The Weekly Commentary - 06/28/2021

Retail Investors Increase as More People Look to Increase Their Personal Finance

At the beginning of 2021, retail investors managed to significantly inflate the price of several stocks – GameStop and Blackberry being the most notable two. While the extent of the price inflation may well be an anomaly, a longer-term theme has started to emerge. Retail investors are a force to be reckoned with and that more and more retail investors will increase their equity holdings to increase their personal wealth.

Given the recent year that the majority of Americans have had, with an impact felt on many people’s incomes from pandemic restrictions, increasing wealth is of the utmost importance. But, on the flip side, many Americans have more to spend at the moment after a year of not going out to socialize or going on holiday. Instead, many have surplus savings in the bank, not earning a great deal of interest.

Many are therefore looking to the stock market as a place to put cash. A huge motivating factor being that credit yields and money market instruments may not match rising inflation. Equities offer a little more in terms of inflation protection and can provide a real opportunity for capital growth. The result is that volatility will be greater if retail investors continue to enter the market seeking recession-proof investments post the Covid crisis.

IRS to Send Out Surprise Tax Refunds

It is not often that mail from IRS is a sight for sore eyes. However, this week many Americans were sent tax refunds from the tax agency. In fact, almost 3 million taxpayers will have received a check reimbursing them for overpaying their taxes.

The refunds have been a product of the pandemic relief bill that Joe Biden signed off at the beginning of 2021. Some of the population have actually already received a refund, with more being sent out this week. Many will be receiving a refund because those on unemployment compensation could claim up to $10,200 in benefits without paying income tax on it. If a couple claimed the unemployment compensation, they could file a joint tax return where $20,400 would have been excluded from income tax.

In short, if a person claimed unemployment benefits last year and filed their tax return ahead of Biden signing off his relief package, it could well be that they overpaid their tax. As a result, the IRS is now on track to send out another set of refunds this June, with others to be paid out over the Summer. Whether those refunds make their way back into the monetary system or people stash them away in a top online savings account remains to be seen.

Housing Market Slows

Last week, we reported that the mortgage rates increased slightly across the board. In the housing market this week, it seems that higher costs – both in terms of mortgages and house prices – have hit the market as a whole too. The first half of the year enjoyed a considerable increase in sales, which now looks like it is slowing.

One of the main problems is that supply remains a huge issue. While many middle-income earners and first-time buyers enjoyed their savings balances going up in the pandemic – thus increasing any down payments – the number of houses being built has not kept up with demand. The pandemic slowed housing production by shutting building sites and the raw materials needed were lacking in supply. So while many people could buy a home when restrictions initially eased, potential movers are now grappling with an increase in house prices that the perfect storm of lack of supply and large demand has created.

The Summer is historically the busiest time for realtors and is usually a time when house sales peak. However, this year, like 2020, looks set to be very different and unpredictable. The market slowing after a hectic time means there seems to be a correction or moderation in place. It will be interesting to see when the market goes back to any type of normality.

Biden Administration Plans to Make it Easier for Student Loan Borrowers to get a Mortgage

Student loans were recently in the headlines as many wanted student loan debt to be forgiven. While changes are still being called for in that way, those with student loans will at least welcome the idea that getting a mortgage should become more manageable in the future.

The current administration is easing federal mortgage lending rules for those with student loan debt. The idea is to improve their chances of being approved for a mortgage and put themselves on the housing ladder – no doubt a dream of many college students when they were studying.

Up until now, student loan borrowers have arguably been at a detriment to those without debt. Perhaps understandably so given the size that student debts can be. However, student loan repayments are often low. Yet, due to how such loans are structured and reported, mortgage lenders often look at student loan debt like any other. They, therefore, calculate the repayments on the outstanding balance – meaning they incorrectly assume that many mortgage applicants are paying off student loans each month in the realms of four figures.

The hope is that a more fair and equal housing market should be accessible to those with student loans but who do not earn high salaries. Therefore, those with middle incomes can buy a home earlier in their lives rather than be disadvantaged due to the burden of an otherwise affordable debt.