From Interest Rates to 401(k)s to Homestays, It's All Shades of Gray
"Neither a borrower nor a lender be," counseled Laertes' tedious father, Polonius, in Hamlet, but that was a few centuries ago. These days, it's virtually impossible to live in the world without borrowing, lending -- as a bank depositor or bond-holder, for example -- or in other ways being affected by the macro-flows of money. And of late, the tides in interest rates have plunged, with the 10-year Treasury now yielding just 2.48%, and mortgage rates sharply lower too.
Now, you might view those trends as unequivocal wins for the average American, given how much most of us owe, but as Robert Brokamp and Alison Southwick discuss in the "What's Up, Bro?" segment from this Motley Fool Answers episode, the current interest rate situation could be a harbinger of trouble on the horizon. In other seemingly upbeat news, the House of Representatives is promoting a bipartisan plan to improve Americans' retirement savings. (But it's Congress we're talking about here, so of course there are caveats.) And AirBnB is now so popular that it accounts for one-fifth of the U.S. consumer lodging market -- which would be great if it weren't for certain concerns we have about some of our hosts...
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This video was recorded on April 9, 2019.
Alison Southwick: So, Bro...
Robert Brokamp: Yes, Alison?
Southwick: What's up?
Brokamp: Well, I've got three quick things for you. No. 1 is interest rates are plummeting. You may have read about this in the news. The 10-year Treasury is now yielding 2.48% down from 3.24% last November. March saw one of the biggest drops in rates certainly in the last couple of years.
Why does that matter? Well, we talked briefly on a previous episode about the inversion of the yield curve, where short-term rates are yielding higher than long-term rates. Well, it solidly inverted there in March, which traditionally, in the past, has happened before each of the last nine recessions.
Dun dun dunnn! It's a little worrisome. The good news -- or at least neutral news -- is it doesn't mean a recession is imminent. Sometimes there's a good year or two in between the time of inversion and recession...
Southwick: You're saying we've got it in two years. OK, great!
Brokamp: Yes, exactly. And the stock market tends to do pretty well after the inversion, at least for that year or so. Plus there have been false positives in the past, so it doesn't necessarily mean there's a recession, but it's something to pay attention to.
More practically speaking, when rates go down the value of bonds go up, so March was a pretty good month for bonds. And also, mortgage rates are just plummeting. We just went through the biggest drop in rates over a one-week period in 10 years. An October 30-year mortgage was almost 5%. Now it's down to 4%. And according to mortgage data provider Black Knight, that means there are about five million Americans who could refinance and cut 0.75% off their mortgage, so if you're one of those people, definitely now is the time to consider doing that.
Rick Engdahl: I'm glad I didn't just remortgage. Oh, great!
Brokamp: We could always do it again. No. 2. There could be new retirement laws on the horizon. Something very unusual happened recently in Washington. Democrats and Republicans agreed on something...
Southwick: What? No!
Brokamp: ... at least when it comes to the House Ways and Means Committee. They advanced several pieces of legislation that if passed by the house and senate, and signed by the president, would bring a whole bunch of changes to retirement accounts as well as 529s. And the thing is there is a good deal of bipartisan support for this. Just a sampling of what could happen.
It could be easier for smaller companies to offer retirement plans and get a $500 tax credit for automatically enrolling employees.
And make it almost required for companies that are offering 401(k)s to let their part-time employees sign up, because currently they don't have to. Both of those things are good news to small employers and more coverage for part-time employees because study after study shows that the availability of a plan at work is highly correlated to whether someone is going to save. That's good news.
It's a possibility that they're going to raise the required minimum distributions from retirement accounts from 70 and a half to 72 and I think that has to go up even further, but that's a good step.
They're going to allow 529 accounts to cover private school, homeschooling, and cover student loans, so that's a big change, too.
And then finally encourage 401(k)s to offer annuities. This one to me is a little controversial. The point is that 401(k)s are good for people accumulating money, but then employers don't really provide any help on turning that into retirement income, so they want to make it easier for annuities to be included so they could provide some sort of lifetime income.
The flip side, of course, is that annuities often are very expensive and actually are not very good for people, so I'll be very interested to see how they make sure that the annuities that are offered within 401(k)s are actually good for the folks. We'll see what happens. Again, it's not law yet, but things are looking generally good for it and if they get implemented there will be a lot of changes.
And finally, the popularity and possible creepiness of Airbnb. This comes from an article on Recode.net, at least the first part of it. And they have a chart that shows that Americans are now spending more on Airbnb than Hilton. And it's now taking up 20% of the entire U.S. consumer lodging market.
That has all kinds of implications for the hotel industry and for the real estate industry, because many people are buying these houses to rent them out. So that's all good news for Airbnb.
On the flip side, there's an interesting article in The Atlantic with the title "Airbnb Has a Hidden-Camera Problem." "The home-rental start-up says it's cracking down on hosts who record guests. Is it doing enough?" So it starts with the story of a guy who goes to rent one room in a two-room apartment in Miami. Laying in bed. Looks up. Sees a couple of lights. Goes to look at them. He's being recorded in his bedroom.
Southwick: Oh my gosh!
Brokamp: So he takes out the memory card and then leaves. Airbnb refunded his money and then paid for him to stay in a hotel.
It turns out there are lots of rules about this. Airbnb does allow some videoing of people on the outside of the house and in common areas, but it has to be disclosed to you before you rent it. But I just find it kind of creepy.
Southwick: Did you find it kind of creepy? That's a hot take, there, Robert! Controversial!
Brokamp: The article is mostly anecdotes, so there were no statistics like 10% of people who stay at Airbnb are secretly being recorded. But it just added a certain layer of "the next time I do something like that, I might check around a little bit." They had some anecdotes of people finding cameras in alarm clocks and things like that. Just something to keep an eye on. And that, by the way, is what's up.
Alison Southwick has no position in any of the stocks mentioned. Robert Brokamp, CFP has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.