an offensive and dubious economic indicator that counts the number of attractive people working as servers according to what we will refer to as the attractive server index the higher the number of good looking servers the weaker the state of the economy the questionable assumption is that attractive individuals don t have trouble finding higher paying jobs during good times in the economy according to the indicator high paying jobs are more difficult to get during tough economic times a higher number of attractive people will therefore be forced to work in service industry jobs the theory would seem to disregard employee skills qualifications or experience the attractive server index was first articulated by hugo lindgren in an article for new york magazine lindgren was an american magazine and newspaper writer and editor at the time he has gone into hollywood production not economics or academia | |
how the hot waitress economic index works | lindgren wrote about finding what he considered to be more attractive people serving tables at a lower east side establishment in new york city in his 2009 piece at the onset of the great recession these servers were replacements for people who had been laid off the manager in charge reportedly surmised that good looking waitresses would drive more sales for the establishment the attractive server index hasn t been vetted by economists and it s not known if this strategy by the management of one establishment was successful a traditional economic theory contends that employment tends to be a lagging indicator for economic recovery but lindgren contended there was good reason to believe that his index was a leading indicator as a commodity that s fairly cheap historically effective as a marketing tool and available on a freelance basis hotness will likely be back in demand long before your average michigan autoworker is he wrote there is minimal research in support of this indicator scientists have found that attractive people tend to be considered more capable and they re more confident and this combines to get them better jobs and higher wages this is often called lookism or beauty bias 1 it could suggest that there s a lack of better jobs out there when attractive people are waiting tables a job that some consider requires lesser skill and or result in lower pay indicators and factors of the indexthe pay scale for servers varies considerably based on a restaurant s location clientele food quality and the competency of the servers themselves to assume that the service industry is low skill is to discount the highly competitive nature of the market yelp reviews calling out uneducated unskilled or poor servers can quickly get a server fired 2some economic indicators are well respected measures of the economy s health such as when economists talk about gdp or initial jobless claims but almost anything can be considered an economic indicator and thus any theory should be prodded for its validity before it can be trusted there can be a pop culture mythos around some economic indicators says erika rasure ph d assistant professor of business and financial services at maryville university and a member of the investopedia financial review board these can be very superstitious people try to make correlations between observable phenomena but it doesn t make it true in this case it is misogynistic and sexist rasure recommends doing your homework to judge the accuracy of an indicator how well has an indicator been studied don t do anything until you have the facts and don t believe everything you see and hear on tv or the internet hot waitress index vs other strange indicatorsthe accuracy and reliability of the attractive server index is questionable but it s far from alone in the finance realm of weird indicators that people have used if you can dream it up someone may have beat you to that theory some people think the full moon has an influence on the economy i think of these indicators as pop culture finance reads says rasure various insulting and suspect theories have surfaced over the years to tout the predictive power of marine advertisements sales of men s underwear and even lipstick sales the idea behind these ideas is similar you can expect to see tougher marine recruitment ads on tv in a difficult economy because they meet recruitment goals quickly in down economies they don t have to worry about scaring people away men s underwear sales will dip that pair might last a little longer and lipstick sales will go up because it s a relatively inexpensive personal luxury that no one needs in a masked pandemic | |
what is a lagging indicator | a lagging indicator is one that s based on events and trends of the past it s something of a warning system that a similar event not only could happen again but is likely to occur unless circumstances change leading indicators anticipate and help to prepare safeguards against negative events in the future 3 | |
what is the average pay of food service workers | the u s bureau of labor statistics reported in september 2023 that the 2022 median pay for food service and related workers was 13 52 per hour secretaries and administrative assistants earned 21 19 per hour that same year both types of workers may deal with the public in the course of their jobs but food service workers tend to do so to a much greater extent 45 median means that half of all workers were paid more than this amount and half earned less | |
what is the average pay of all workers in the united states | the average hourly rate of pay for all workers excluding farm payrolls was 34 55 as of january 2024 that was a 4 5 increase over the previous year 6the bottom linethe hot waitress economic index counts the number of attractive people who work as servers the theory behind the index is that more attractive individuals work as servers at times when the economy is weak they could presumably work in a better paying position in a stronger economy thanks in part to their looks the index doesn t consider qualifications such as skills experience or education it shouldn t be used to measure the likelihood that you can land a job in a different field based on factors other than your appearance | |
what is a hot wallet | a hot wallet is a cryptocurrency wallet that is always connected to the internet or another connected device hot wallets are used as temporary key storage and to send and receive cryptocurrency usually their interfaces also allow you to view how many tokens you have available | |
when you own a cryptocurrency you re given private keys to access it public keys are similar to account usernames they identify the wallet so that the user can receive tokens without revealing their identity private keys are similar to personal identification numbers that must be entered when creating a transaction the wallets that store these keys are usually accessed with usernames and passwords but can also use different login techniques | hot wallets are applications connected to the internet and the cryptocurrency infrastructure which allows you to use them for a user the hot wallet is the interface for using and storing your cryptocurrency keys they are different from cold wallets which are devices or applications that store your private keys offline these can be an application on a device that doesn t connect to the internet or a device that looks like a usb thumb drive that stores your keys you can even write your keys on a piece of paper which is considered a cold wallet to use the cryptocurrency you have in cold storage you need to transfer the keys to your hot wallet cold wallets also called cold storage are considered one of the safest methods for securing digital currency types of hot walletsthere are various hot wallets available and many of them are free to download some wallets are specifically designed to be used in partnership with particular mobile web applications you might find one that only works with a particular cryptocurrency or ecosystem in addition some cryptocurrency exchanges will only accept transfers to and from specific wallets examples of hot wallets are metamask coinbase wallet and edge wallet metamask is designed for transactions using the ethereum ecosystem coinbase wallet is the wallet for the cryptocurrency exchange coinbase and edge wallet is designed to accept transactions using all of your digital assets because there are so many wallets with different designs and intents it s important for you to research hot wallets before downloading and using their services wallet developers have varying degrees of expertise various commitments to security and privacy and different priorities in mind when creating their wallets some might have fees others might not you might need to use one wallet that integrates with your internet browser for one currency and another wallet that is a dedicated application on the internet you might find cryptocurrency cold and hot wallets broken down into many categories like hardware software web desktop or mobile all the different categories and definitions exist because many businesses are trying to get you to spend money and writers academics and enthusiasts are trying to standardize cryptocurrency and blockchain definitions or demonstrate their expertise what s important to remember when you re reading about wallets is that it doesn t matter what it is called special considerationsthere are several aspects you should consider before deciding on your hot wallet most important are its security features and how you use them your cryptocurrency is only as safe as the way you store your keys any items stored in a hot wallet are vulnerable to hacks malware ransomware or any other method thieves can think of to keep your cryptocurrency safe consider some of these tips the old saying don t keep all of your eggs in one basket applies to many financial assets including cryptocurrency if you use more than one storage type or strategy you re minimizing the risks of theft and loss it s a good idea to keep only a small portion of your crypto assets in your hot wallet you might consider only putting the amount of cryptocurrency you need in it when you need it this strategy would mean storing most of your assets in a cold wallet and transferring what you need to the hot wallet for immediate or near future use you could also choose to keep your cryptocurrency tokens in accounts linked to the exchange you use some exchanges will store your cryptocurrency for you in cold storage these exchanges either subcontract custodial services and transfer your keys to them or have built data storage methods designed for key storage however if you keep your tokens in an exchange account and an attacker gains access to the exchange s network you could lose your cryptocurrency in the attack to help customers if this happens some exchanges are insured for the loss of customers assets if they the exchange lose them due to theft or failure of their systems and will reimburse you up to a certain amount if you maintain a substantial balance of cryptocurrency you re accepting the risk of drawing the attention of hackers or losing a significant portion of your holdings in an attack because many of the top digital currency exchanges allow users to transfer between various fiat currencies and cryptocurrencies you should only hold small amounts in your wallet you can convert the rest to your country s currency and place it in your bank account there might be fees for exchanging cryptocurrency for fiat currency and transferring the funds out of the exchange or removing it to store it but it s worth considering if you re not holding your cryptocurrency as an investment hot wallets and investingcryptocurrency investing is similar to stock market investing you own a cryptocurrency and wait for its fair market value to increase you could continue holding it or try to sell it to another investor at a profit however a hot wallet is a precarious place to store your cryptocurrency investments cold storage such as a paper wallet or other non connected methods might serve you better as you wait for your cryptocurrency s value to increase you could also use a custodial cold wallet such as a reputable regulated and insured exchange s cold storage or licensed digital asset custodian another option is to invest in a cryptocurrency etf that holds cryptocurrency so that you gain exposure to these assets without needing to secure them yourself | |
how do i secure my hot wallet | only keep small amounts in your hot wallet ensure you back it up keep the software up to date encrypt it and keep your password secure to make sure your wallet is safe | |
what are hot wallets | a hot wallet is any software or device designed to hold cryptocurrency private keys with a connection to another device or the internet | |
is coinbase a hot wallet | coinbase provides a hot wallet for its customers that allows them to interact with the exchange s services | |
how much does a hot wallet cost | many hot wallets are free because they are downloadable software or apps there are some devices with software uploaded on them that can act as hot and cold wallets depending on the options these can range from less than 100 to hundreds of dollars the bottom linehot wallets are any private key storage method that has a connection to another device or the internet all hot wallets have or are software of some type so they are vulnerable to hacking malware viruses ransomware or other methods used by criminals there are many hot wallets available so it is best to research for the one you prefer and only keep the keys to the crypto you intend to spend in it once you use your crypto in your hot wallet transfer the keys back to cold storage to be safe the comments opinions and analyses expressed on investopedia are for informational purposes only read our warranty and liability disclaimer for more info | |
what is hotelling s theory | hotelling s theory or hotelling s rule posits that owners of nonrenewable resources will only produce basic commodities if doing so can yield more than could be earned from available financial instruments such as u s treasury or other similar interest bearing securities the theory assumes that markets are efficient and that the owners of the nonrenewable resources are motivated only by profit hotelling s theory is used by economists to attempt to predict the price of oil and other nonrenewable resources based on prevailing interest rates hotelling s rule was named after american statistician harold hotelling understanding hotelling s theoryhotelling s theory addresses a fundamental decision for an owner of a nonrenewable resource keep the resource in the ground and hope for a better price the next year or extract and sell it and invest the proceeds in an interest bearing security consider an owner of iron ore deposits if this miner expects a 10 appreciation of iron ore over the next 12 months and the prevailing real interest rate nominal rate less inflation at which he can invest is only 5 per year he will choose not to extract the iron ore extraction costs are ignored in his theory if the numbers were switched with a price appreciation expectation of 5 and an interest rate of 10 the owner would mine the iron ore sell it and invest the sales proceeds at a 10 yield the miner will be indifferent at 5 and 5 theory and practicethe difference between the marginal extraction costs of natural resources and their price is called the hotelling rent it follows that the rate of change in the price of a depletable resource must equal the interest rate that a miner or extractor uses to discount the future this is known as the hotelling r percent growth rule whenever marginal extraction costs are zero the price of the resource in stock and that of the unmined resource are equivalent and the hotelling rule applies equally to both if however extraction costs increase over time the price of the resource should rise at a rate that is lower than the discount interest thus all else being equal an increase in the discount rate implies a higher price for the unextracted resource and would incentivize a faster rate of extraction in theory then the price increase rates of nonrenewable resources like oil copper coal iron ore zinc nickel etc should track the pace of real interest rate increases in practice the federal reserve bank of minneapolis concluded in a 2014 study that hotelling s theory fails the price appreciation rates of all the basic commodities examined by authors fell short some far short of the annual average rate of u s treasury securities the authors suspected that extraction costs explained the difference who was harold hotelling harold hotelling 1895 1973 was an american statistician and economist affiliated with stanford university and columbia university in his early and mid career years and later with the university of north carolina chapel hill until his retirement aside from the eponymous theory on prices of nonrenewable resources he is known for hotelling s t square distribution hotelling s law and hotelling s lemma | |
what is a house call | a house call is a demand by a brokerage firm that an account holder deposit enough cash to cover a shortfall in the amount of money deposited in a margin account this typically follows losses in the investments bought on margin the call is made when the account balance has fallen below the maintenance margin required by the brokerage firm if the client fails to make up the shortfall in the time specified by the house the account holder s positions will be liquidated without further notice until the minimum requirement is satisfied understanding house callsthe house call is a type of margin call investors who buy assets using money borrowed from the brokerage firm or on margin are required by the brokerage to retain a minimum amount of cash or securities on deposit to offset losses 1buying on margin is used by investors who hope to multiply their returns by multiplying the number of shares they buy they borrow money from the house in order to achieve that goal if they succeed and the price of the shares increases they repay the loan and pocket the rest as profit if they fail and the price of the shares falls they owe the house if they owe more than they have deposited in reserve they must make up the difference a house call goes out if the investment falls in value below the amount of the required deposit the investor can cover the shortfall by depositing more cash or selling other assets in the account | |
when a customer opens a margin account up to 50 of the purchase price of the first stock in the account can be borrowed by the customer in accordance with regulation t of the federal reserve board individual brokerage firms have the discretion to increase this percentage | after a stock is purchased on margin the financial industry regulatory authority finra imposes further requirements on margin accounts one requires that a brokerage hold at least 25 of the market value of the securities purchased on margin 2 the brokerage firm may set a higher minimum the minimum deposit may be up to 50 but some brokerages set a higher amount 2that number effectively becomes the house requirement for a deposit when a house call is issued the account holder must meet the margin maintenance requirement within a stated period fidelity investments for example has a margin maintenance requirement that ranges from 30 to 100 and its house call allows an account holder five business days to sell margin eligible securities or deposit cash or margin eligible securities but fidelity may cover the call at any time portfolio margin accounts follow a different set of requirements after that the firm will start liquidating securities 3 charles schwab has a maintenance requirement that is usually 30 so it can vary with the security but house calls are due immediately by the firm 4 | |
what is the maintenance margin requirement by a brokerage firm | the maintenance margin is the minimum equity an investor must hold in the margin account after the purchase has been made the customer s equity in the account must not fall below 25 of the current market value of the securities in the account if this requirement is not met the brokerage firm may liquidate the securities in the customer s account 2 | |
what happens when an investor buys assets on margin and the price of the shares falls | the investor needs to repay the borrowed amount to the brokerage firm if they owe more than they have deposited in reserve they must make up the difference | |
what is the percentage of the first stock that can be borrowed by the customer in a margin account | up to 50 of the purchase price according to regulation t of the federal reserve board 2 | |
what is a house maintenance requirement | a house maintenance requirement is the level of minimum margin account equity that is required by a brokerage firm house maintenance requirement levels are based on the standards set out in regulation t of the federal reserve although regulation t specifies the minimum maintenance requirements permitted by law brokerage firms are free to adjust their own house maintenance requirements provided that their standards are more rigorous than the minimum requirements set out in regulation t 1 | |
how house maintenance requirements work | the purpose of maintenance requirements is to ensure that investors using margin accounts to make leveraged investments do not find themselves unable to repay their margin loans in this manner maintenance requirements are intended to reduce credit risk for the brokerage firms by extension they aim to reduce the systemic risk that might otherwise arise from widespread defaults by margin traders house maintenance requirements typically range between 30 and 50 while stocks are the security most commonly purchased in a margin account many other securities such as mutual funds treasuries corporate bonds and options may be purchased on margin subject to varying purchase and maintenance requirements according to regulation t margin traders must maintain equity levels of at least 25 of the value of their investments if they fail to maintain this level they may find themselves subject to a margin call by their broker 2in this situation the trader would be required to promptly deposit additional collateral into their account if they fail to do so their broker can liquidate their investment positions in order to pay back their margin any outstanding balance of the loan would then need to be repaid separately by the margin trader 3bull vs bear markets why maintenance requirements are necessaryduring bull markets margin traders may find their maintenance requirements to be unduly restrictive when asset prices are generally rising it can be tempting to leverage as much as possible in order to maximize return on equity roe however the danger of this quickly reveals itself once the market begins to turn during bear markets or periods of sudden financial shock such as occurred in the 2007 2008 financial crisis margin traders are often faced with significant risk the decline in portfolio values combined with the need to repay large margin loans on short notice due to margin calls can sometimes force margin traders into significant financial duress often these traders will forfeit all of the gains made in previous years and may even be forced to liquidate other personal assets in order to repay their margin loans therefore from this perspective the need for maintenance requirements becomes much more clear if the equity in a margin account falls below the maintenance margin the broker issues a margin call 2 | |
what impacts house maintenance requirements | the house maintenance requirement will often be higher than the maintenance margin set out by the federal reserve s regulation t which stipulates that an equity level of at least 25 must be maintained 1in addition to maintaining higher more stringent house maintenance requirements than the 25 mandated by regulation t brokerage firms often also have different house maintenance requirements for different account holders typically this stratification is based on the size creditworthiness or perceived sophistication of the client for example smaller and less experienced margin traders may be required to adhere to a 40 house maintenance requirement while larger and more experienced clients may receive a 30 threshold the type of investment can also have an impact for example small more volatile stocks may carry higher margin requirements than an investment in a big well established s p 500 company 4 | |
what is the minimum maintenance requirement | the minimum maintenance requirement by law is 25 which was set out by regulation t however brokers are free to be more rigorous and most are 1 | |
what does a 30 maintenance requirement mean | a maintenance requirement of 30 means an investor borrowing on margin must have at least 30 of the total market value of the securities in their margin account at all times so if the securities that you borrowed money to buy are valued at 20 000 the maintenance requirement would be 6 000 | |
what is a special maintenance requirement | the same maintenance requirements are not uniformly applied to everyone and everything some securities can carry higher maintenance requirements because they are deemed riskier that s usually the case with more volatile or less liquid investments 5the bottom linea house maintenance requirement is the minimum equity an investor must hold in their margin account after making a purchase once a security is bought on margin the requirement kicks in regulation t demands that at least 25 of the total market value of the securities be in the account at all times however brokers tend to demand even more than that it s very important to pay attention to these requirements if you fall below them and don t act fast when prompted your broker could liquidate your investment positions to claw the money back | |
what is the house money effect | the house money effect is a theory used to explain the tendency of investors to take on greater risk when reinvesting profit earned through investing than they would when investing their savings or wages people will often think about investment income as separate from the money they earned in other ways which distorts their mental accounting because that money is incorrectly considered somehow extra or separate from money earned in other ways investors will invest it with a much higher risk tolerance than they would otherwise thereby skewing their investment decisions understanding the house money effectrichard h thaler and eric j johnson of the cornell university johnson graduate school of management first defined the house money effect borrowing the term from casinos the term makes reference to a gambler who takes winnings from previous bets and uses some or all of them in subsequent bets 1the house money effect suggests for example that individuals tend to buy higher risk stocks or other assets after profitable trades for example after earning a short term profit from a stock with a beta of 1 5 it s not uncommon for an investor to next trade a stock with a beta of 2 or more this is because the recent successful outcome in trading the first stock with above average risk temporarily increases the investor s risk tolerance thus this investor next seeks even more risk windfall trades may also bring on the house money effect say an investor more than doubles their profit on a longer term trade held for four months instead of next taking on a less risky trade or cashing out some proceeds to preserve the profit the house money effect suggests they may next take on another risky trade not fearing a drawdown as long as some of the original gains are preserved longer term investors and the house money effectlonger term investors sometimes suffer a similar fate say an investor in a growth oriented mutual fund earns more than 30 in a year s time largely driven by very strong market conditions keep in mind the average stock gain tends to be roughly 6 to 8 a year now say this investor leaves the growth oriented fund at year s end to next invest in an aggressive long short hedge fund this may be an example of the house money effect temporarily increasing the investor s risk tolerance for longer term investors one of two courses of action tends to be preferable to the house money effect either staying the course and maintaining a steady risk tolerance or becoming slightly more conservative after big windfalls of note the house money effect also carries over to company stock options in the dot com boom some employees refused to exercise their stock options over time believing it was better to keep them and let them triple then triple again this strategy significantly stung workers in 2000 when some paper millionaires lost it all the house money effect vs letting winners ridea technical analyst tends to draw a distinction between the house money effect and the concept of letting winners ride on the contrary one way technical traders manage risk is by cashing out half the value of a trade after meeting an initial price target then technical traders tend to move up their stop before giving the second half of the trade a chance to meet a secondary price target many technical traders utilize some version of this practice in an effort to continue to profit from the minority of trades that continue to move up and up which still holds to the spirit of letting winners ride while not falling victim to the house money effect the difference between these two concepts is actually one of calculation letting winners ride in a mathematically calculated position size strategy is an excellent way of compounding gains some traders have in the past documented how such strategies were instrumental in their success | |
what is meant by risk tolerance | risk tolerance refers to the amount of risk an individual is willing to take when trading or investing an individual with a high risk tolerance is comfortable taking higher risks they will invest in assets or strategies that come with a high risk of loss but also a higher risk of return individuals with a low risk tolerance are the opposite they do not want to risk losing money and therefore choose investments that are low risk in general younger people have a higher risk tolerance as they have their entire life to earn money or recuperate from losses older individuals such as those in retirement do not have a high risk tolerance as they are focused on preserving their money | |
is volatility good for trading | yes volatility is considered good for trading when markets are volatile it means there are larger price swings which is a good opportunity to make profits that are above average however on the flip side increased volatility also means that the chances for losses are higher as well and those losses would also be amplified due to larger than normal price movements in essence volatility allows for trading opportunities | |
what is the capital gains tax on investment profits | if an investment is held for less than a year profits are taxed at an individual s regular income tax bracket if investments are held for longer than a year profits are taxed at the capital gains tax rate capital gains tax brackets are 0 15 and 20 2 | |
what is house poor | house poor is a term used to describe a person who spends a large proportion of his or her total income on homeownership including mortgage payments property taxes maintenance and utilities individuals in this situation are short of cash for discretionary items and tend to have trouble meeting other financial obligations such as vehicle payments house poor is sometimes also referred to as house rich cash poor understanding house poora house poor person can be considered anyone whose housing expenses account for an exorbitant percentage of their monthly budget people can find themselves in this situation for a number of reasons in some cases a consumer may have underestimated their total costs alternatively a change in income may be the reason that housing expenses have become overwhelming buying a home is part of the american dream and many homeowners pursue homeownership because of the many advantages it offers making payments toward the ownership of a real estate property can be a good investment in the long term that said it can also quickly turn sour if you run into money trouble and fail to account for the number of unexpected costs that often arise when taking on such a big commitment to prevent becoming house poor prospective homeowners should not let their dreams get the better of them they can start out by considering the following unwritten rules and heuristic guidelines house poor requirementswhile experts say consumers should plan to spend no more than 28 of their gross income on housing expenses it is necessary to consider other debts you may have when adding these expenses experts say that the ratio should not exceed 36 of your gross monthly income this calculation is referred to as the back end dti 3if an individual significantly exceeds the front end or back end dtis they may very likely qualify as house poor house poor methodsin some cases unexpected circumstances may occur that make housing payments difficult to manage the loss of a job or having a child can completely change a household s spending outlook leaving them house poor with difficulty making the mortgage payments if this happens consumers may need to look at a few different options first if expenses on housing seem overwhelming perhaps there are areas of the budget where you can reduce spending maybe canceling vacations or trading cars for a lower payment vehicle could help if it seems that the expense has gone beyond budget many consumers will be willing to take on a second job or side jobs that can help to pay the housing bills | |
when buying a home investors should start a savings account saving a little each month for unexpected issues such as maintenance and home repairs can make a big difference particularly when individuals find themselves strapped for cash | if none of these options seem feasible consumers always have the option to sell their home selling may allow you to move to a less expensive neighborhood or find a rental home with lower payments while selling may not be your most favorable option it allows you to obtain the funds you need and potentially save for buying a new home in the future | |
what are ways of becoming house poor | buying a home you cannot afford and tying up all of your cash into a down payment and income into mortgage payments is the most obvious way of becoming house poor however you can also grow house poor if your housing costs increase dramatically this can be due to increasing property taxes and or rising interest rates if you have an adjustable mortgage like an arm if your income drops or you lose your job you can also see yourself become house poor | |
what are ways to avoid becoming house poor | if you are worried about becoming house poor or already find yourself in this situation there are some options you can look to boost your income through a side job or gig work and look to cut costs elsewhere refinancing a mortgage may be an option especially if interest rates have fallen moreover you can pull some cash out of your home s equity to help with other expenses finally while it is not always ideal downsizing to a more affordable home or switching to a rental are another option | |
how much should be saved in an emergency fund | most financial experts recommend that people contribute to an emergency savings fund to cover things like mortgage rent payments other bills and basic needs in the case of a job loss health emergency or other crisis while there is no consensus on exactly how much to save in an emergency fund many advocate for at least 3 6 months worth of living expenses the bottom linebeing house poor means spending a very large amount of monthly income on homeownership related expenses in order to calculate mortgage affordability some experts recommend spending no more than 28 of your gross monthly income on housing expenses and no more than 36 on total debts 3 if this is not possible there are also other options to cover extra expenses such as getting a second job using savings or even selling the property investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors past performance is not indicative of future performance investing involves risk including the possible loss of principal | |
what is the house price index hpi | the house price index hpi is a broad measure of the movement of single family property prices in the united states the hpi is published and updated by the federal housing finance agency fhfa aside from serving as an indicator of house price trends the hpi also functions as an analytical tool for estimating changes in the rates of mortgage defaults prepayments and housing affordability understanding the house price index hpi the hpi is pieced together by the fhfa data is compiled by the fhfa using information supplied by the federal national mortgage association typically known as fannie mae and the federal home loan mortgage corporation commonly known as freddie mac 1the hpi is based on transactions involving conventional and conforming mortgages on single family properties it is a weighted repeat sales index measuring average price changes in repeat sales or refinancings on the same properties 1an hpi report is published every quarter in addition to a monthly report data is compiled by reviewing mortgages purchased or securitized by fannie mae and freddie mac 2the increase in the hpi in april 2024 from the previous month home prices increased 6 3 on an annual basis from april 2023 3 | |
how the house price index hpi is used | the hpi is one of many economic indicators that investors use to keep a pulse on broader economic trends and potential shifts in the stock market the rise and fall of house prices can have big implications for the economy price increases generally create more jobs stimulate confidence and prompt higher consumer spending this paves the way for greater aggregate demand boosting gross domestic product gdp and overall economic growth | |
when prices fall the opposite tends to happen consumer confidence is eroded and the companies profiting from the demand for real estate lay off staff this can sometimes trigger an economic recession | the house price index hpi vs the s p corelogic case shiller home price indexesthe hpi is one of many trackers of home prices some of the most well known alternatives are the s p corelogic case shiller home price indexes these indexes utilize different data and measuring techniques and therefore produce varying results for example the hpi weighs all homes equally while the s p corelogic case shiller indexes are value weighted 4while the case shiller indexes only use purchase prices the all transactions hpi includes refinancing appraisals as well the hpi also provides wider coverage the u s corelogic s p case shiller index rose by 1 2 between march 2024 and april 2024 it increased by 6 3 on an annual basis between april 2023 and april 2024 45fannie mae and freddie macas noted above the hpi measures average price changes for homes that are sold or refinanced by looking at mortgages purchased or secured by fannie mae or freddie mac that means loans and mortgages from other sources such as the united states department of veterans affairs and the federal housing administration fha do not feature in its data 6fannie mae is a government sponsored enterprise gse that is listed on the public market yet operates under a congressional charter the company s goal is to keep mortgage markets liquid it does this by purchasing and guaranteeing mortgages from the actual lenders such as credit unions and local and national banks fannie mae cannot originate loans directly 7the fnma expands the liquidity of mortgage markets and facilitates homeownership for low moderate and middle income americans by creating a secondary market fannie mae was created in 1938 during the great depression as part of the new deal 8like fannie mae freddie mac or the fhlmc is also a gse it purchases guarantees and securitizes mortgages to form mortgage backed securities mbs it then issues liquid mbs that generally carry a credit rating close to that of u s treasuries 91011given its connection with the u s government freddie mac can borrow money at interest rates that are generally lower than those available to other financial institutions | |
how do you tell if a house is a good price | to determine if a house is a good price you can check the sale prices of recently sold properties in the neighborhood compare the price with other properties for sale in the market speak with a real estate agent and consider the appreciation value | |
should i offer the full asking price on a house | knowing whether or not you should offer the full asking price on a house will come down to a few factors one of the main factors is if the property being sold is in a buyer s market or a seller s market if it is a seller s market you may have to offer the full asking price or above whereas in a buyer s market you may be able to offer a lower price if you need to offer the full asking price or more it is generally recommended to offer 1 to 3 more | |
what brings down the value of a house | many factors bring down the value of a house such as any new planned construction in the area that would be seen as less than desirable such as a highway foreclosures in the neighborhood would bring down prices as well as the increased likelihood of natural disasters in the area or a greater impact due to climate change even rising interest rates can bring down the value of a house as the increase in mortgage rates makes homes more expensive which reduces the demand the bottom linethe house price index measures the movement of single family home prices in the united states it is reported monthly and measures the change from the previous month and year over year it is an important economic indicator shedding light on the state of the economy and housing affordability | |
what is the house price index hpi | the house price index hpi is a broad measure of the movement of single family property prices in the united states the hpi is published and updated by the federal housing finance agency fhfa aside from serving as an indicator of house price trends the hpi also functions as an analytical tool for estimating changes in the rates of mortgage defaults prepayments and housing affordability understanding the house price index hpi the hpi is pieced together by the fhfa data is compiled by the fhfa using information supplied by the federal national mortgage association typically known as fannie mae and the federal home loan mortgage corporation commonly known as freddie mac 1the hpi is based on transactions involving conventional and conforming mortgages on single family properties it is a weighted repeat sales index measuring average price changes in repeat sales or refinancings on the same properties 1an hpi report is published every quarter in addition to a monthly report data is compiled by reviewing mortgages purchased or securitized by fannie mae and freddie mac 2the increase in the hpi in april 2024 from the previous month home prices increased 6 3 on an annual basis from april 2023 3 | |
how the house price index hpi is used | the hpi is one of many economic indicators that investors use to keep a pulse on broader economic trends and potential shifts in the stock market the rise and fall of house prices can have big implications for the economy price increases generally create more jobs stimulate confidence and prompt higher consumer spending this paves the way for greater aggregate demand boosting gross domestic product gdp and overall economic growth | |
when prices fall the opposite tends to happen consumer confidence is eroded and the companies profiting from the demand for real estate lay off staff this can sometimes trigger an economic recession | the house price index hpi vs the s p corelogic case shiller home price indexesthe hpi is one of many trackers of home prices some of the most well known alternatives are the s p corelogic case shiller home price indexes these indexes utilize different data and measuring techniques and therefore produce varying results for example the hpi weighs all homes equally while the s p corelogic case shiller indexes are value weighted 4while the case shiller indexes only use purchase prices the all transactions hpi includes refinancing appraisals as well the hpi also provides wider coverage the u s corelogic s p case shiller index rose by 1 2 between march 2024 and april 2024 it increased by 6 3 on an annual basis between april 2023 and april 2024 45fannie mae and freddie macas noted above the hpi measures average price changes for homes that are sold or refinanced by looking at mortgages purchased or secured by fannie mae or freddie mac that means loans and mortgages from other sources such as the united states department of veterans affairs and the federal housing administration fha do not feature in its data 6fannie mae is a government sponsored enterprise gse that is listed on the public market yet operates under a congressional charter the company s goal is to keep mortgage markets liquid it does this by purchasing and guaranteeing mortgages from the actual lenders such as credit unions and local and national banks fannie mae cannot originate loans directly 7the fnma expands the liquidity of mortgage markets and facilitates homeownership for low moderate and middle income americans by creating a secondary market fannie mae was created in 1938 during the great depression as part of the new deal 8like fannie mae freddie mac or the fhlmc is also a gse it purchases guarantees and securitizes mortgages to form mortgage backed securities mbs it then issues liquid mbs that generally carry a credit rating close to that of u s treasuries 91011given its connection with the u s government freddie mac can borrow money at interest rates that are generally lower than those available to other financial institutions | |
how do you tell if a house is a good price | to determine if a house is a good price you can check the sale prices of recently sold properties in the neighborhood compare the price with other properties for sale in the market speak with a real estate agent and consider the appreciation value | |
should i offer the full asking price on a house | knowing whether or not you should offer the full asking price on a house will come down to a few factors one of the main factors is if the property being sold is in a buyer s market or a seller s market if it is a seller s market you may have to offer the full asking price or above whereas in a buyer s market you may be able to offer a lower price if you need to offer the full asking price or more it is generally recommended to offer 1 to 3 more | |
what brings down the value of a house | many factors bring down the value of a house such as any new planned construction in the area that would be seen as less than desirable such as a highway foreclosures in the neighborhood would bring down prices as well as the increased likelihood of natural disasters in the area or a greater impact due to climate change even rising interest rates can bring down the value of a house as the increase in mortgage rates makes homes more expensive which reduces the demand the bottom linethe house price index measures the movement of single family home prices in the united states it is reported monthly and measures the change from the previous month and year over year it is an important economic indicator shedding light on the state of the economy and housing affordability | |
what are household expenses | household expenses represent a per person breakdown of general living expenses they include the amount paid for lodging food consumed within the home utilities paid and other costs the sum of all the expenses is then divided by the number of family members residing in the house in order to find each member s share of the total expense some household expenses qualify for tax deductions for example if you work from home and have an office there you might qualify for the home office deduction understanding household expensesif you have head of household status you can enjoy a larger standard deduction and lower tax rates the items associated with household expenses include a broad range of recurring purchases types of household expensesin addition to the cost of the housing whether it is rent a mortgage payment or real estate taxes fees for utilities such as electricity and gas as well as insurance for the property are also part of household expenses the needs of each person accounted for in the household also fall under these costs these needs include the cost of prescription medicines and other healthcare fees expenditures for education such as tutoring services the purchase and maintenance of school uniforms textbooks personal computers stationery and pens are all included as household expenses tuition whether for private schools or universities may be included as expenses carried by the household because the student typically relies on a parent or guardian to pay such fees childcare services such as hiring babysitters or paying for daycare for young children while parents are at work are included in household expenses as well transportation fees such as the cost of leasing or buying a car through installment payments commuting costs to work and other services used by members of the household to get around such as taxis or buses can be counted as expenses to the household legal fees for members of a household whether for consulting services or litigation may also be included as well costs for leisure and pastimes might be part of a household s regular expenditures nights out to the movies or subscription television services are part of entertainment purchases for the household the money spent on vacations costs to participate in hobbies such as procuring collectible items and fees for club memberships also add to these expenses however the necessity of such expenditures may come into question when budgeting to maintain the necessities of a household particularly if there is a decline in personal income if household expenses surpass your capacity to pay them increased debt and more extensive consequences may occur the internal revenue service lists the expenses that qualify for a tax deduction 1 to claim a tax deduction keep meticulous records and all receipts so that you are ready to fill out the required forms at tax time | |
what is household income | the term household income generally refers to the combined gross income of all members of a household above a specified age household income includes every member of a family who lives under the same roof including spouses and their dependents the incomes of everyone count even if they aren t all used to support the household household income also includes anyone living in that home even if they re not related household income is an important risk measure used by lenders for underwriting loans and is a useful economic indicator of an area s standard of living understanding household incomehousehold income is defined as the total gross income before taxes received within a 12 month period by all members of a household above a specified age the census bureau notes this threshold as 15 and older it includes but is not limited to wages salaries self employment earnings social security benefits pensions retirement income investment income welfare payments and income from other sources the definition of household income and its components varies depending on the context the term may be defined in law or regulation or may be determined by researchers or authors as an amount that includes or excludes specific items of income here are some examples household income provides a picture of the standard of living of various households it is also a good barometer of the local and national economies this figure can also help lenders determine the potential risk of lending to a potential borrower for instance households with a lower income are more likely to default than those with higher earnings special considerationsthe per capita gross domestic product gdp of a country should typically increase along with the median household income in recent years a divergence has been seen between these figures in the united states in turn this has led to discussions about referencing median household income as a better indicator of economic well being than gdp research shows that the average household income has risen since 1970 the largest increases are in households in upper income brackets household income vs family income vs per capita incomehousehold income is one of three commonly cited measures of individual wealth the other two family income and per capita income take different approaches to measure how well people in a given area are doing financially here s how they stack up against one another average household income vs median household incomehousehold income is the total income of all members of a household aged 15 and older whether they are related or not to determine the average household income all household incomes are added up and divided by the total number of households by contrast the median household income is the income level earned by a household in a designated demographic area where half the households earn more and half earn less median income is seen as a more accurate measure of how americans are actually doing financially than average household income that s because the average household income can be skewed by the inclusion of a few multi millionaires or even billionaires which would drag the average much higher than reality the census bureau counts households with no income in its calculation when it determines median household income in the united states however some other income analyses particularly ones focusing on various average income statistics use only positive income amounts | |
when median and average amounts of household income are calculated for all u s households the average figure will always exceed the median because of the impact of the small number of u s households with exceptionally high incomes | example of household incomelet s use a hypothetical example to show how household income works let s say sam earns 120 000 annually from his job as a finance professional his spouse alex earns 80 000 as an analyst together their family income is 200 000 sam s nephew jim also lives with them jim earns 40 000 as a sales rep assuming these figures are their only income their total household income as defined by the census bureau is 240 000 | |
how do you define household income | household income is the total gross income received by all members of a household within a 12 month period this figure comprises the earnings of everyone under the same roof who is age 15 or older whether they re related or not sources include wages salaries retirement income investment income social security benefits and earnings from other income sources | |
what s the difference between average household income and median household income | average household income is the total amount of income earned by all members of a household age 15 or older whether they are related or not the income of all households is then added together and divided by the total number of households to determine the average median income is the income level of a household in a specific demographic area where half the households earn more and half earn less | |
how do you calculate household income | gather all of the gross income of anyone age 15 or older make sure you include any type of income such as wages tips bonuses retirement income and welfare payments social security benefits and others add these together to get the total household income the bottom lineincome is any money that a person earns through work or by selling products and services for most people it refers to individual earnings through work this can come in the form of salary wages tips bonuses and vacation pay this is just one part of household income which the census bureau defines as the gross income of all individuals under the same roof who are over 15 not only does this figure provide a barometer of people s standards of living but it can also be used for other purposes such as assessing risk by lenders you can calculate household income by adding every member s gross income together correction oct 1 2023 this article has been edited from a previous version to clarify that the average household income is the average of everyone divided by a household not the average of all people in one household it has also been edited to reflect that median household income refers to the income of a household at the 50th percentile of a designated demographic area | |
what is the housing and economic recovery act hera | the housing and economic recovery act hera was drafted to address the fallout from the subprime mortgage crisis of 2008 hera allowed the federal housing administration fha to guarantee up to 300 billion in new 30 year fixed rate mortgages for subprime borrowers to participate lenders were required to write down the balances on principal loans up to 90 of their current appraised value 1understanding the housing and economic recovery act hera the housing and economic recovery act hera was ultimately intended to renew public faith in government sponsored enterprises gses that provided home loans namely fannie mae and freddie mac it allowed states to refinance subprime loans with mortgage revenue bonds and created the federal housing finance agency fhfa as a new agency the fhfa used its newfound authority to put fannie mae and freddie mac under conservatorship in 2008 1hera also included a number of subtitle acts under the main act including the the goals of the fannie mae freddie mac conservatorship include preventing the enterprises from needing another taxpayer bailout ensuring mortgage credit availability for affordable housing and keeping the secondary mortgage market strong this subtitle act in hera offered a refundable tax credit for qualified first time homebuyers related to purchases on or after april 9 2008 and before july 1 2009 equal to 10 of the purchase price of a principal residence up to 7 500 it also eliminated the credit for taxpayers with incomes over 75 000 150 000 for joint returns 1for those receiving the tax credit repayment was expected over 15 years via equal installments through a surcharge on the taxpayers annual income taxes it also provided emergency assistance for the redevelopment of abandoned and foreclosed homes 1this subtitle act increased the fha loan limit from 95 to 115 of area median home price up to 150 of the gse conforming loan limit it also mandated a 3 5 down payment for all fha loans and placed a 12 month moratorium on the u s department of housing and urban development s hud s implementation of risk based premiums 2it also prohibited seller funded down payments while authorizing the fha to insure up to 300 billion of 30 year fixed rate refinance loans up to 90 of appraised value for distressed borrowers mortgage commitments made on or before jan 1 2008 were covered under the act 1in addition the act required existing mortgage holders to accept the proceeds of the insured loan as payment in full for all preexisting indebtedness lender participation in this program was voluntary 1fha loans may require a higher down payment of 10 for borrowers with credit scores below 580 this part of the act required all states to implement a mortgage loan originator mlo licensing and registration system by aug 1 2009 or aug 1 2010 for legislatures that meet biennially states were allowed to operate their own systems subject to stringent federal standards or could participate in the nationwide multistate licensing system and registry nmls 1mortgage lending discrimination is illegal if you think that you ve been discriminated against based on race religion sex marital status use of public assistance national origin disability or age there are steps that you can take one such step is to file a report with the consumer financial protection bureau cfpb or hud | |
what did the housing and economic recovery act hera do | the housing and recovery act hera addressed some of the most important shortcomings of the mortgage lending industry following the 2008 financial crisis and housing collapse the purpose of hera is to prevent the circumstances that could result in a repeat of the crisis including predatory lending who created hera hera was passed by congress as part of a joint effort to support recovery in the mortgage industry and restore confidence in both fannie mae and freddie mac hera was signed into law by then president george w bush 3 | |
what agencies does the federal housing finance agency fhfa regulate | the federal housing finance agency fhfa was established by hera as an executive regulatory agency the fhfa is responsible for supervising and regulating a number of entities including fannie mae and freddie mac as well as the federal home loan bank system | |
what is title v of hera | title v of hera mandates nationwide standards for licensing and registration of mortgage loan originators this provision is designed to ensure that homebuyers are dealing with credible originators and lenders when seeking mortgage loans the bottom linehera was and is designed to promote a stable housing market for borrowers lenders and investors if you own a home or plan to buy one then hera affects you whether you realize it or not being protected against predatory lending and unfair practices means that americans can buy a home with confidence without fearing a repeat of the 2008 housing crisis | |
what are housing authority bonds | housing authority bonds or housing bonds are issued by a state or local government agency to help finance the construction or rehabilitation of affordable rental housing under certain programs the proceeds from such bonds also may be used to help low income people purchase homes the interest earned by investors on housing authority bonds is exempt from federal taxes and may also be exempt from state and local income taxes 1like most municipal bonds housing authority bonds have historically been viewed as very safe investments in this case the bonds are backed by the federal government which views them as a means of encouraging the construction of housing for low income people understanding housing authority bondsa municipal authority may issue debt in the form of bonds to raise capital to finance projects the two types of municipal bonds are general obligation bonds and revenue bonds the interest payment and principal repayment of a general obligation go bond are funded from the state or local government s financial coffers 2these bonds are backed by the full faith and credit of the municipal government which may have the authority to increase taxes in order to fulfill its payment obligations on the go bond on the other hand payment obligations on a revenue bond are backed by the projected revenue stream of the project for which the bond was issued 3 one form of a revenue bond is the housing bond state and local governments issue housing bonds to finance the construction or rehabilitation of affordable rental housing in addition to repaying the bond principal the state or locality must pay interest on the money it borrows as private activity bonds pabs housing bonds can be issued on behalf of qualified profit and non profit developers to finance low income multifamily and senior housing projects also the proceeds from housing bonds may also be issued to provide low cost mortgage financing to low income families or individuals so they can purchase a home mortgages provided through housing bonds are restricted to first time homebuyers who earn no more than the area median income furthermore the price of a home purchased with a housing bond mortgage is limited to 90 of the average area purchase price 4special considerationshousing bonds typically have low interest rates and can be issued as either a fixed or variable rate demand obligation vrdo the principal and interest payments to bondholders are made from pledged mortgage repayments and investment earnings the repayments made on mortgages by borrowers are collected by the trustee of the housing bond who invests the funds in short term investments until the scheduled time to pay interest to bondholders in effect payment on housing bonds is backed by the timely and consistent interest payment and principal repayment of the underlying mortgages by borrowers housing bonds are beneficial to the state as well as to private investors on the one hand the government gains access to a large amount of cheap financing on the other the tax advantages offered by housing bonds are highly attractive to those in the upper tax brackets for investors the interest paid by housing bonds is exempt from federal and sometimes state income tax the higher the marginal tax rate the more valuable a housing revenue bond s tax exemption is although investors subject to the alternative minimum tax amt may be subject to taxes the exemption means that investors in high federal tax brackets benefit from revenue bonds and other municipal bonds this tax exemption helps to compensate for the bonds low interest rate federal low income housing tax credits are another source of capital that may be used instead of or in addition to housing bonds in order to finance affordable housing projects the credits are non refundable federal income tax credits for part of the mortgage interest that qualified home buyers pay each year because they entail government debt the sale of housing authority bonds sometimes requires the approval of local voters in 2018 for example california voters approved a ballot measure to sell 4 billion in housing authority bonds to finance programs for low income residents veterans and farm workers 5 | |
what are housing bonds | housing bonds are debt securities a variation of municipal revenue bonds issued by state or local governments to raise money for affordable housing development projects understanding housing bondsstate and local governments issue housing bonds to finance the construction or rehabilitation of affordable housing in addition to repaying the bond principal the state or locality must pay interest on the money it borrows housing bonds sometimes require voter approval and can either be short or long term issuances a municipal authority may issue debt in the form of bonds to raise capital to finance projects the two types of municipal bonds are general obligation go bonds and revenue bonds the interest payment and principal repayment of general obligation bonds are funded from the state or local government s financial coffers these bonds are backed by the full faith and credit of the municipal government which may have the authority to increase taxes in order to fulfill its payment obligations on the go bond meanwhile payment obligations on a revenue bond are backed by the projected revenue stream of the project for which the bond was issued a housing bond is one type of a revenue bond as private activity bonds pabs housing bonds can be issued on behalf of qualified profit and nonprofit developers to finance low income multifamily and senior housing projects also the proceeds from housing bonds may also be issued to provide low cost mortgage financing to low income families or individuals so they can purchase a home the number of affordable homes financed with housing bonds using the housing credit 3requirements for housing bondsmortgages provided through housing bonds are restricted to first time homebuyers who earn no more than the area median income furthermore the price of a home purchased with a housing bond mortgage is limited to 90 of the average area purchase price 2housing bonds typically have low interest rates and can be issued as either a fixed or variable rate demand obligation vrdo the principal and interest payments to bondholders are made from pledged mortgage repayments and investment earnings the repayments made on mortgages by borrowers are collected by the trustee of the housing bond who invests the funds in short term investments until the scheduled time to pay interest to bondholders in effect payment on housing bonds is backed by the timely and consistent interest payment and principal repayment of the underlying mortgages by borrowers benefits of housing bondshousing bonds are beneficial to the state as well as to private investors on the one hand the government gains access to a large amount of cheap financing on the other the tax advantages offered by housing bonds are highly attractive to lenders in the upper tax brackets for investors the interest paid by housing bonds is exempt from federal and at times state income tax 1 the higher the marginal tax rate the more valuable a housing revenue bond s tax exemption although investors subject to the alternative minimum tax amt may be subject to taxes the exemption means that investors in high federal tax brackets benefit from revenue bonds and other municipal bonds this tax exemption helps to compensate for the bonds low interest rate federal low income housing tax credits are another source of capital that may be used instead of or in addition to housing bonds in order to finance affordable housing projects the credits are nonrefundable federal income tax credits for part of the mortgage interest that qualified home buyers pay each year | |
what is a housing bubble | a housing or real estate bubble is a run up in housing prices fueled by demand speculation and exuberant spending housing bubbles usually start with increased demand in the face of limited supply speculators further drive up demand by investing money into the market when demand decreases or stagnates as supply increases prices drop and the bubble bursts | |
what causes a housing bubble | a housing bubble may be driven by something outside the norm such as manipulated demand speculation unusually high levels of investment excess liquidity a deregulated real estate financing market or extreme forms of mortgage based derivative products these factors can cause home prices to become unsustainable leading to an increase in demand versus supply housing markets aren t as prone to bubbles as other financial markets due to the large transaction and carrying costs associated with owning a house however a rapid increase in the supply of credit leading to a combination of low interest rates and a loosening of underwriting standards can bring borrowers into the market a rise in interest rates and a tightening of credit standards can lessen demand causing the housing bubble to burst effects of a housing bubblehousing bubbles affect communities and the overall economy they can force homeowners to look for ways to pay off mortgages through various programs or they may have them digging into retirement accounts to afford to continue living in their homes a housing bubble can significantly cut into the equity in a home and homeowners often find that their mortgage balance is more than the value homeowners may force foreclosure once the value of the home plummets and the mortgage exceeds the equity foreclosure occurs when a lender attempts to recover the amount owed on a defaulted loan by taking ownership of the mortgaged property and selling it typically default is triggered when a borrower misses monthly payments or fails to meet other terms in the mortgage document negative equity occurs when homeowners owe more on their mortgages than their homes are worth these mortgages are considered underwater or upside down affecting an individual s net worth and preventing homeowners from relocating until the market improves 1housing bubble examplea u s housing bubble occurred following the financial crisis of 2007 2008 following the dot com bubble bursting in the 1990s investors moved their money from start up technology company stocks into real estate the u s federal reserve cut interest rates to combat the mild recession that followed the technology bust and to assuage uncertainty following the world trade center attack of sept 11 2001 2government policies encouraged homeownership and financial market innovations increased the liquidity of real estate related assets home prices rose as interest rates plummeted it s estimated that 20 of mortgages in 2005 and 2006 went to buyers known as subprime borrowers who would not have been able to qualify under normal lending requirements 3 over 75 of these subprime loans were adjustable rate mortgages with low initial rates and scheduled resets after two to three years 4the government s encouragement of broad homeownership induced banks to lower their rates and lending requirements 5 this spurred a home buying frenzy that drove the median sales price of homes up by 55 from 2000 to 2007 6 adjustable rate mortgages began resetting at higher rates in 2007 as signs that the economy was slowing housing prices declined 19 from 2007 to 2009 triggering a massive sell off in mortgage backed securities 6in 2023 the number of foreclosure filings in the united states was 357 062 in 2009 and 2010 during the housing bubble foreclosures totaled over 2 8 million for each year 7 | |
what is a speculator in real estate | a speculator buys properties because they have reason to believe that the market or some factor in the economy will increase in value sometimes in a short period the goal is to flip the property and sell it as soon as this occurs reaping a profit unlike a speculator an investor anticipates more of a long term profit due to factors other than or in addition to market volatility 8 | |
what is an adjustable rate mortgage | the interest rate on an adjustable rate mortgage arm can go up and down over time affecting a homebuyer s mortgage payment and causing it to increase or decrease periodically most arms have rate caps and other controls to prevent frequent dramatic and painful swings the advantage of this type of mortgage is that the interest rate is typically less than that of a fixed rate mortgage in the early years of the loan 9 | |
what is the foreclosure process | foreclosure rules can vary from state to state but it s typically initiated because the homeowner has stopped making mortgage payments the mortgage contract gives the lender a secured interest in the property this provides the lender with a legal right to seize the property after giving proper notice to the homeowner and allowing them to cure the default the lender will then sell the property to recoup some if not all of the money it loaned so the homeowner could initially buy the property 10the bottom linea housing bubble can significantly affect a home s value and the equity in real estate as prices climb investors may flood the market and home buyers may secure risky loans when the bubble bursts prices plummet and some borrowers may face financial stress or foreclosure | |
what is a housing expense ratio | a housing expense ratio is the percentage of your pre tax income that goes toward your housing expenses lenders often use the housing expense ratio also called a front end ratio when they decide whether to approve you for a mortgage you get this number by dividing your housing expenses by your income and multiplying by 100 learn how to calculate your housing expense ratio including what expenses to include and more about how mortgage lenders use this in their approval process | |
how a housing expense ratio works | the housing expense ratio also called a front end ratio is the metric that mortgage lenders use to evaluate whether you can afford a mortgage you get this number by dividing the amount of money you re paying toward monthly housing expenses by your monthly gross income and multiplying by 100 1housing expenses can include your mortgage payment as well as the costs of mortgage insurance and property taxes this ratio is typically along with other ratios like your debt to income when a lender determines what size loan you qualify for income ratios are an essential component of the underwriting process and can keep you from receiving credit approval even with a good credit score if you are considering a mortgage or other kind of loan figuring out your housing expense ratio can be a useful to help you understand how much money you can afford to borrow housing expense ratio vs debt to income ratiothe housing expense ratio is also referred to as the front end ratio because it is a primary component of your total debt to income ratio the housing expense ratio may be considered first in the underwriting process for a mortgage loan 2the housing expense ratio requires that you provide your pre tax income or gross income which is an essential factor for both the housing expense ratio and the broader debt to income ratio | |
when calculating the housing expense ratio an underwriter will total all housing expense obligations of a borrower including the potential mortgage principal and interest payments property taxes hazard insurance mortgage insurance and association fees | the sum of the housing expenses is then divided by your pre tax income to arrive at the housing expense ratio the housing expense ratio can be calculated using monthly payments or annual payments the housing expense ratio threshold for mortgage loan approvals is typically 28 although it varies by lender 3debt to income is also another critical component of loan approval when you are considered for a mortgage loan a credit issuer will get the average amount of money you pay to creditors every month through your credit report then the total about of debt you payments you make is divided by your monthly income generally you must have a debt to income ratio of 36 or less for loan approval but it may be as high as 45 if you have good credit 4mortgage underwriters will consider the potential stress that a mortgage payment will add to your finances and overall debt | |
when determining the maximum amount of mortgage credit available to a borrower an underwriting analysis includes hypothetical scenarios of monthly mortgage payments and the potential effects on both the housing expense ratio and the debt to income ratio | lending standardsa housing expense ratio higher than the standard 28 may be acceptable to lenders if your other financial factors such as a low loan to value ratio and or an excellent credit history are strong if you apply jointly with a co borrower you can lower a housing expense ratio a variable rate loan that starts with smaller monthly payments may help you get approved for a loan by lowering your initial housing expense ratio borrowers thinking of a potential home loan purchase may want to use the 28 and 36 levels when planning their monthly budgets keeping monthly housing expenses at 28 of a borrower s income can help to create an estimate for how much a borrower can afford to pay monthly on a mortgage generally keeping total debt to income below 36 can also make it easier for you to get other credit or loans including a mortgage 5 | |
what is the 28 36 rule for housing expenses | the 28 36 rule for housing expenses essentially states that you should spend no more than 28 of your gross monthly income on housing payments like rent or mortgage payments and no more than 36 of your gross income on total debt total debt would include payments such as those toward credit cards or personal loans | |
what is household expenses ratio | a household expenses ratio used for budgeting is different from a housing expense ratio which is focused on the cost of housing compared to your income and is used by lenders in contrast a household expense ratio includes daily living costs like groceries utilities and other necessary expenses ideally your household expense ratio should be lower than 50 | |
what is the maximum housing ratio | lenders will vary in their requirements for your maximum housing expenses ratio but they generally want that ratio to be under 28 or 25 even if a lender approves you for a particular amount that does not mean you can actually afford it carefully consider how a mortgage payment will fit into your budget 3the bottom linethe housing expense ratio is an important metric to understand for your finances especially if you are applying for a mortgage lenders rely on this metric to help them determine if you re likely to meet your financial obligations the lower your housing expense ratio the less of a risk you will be to mortgage lenders | |
what is the nahb wells fargo housing market index hmi | the nahb wells fargo housing market index hmi is a monthly sentiment survey of members of the national association of home builders nahb the index measures sentiment among builders of u s single family homes and is a widely watched gauge of the u s housing sector since housing represents is a large capital investment and spurs additional consumer spending on appliances and furnishings housing market indices help to monitor the overall health of the economy understanding the nahb wells fargo housing market index hmi the national association of home builders is a federation of more than 700 state and local associations with 140 000 members about one third are home builders and remodelers and the rest professionals from related fields such as mortgage finance and building materials supply nahb builders account for some 80 of the new homes built in the u s 1since 1985 the hmi has been based on a monthly survey completed by nahb builders which was generating some 400 responses as of 2007 2 in completing the survey builders rate housing market conditions and outlook based on their recent experience the hmi is a weighted average of three diffusion indexes designed to range from 0 to 100 hmi readings above 50 reflect a generally favorable market view and outlook in the industry hmi fell to a record low of 8 in january 2009 and set a record high of 90 in november 2020 3mortgage lending discrimination is illegal if you think you ve been discriminated against based on race religion sex marital status use of public assistance national origin disability or age there are steps you can take one such step is to file a report to the consumer financial protection bureau or with the u s department of housing and urban development hud the hmi is a weighted average of three component indices current single family sales the outlook for sales over the next six months and traffic of prospective buyers each month participating builders rate current sales and the six month outlook as good fair or poor and the buyer traffic as high to very high average or low to very low a diffusion index is calculated for each series by applying the formula good poor 100 2 to the present and future sales series and high very high low very low 100 2 to the prospective buyer traffic responses each resulting index is then seasonally adjusted and weighted to generate the hmi the weights are 5920 for present sales 1358 for future sales and 2722 for traffic the weights were chosen based on historical data to maximize the correlation between the hmi and housing starts over the next six months 4the housing market index as an economic indicatorthe hmi displays a close correlation with u s single family housing starts which measure the number of privately owned homes on which construction started in a given month housing starts are a key economic indicator and the report is supplied monthly by the u s census bureau as a gauge of home builder sentiment the hmi provides valuable clues on the near term direction of housing starts the hmi is released at 10 a m est typically on the 11th business day of the month which is the day before the housing starts data are released by the census bureau the hmi has historically closely tracked housing starts and building permits its complete recovery from the depths of the 2008 2009 global financial crisis has outpaced the rebound in housing starts however 5 | |
what are housing starts | the term housing starts refers to the start of construction on a new residential housing unit because new housing is a big ticket capital good that spurs additional consumer spending on appliances and furniture it is a key economic indicator closely watched by financial markets participants the u s census bureau publishes estimates of u s housing starts on the 12th business day of each month based on a survey of homebuilders partially funded by the u s department of housing and urban development 1 the new residential construction report also includes housing completions data as well as a count of building permits derived from a separate survey of building permit offices understanding housing startshousing is a key sector of the u s economy and a crucial one for the banking construction and real estate industries the health of the housing sector is also an important factor in employment as well as the price of commodities including lumber and copper housing starts measure builders willingness to expend resources on new projects which in turn depends on their estimates of housing demand so the trend in starts can also offer insights into risk appetite and consumer sentiment because housing starts in parts of the u s are subject to big seasonal variations the headline number in the monthly report is a seasonally adjusted annual rate which adjusts the monthly total based on that seasonal factor and then calculates the annual starts rate at that pace short term weather disruptions such as storms or cold snaps can also have an effect on this volatile data series the census bureau notes month to month changes in seasonally adjusted data can be irregular and estimates it takes six months to establish the underlying rate for housing starts 2the report breaks out the national housing starts data by four u s regions northeast midwest south and west | |
what counts as a housing start | a housing start denotes groundbreaking or excavation for a home s foundation or footing the monthly data is divided into three housing categories data for single family homes and multi family housing with five or more units is provided on a seasonally adjusted as well as unadjusted basis while that for multi family housing with two to four units is provided only on an unadjusted basis every unit in multi family housing counts as a separate start so the start of construction for an apartment building with 25 units would register as 25 new multi family housing starts the new residential construction report measures starts for privately owned housing including units started by private developers for sale to local public housing authorities upon completion housing unit statistics exclude group quarters such as dormitories and rooming houses 3each unit in an apartment building counts as a separate housing start | |
how the housing starts data is gathered | the census bureau estimates housing starts from a representative sample of building permits issued by a sample of local permitting offices then tracks those projects through completion and sale 4the survey counts all housing starts with five or more units but samples only about 2 of nationwide starts for housing with one to four units 5to account for sampling error among others the monthly report provides error margins representing 90 confidence intervals for month to month and year over year changes for example the initially reported 1 7 decline in single family housing starts in march 2022 from the prior month had 90 confidence interval or error margin of plus or minus 12 3 while the 4 4 decline for the same category from a year earlier had an error margin of 8 3 6the bottom linehousing is a key sector of the u s economy and the monthly housing starts report is a closely watched measure of its health the month to month numbers are volatile and subject to large error margins so it takes months of data to establish the underlying trend mortgage lending discrimination is illegal if you think you ve been discriminated against based on race religion sex marital status use of public assistance national origin disability or age there are steps you can take one such step is to file a report to the consumer financial protection bureau or with the u s department of housing and urban development hud | |
what is a housing unit | a housing unit is a single unit within a larger structure that can be used by an individual or household to eat sleep and live the unit can be in any type of residence such as a house apartment or mobile home and may also be a single unit in a group of rooms essentially a housing unit is deemed to be a separate living quarter where the occupants live and eat separately from other residents of the structure or building they also have direct access from the building s exterior or through a common hallway understanding housing unitshousing units are residential units found in different types of structures including residential homes apartments and condominium buildings they may also be multiple rooms in a large structure such as a hotel or motel these units allow an individual or family to live eat and sleep separately from others which is also why they re referred to as separate living quarters residential construction both permitted and non permitted is the largest component of change in housing units more than 99 of all new housing units are built in places that issue building permits according to the u s census bureau 1the following living quarters are generally not considered housing units and are not included in census bureau data recording housing unitseach year the u s census bureau provides housing unit estimates for all counties and states these estimates are used as controls for the tracking of population growth or loss for cities and towns estimates start with the most recent census data then add in the estimated amount of new residential construction and mobile homes next the estimated housing units lost is subtracted and results in the annual estimate figure there were 143 8 million housing units in the u s in 2022 according to the u s census bureau 2there are three types of situations that determine the loss of a housing unit the loss rate of homes in certain states is accelerating due to natural disasters for example california s butte county the site of the camp fire wildfire in 2018 saw a 13 9 decline in housing units from 100 074 to 86 209 between 2018 and 2019 3examples of housing unitsas noted above there are many different types of housing units for instance single families can be converted into multiple units as illustrated by the following example a homeowner may decide to renovate their basement to accommodate a secondary suite once complete the owner may rent out the unit to another individual or family or offer the unit to members of their family this dwelling becomes a separate housing unit similarly a developer may seek permits to construct an apartment complex on an empty piece of land the apartments that are constructed are counted as separate housing units | |
what is the howey test | the howey test is four criteria an asset must meet to qualify as an investment contract if the asset is an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others it is considered a security it is then subject to disclosure and registration requirements under the securities act of 1933 and the securities exchange act of 1934 1the test applies to any contract scheme or transaction the howey test is important for evaluating blockchain and digital currency projects when developers are fundraising certain cryptocurrencies and initial coin offerings icos may be found to meet the definition of an investment contract under the test understanding the howey testthe howey test is based on a ruling from sec v w j howey co which reached the supreme court in 1946 howey company sold tracts of citrus groves to buyers in florida who would then lease back the land to howey company staff would tend to the groves and sell the fruit on behalf of the owners both parties shared in the revenue most buyers had no experience in agriculture and were not required to tend to the land themselves howey had failed to register the transactions and the u s securities and exchange commission sec intervened the court s final ruling determined the leaseback arrangements qualified as investment contracts 2the opinion of the supreme court stated that an investment contract for the purposes of the securities act means a contract transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third part 3 this statement created the four criteria now used as the howey test in the case of howey the buyers of the florida citrus groves saw the transactions as valuable primarily because the labor and expertise were provided by others buyers only needed to invest capital to access an income stream howey test and cryptocurrenciesdigital currencies such as bitcoin are notoriously difficult to categorize they are decentralized and as such elude regulation in many ways nonetheless the sec has taken an interest in digital assets and has sought to clarify when their sale meets the definition of an investment contract 4according to the sec the investment of money test is easily satisfied with the sale of digital assets because fiat money or other digital assets are exchanged with the expectation of profits or gains likewise the common enterprise test is also easily met 1 the commission has repeatedly used the test to pursue legal action against cryptocurrency developers examples of howey test on cryptocurrenciesin july 2023 the southern district of new york court released a summary judgment regarding the case sec v ripple a blockchain developer with a popular cryptocurrency xrp 5 the sec had filed an action against ripple in 2020 for an unlawful offer and sale of securities while ripple denied the accusations both parties petitioned for summary judgments regarding sales to institutional and retail investors 6the court ruled that ripple and its coin xrp did not pass the howey test when the cryptocurrency was sold in a secondary sale such as through an exchange at the same time it found that the sale did pass the howey test when xrp was offered to or purchased by institutional investors 7the court ruling remains controversial because the crypto industry declared victory while the sec continued its efforts to regulate cryptocurrency using the howey test on july 13 2023 the sec filed a complaint against celsius network limited for issuing unregistered securities and selling crypto asset securities it then filed a complaint against digital world exchange boostedpro and d w exchange on july 21 2023 for promoting offering and selling exchange tokens and crypto asset securities it is possible the entities committed these acts but the sec clearly hasn t backed down from applying the test to cryptocurrencies 8910 | |
how do you determine if something is a security | the u s supreme court uses the howey test to determine whether certain transactions qualify as investment contracts if transactions qualify as investment contracts under the securities act of 1933 and the securities exchange act of 1934 those transactions are considered securities 1 | |
why is bitcoin not a security | in june 2018 the former chair of the sec jay clayton clarified that bitcoin is not a security cryptocurrencies these are replacements for sovereign currencies replace the dollar the euro the yen with bitcoin that type of currency is not a security said clayton bitcoin which has never sought public funds to develop its technology does not pass the howey test used by the sec to classify securities however by clayton s definition tokens used in an ico are securities 11 | |
how does the sec define a security | securities are fungible and tradable financial instruments used to raise capital in public and private markets the public sales of securities are regulated by the sec the definition of a security offering was established by the supreme court in a 1946 case called sec v w j howey co 12the bottom linethe howey test sets out the criteria for what counts as an investment contract which then determines the laws and regulations that the contract needs to abide by as set out by the sec as cryptocurrencies have been an important asset in the last few years regulators have sought ways to regulate them often utilizing the howey test to make determinations | |
what is an hsa custodian | an hsa custodian is any bank credit union insurance company brokerage or other internal revenue service irs approved financial institution that offers health savings accounts hsas financial institutions that manage hsas are also called hsa administrators an hsa custodian or administrator holds hsa assets in a secure hsa account in some instances the account holder may direct how to invest the funds and may withdraw them for qualified medical expenses opening an hsa accountyou can open an hsa through your employer in this case you might be automatically enrolled with a particular hsa custodian with the option to switch however before doing so you should ask your hr department how it would affect payroll withdrawals to fund your hsa account if you open an hsa on your own you can choose the custodian your choice of hsa custodian is important because the interest you earn the fees you pay and the investment options available can have a significant impact on your hsa balance over time as with any financial account you want to minimize your fees and maximize your returns you also want to make sure your cash balances will be federal deposit insurance corporation fdic insured and your investments if any will be securities investor protection corporation sipc insured an hsa differs from a flexible spending account fsa which is an employer sponsored account that allows employees to set aside pretax dollars to pay for eligible healthcare expenses 2an hsa can t be rolled over into a 401 k or an individual retirement account 3a closer look at hsa custodianshealth savings accounts were created by the medicare prescription drug improvement and modernization act of 2003 to offer individuals with high deductible health plans hdhp tax preferred treatment of the money they save for medical expenses 1an hsa custodian makes it possible for individuals to contribute to an hsa and withdraw funds as needed to pay medical bills similar to a savings account custodians pay interest on cash balances held in the hsa account some financial institutions let account holders invest in stocks bonds and funds for potentially higher rates of return on the money they don t need to pay for medical expenses in the short term if you re investing in an hsa on your own make sure you know what fees are involved what investments you can make and how much work you ll need to do to make changes to your account the cost of hsa custodianshsa custodians charge fees for their services fee types and amounts vary by the custodian institution some basic ongoing fees you might see include an annual administrative flat fee and a quarterly custodial fee calculated as a percentage of your account balance there are also fees you can incur if you make mistakes such as an excess contribution correction fee if your deposit exceeds the irs annual limits for hsa accounts a person with single coverage can contribute as much as 3 650 in 2022 3 850 in 2023 while the limit for family coverage is 7 300 7 750 in 2023 45 however a person who is 55 or older is eligible to contribute an extra 1 000 3there may also be fees to issue additional debit cards to family members or to replace lost or stolen debit cards hsa custodians also charge many of the same fees that checking accounts charge such as insufficient funds fees account closure fees and stop payment fees hypothetical example of hsa account benefitsindividuals may use their hsas to lower their monthly premiums let s say someone currently has a low 2 000 deductible for their family coverage in this case the monthly premiums may be a relatively costly 800 per month however if that monthly deductible spikes to 5 000 then the monthly premium may shrink to as low as 500 saving 300 per month essentially allowing them to pocket an extra 3 650 per year | |
what is a hub and spoke structure | hub and spoke structures are used by investment companies to pool assets cut costs and improve efficiency several investment vehicles each remaining individually managed combine their assets and contributing to one central vehicle this can also be called a master feeder structure all of the funds in the system typically have the same investment objective and portfolio manager or master fund that serves as the hub the smaller investment vehicles or feeder funds are referred to as the spokes understanding a hub and spoke structurea hub and spoke provides benefits to managers of investment funds by offering numerous efficiencies from their pooled structure with a hub and spoke structure capital is channeled to the master fund where all transactions are made helping to reduce transaction costs 12hub and spoke structures can also accommodate a full range of feeder funds providing greater incentive for business development a fund can be marketed in different ways and to different investors using a multitude of spokes 2 each spoke can charge different fees and therefore appeal to a wider array of investors all the while operating as one investment portfolio these funds are able to keep fund operating costs relatively low in comparison to their competitors due to the hub and spoke structure 1in addition hub and spoke structures commonly include both u s and offshore funds creating the ability to market the fund globally these structures are set up as partnerships to service global investors as a partnership they can work cooperatively while still allowing for individual feeder fund registration in the u s and abroad 2accounting and financial reporting can be complicated in a hub and spoke fund structure with this type of fund all transactions fees and expenses are accounted for and paid from the master fund despite the complicated accounting for inflows and outflows to and from the master fund its partnership structure allows each feeder fund to be managed individually with its own rules and registrations 3this is particularly beneficial in the case of taxes offshore funds often require different taxes on dividends and capital gains in a hub and spoke structure u s investors in an onshore fund would be unaffected by any obligations of the offshore fund and vice versa 4 the hub and spoke structure keeps all fund reporting fees and expenses segregated while still allowing for the greater benefit of economies of scale 5example of a hub and spoke fundseveral hub and spoke funds exist in the market blackrock is one fund manager broadly employing this fund structure in a variety of hub and spoke setups 6for example they run the master treasury strategies institutional portfolio which is the hub consisting of two spokes the blackrock select treasury strategies institutional fund and the blackrock treasury strategies institutional fund 7 each of the feeder funds engages in a different investment strategy with a different portfolio manager | |
what is the hubbert curve | the hubbert curve is a method for predicting the likely production rate of any finite resource over time when plotted on a chart the result resembles a symmetrical bell shaped curve the theory was developed in the 1950s to describe the production cycle of fossil fuels however it is now considered to be an accurate model for the production cycle of any finite resource | |
how the hubbert curve works | the hubbert curve was proposed by marion king hubbert in 1956 in a presentation to the american petroleum institute entitled nuclear energy and the fossil fuels as its name suggests hubbert s presentation was initially focused on the production of fossil fuels 1 however the hubbert curve has since become a popular and widely accepted method for projecting the production rates of natural resources more generally of special importance to investors is the hubbert curve s prediction about when the peak of resource production is likely to occur when investing in a new project such as an oil well substantial upfront costs must be invested before the project begins generating a saleable product in the case of oil wells this includes drilling the well putting in place key equipment and covering personnel costs before the oil begins to flow once the key infrastructure is in place production volumes will gradually accumulate before eventually beginning to decline once the oil in the well has been largely exhausted by combining factors such as the natural reserves of the well the probability of discovering oil in a given region and the speed at which oil can be extracted from the ground hubbert s model was able to predict when a well would reach its level of maximum production in visual terms this occurs in the middle of the curve just before the depletion of the well causes production rates to decline real world example of the hubbert curvehubbert s model works remarkably well both for individual projects and for entire regions for instance the hubbert curve can be used to describe the entirety of global oil output as well as the regional production of areas such as saudi arabia or texas the general appearance and predictions of the model are strikingly similar and accurate in both cases of course in the real world production rates will not appear as a perfectly symmetrical curve nevertheless the hubbert curve is widely used as a close approximation of actual production rates once such notable application is the so called hubbert peak theory which has been used to predict peak oil production around the world according to some industry analysts the hubbert peak for oil production in the united states was reached in the 1970s although there is little consensus on when the peak for global oil production will be reached one reason for this disagreement is that new technologies for extracting oil may have pushed the date for any forced decline in production further into the future |
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