Crypto Lesson: No Easy Path to Wealth
Nipitpon Singad/EyeEm, Getty Images MARCH 30, 2023 Crypto Lesson: No Easy Path to Wealth By Cora Lewis And Alexandra Olson Cryptocurrency hasn’t made a big dent in the RE industry, and ads promising Black and Hispanic investors a rosy future in crypto investing haven’t lived up to the hype. NEW YORK (AP) – A software developer twice invested his savings in cryptocurrencies, only to lose it all. But he still promotes it to the Black community and would like to get back in himself. A recent college graduate and a single mom are dabbling hopefully in bitcoin after attending a crypto workshop sponsored by rapper Jay-Z at the public housing complex where the hip-hop star grew up. But a former executive at a cryptocurrency exchange feels disillusioned by the false promise of crypto helping her family in Ethiopia’s war-torn Tigray region. All were drawn by the idea of crypto as a pathway to wealth-building outside of traditional financial systems with a long history of racial discrimination and indifference to the needs of low-income communities. But crypto’s meltdown over the past year has dealt a blow to that narrative, fueling a debate between those who continue to believe in its future and skeptics who say misleading advertising and celebrity-fueled hype have drawn vulnerable people to a risky and unproven asset class. The collapse of two crypto-friendly banks so far this year, Silvergate Capital Corp. and Signature Bank, complicates the picture. Their failure was a setback for crypto companies that relied on the banks to convert digital currencies to U.S. dollars. Yet the crisis bolstered Bitcoin, the oldest and most popular digital currency, by reinforcing a distrust in the banking system that helped give rise to cryptocurrencies in the first place. Mariela Regalado, 33, and Jimmy Bario, 22, neighbors at the Marcy Houses complex in Brooklyn, started putting $20 or $30 into bitcoin every two weeks or so after attending “Bitcoin Academy,” a workshop sponsored last summer by Jay-Z and Jack Dorsey, co-founder of Block Inc., the parent company of mobile payment system Cash App. “I don’t see it as something that’s going to, you know, take me out of Brooklyn and buy me a $2 million mansion in Texas,” said Regalado, an educational consultant and mother of a toddler. “But if it happens, I’m all for it.” Only a small minority of the U.S. population owns cryptocurrency, but adoption increased during the COVID-19 pandemic as low interest rates made borrowing money and investing in risky assets more attractive. Prices peaked in 2021, and a constellation of apps, exchanges and even ATM-like crypto machines made buying digital coins easy. But the drawbacks of crypto played out dramatically after prices cratered in 2022, wiping out millions in investments and leading to a cascade of bankruptcies and layoffs at crypto exchanges, lenders and other companies. Along with its volatility, crypto lacks protections such as deposit insurance since it’s not controlled by any single institution. Largely unregulated, the industry is susceptible to scams, hacks and fraud. Cryptocurrencies are built on decentralized ledgers – usually blockchain – allowing peer-to-peer transactions without a middleman like a bank or government. That continues to appeal to many people who face barriers to traditional wealth-building avenues such as homeownership, college education, or the stock market, said Terri Bradford, a payment specialist at the Kansas City Federal Reserve, who has researched crypto’s popularity among many Black investors. “It doesn’t appear that a whole lot of people are dissuaded from crypto even though we have observed what has happened,” Bradford said. According to Pew Research Center polls in 2021 and 2022, some 20% of Black, Hispanic and Asian U.S. adults have bought, traded or used cryptocurrency, compared with 13% of white adults. Bradford’s research, which examined data from Pew Research Center and the Board of Governors of the Federal Reserve System, found that Black investors are more likely to own crypto than stocks or mutual funds, while the opposite is true for white investors. Black and Latino crypto enthusiasts have formed social media groups, written books and organized summits to promote minority developers in the space and champion blockchain technology’s potential to create more equitable systems in finance and beyond. But crypto companies also sought to capture a broader market of retail investors through lucrative sponsorship deals with celebrities and sports teams, many aimed directly at Black and Hispanic consumers by touting crypto as an economic equalizer. Coin Cloud, a company that makes ATMs for cryptocurrencies and which has filed for bankruptcy, launched an ad featuring movie director Spike Lee deriding “old money” as “exploitative,” “oppressive” and “white,” and crypto as “positive” and “inclusive.” Tonantzin Carmona, a Brookings Institute fellow who researches crypto’s impact on minority communities, said that for inexperienced investors, this sort of high-profile hype easily obscures crypto’s drawbacks. Carmona considers crypto’s marketing to racial minorities part of a legacy of “predatory inclusion” in the tradition of payday loans and subprime mortgages – risky services that promise access to financing that would otherwise be out of reach. “You’ll have a marginalized group, a community that has been historically excluded from accessing products, services, opportunities, and all of a sudden they’re told that they will get access to maybe some type of alternative,” Carmona said. “But this access often comes with conditions that undermine the benefits or that will reproduce insecurity for these very same communities.” Rahwa Berhe first started investing in crypto while studying alternative financial products during a master’s degree program at the University of Washington in Seattle. The Chicago native tried to forge a career in crypto, leading a compliance team for digital assets at an exchange for four years, only to feel isolated as a Black woman. “It’s like you took all the tech bros and the finance bros and put them together. I didn’t know where I fit in,” Berhe said. Her disillusion deepened when crypto couldn’t help her family in Tigray during the conflict there from 2020 to 2022 because the lack of infrastructure and access to electricity made transfers impossible. When she tried to point out these realities to some in the crypto community, she was dismissed as “negative” by social media posters breezily celebrating that the hashtag #eth, for Ethiopia, was introducing people to the digital coin Ether. Berhe now works with a Stanford University research lab exploring how decentralized web tools can be applied to archiving Africana artifacts. As for cryptocurrency, she is done for now. “It was great until it wasn’t,” Berhe said. Crypto advocates argue minority communities deserve access to a potentially lucrative asset class that isn’t going away. Many believe another boom is inevitable and liken last year’s collapse to the dotcom bust of the 2000s, which, far from dooming the tech industry, only weeded out bad actors and bolstered winners like Amazon. Andre Mego, Bitcoin Academy’s program manager, said crypto is an accessible way to teach financial literacy to a community where many find concepts like wealth-building investment abstract and out of reach. At the end of the summer workshop, participants were each gifted $1,000 in bitcoin, most of them through Cash App, which launched bitcoin trading in 2018. “When we talk about accessibility, that provides motivation. Because for anybody thinking about investment, they could think, ‘That’s a big thing in the future. That’s something that I have to save up so much money for. I don’t know if I’m allowed to do this. Am I even part of this conversation?” Mego said. Bario said Bitcoin Academy’s workshop at the Marcy Houses complex was his first meaningful introduction to personal finance, though he graduated last spring with a degree in economics from Lafayette University. Growing up, he said, investing was not a realistic possibility in his family, which relied on income from his father, who worked as taxi driver back in Honduras. “I always thought, as soon as you get your money, it’s time to spend it – as soon as you get that Friday paycheck,” said Bario, who now works as a soccer coach. Omid Malekan, who teaches a course on blockchain and cryptocurrency at Columbia Business School, said he hopes the latest crash will disabuse people of the idea that crypto is a reliable avenue for getting rich quick. But Malekan said the crypto industry needs more diversity, not less, and that young Black and Hispanic people should be encouraged to pursue careers in developing a technology he believes will be the future of finance. “The people who are attracted to crypto because of the way the technology works and because of the promise of a more global, more accessible financial system – those people, it takes more than just prices going down to scare them away,” Malekan said. Tyrone Norris, the software developer, said he learned to be cautious about how to buy crypto the hard way. Growing up in Washington, D.C., Norris studied computer programing in high school and took college courses, but never graduated because he couldn’t afford to go full time. He has worked as a contractor, moving around the country and never owning a home or accessing a workplace retirement plan. When Norris first decided to invest in crypto, he poked around on exchanges and chose MANA, a token powering the 3D virtual world Decentraland, because it shared his ex-girlfriend’s name and he saw it as a sign. He went all in, emptying his bank account of $4,000. When his MANA investment doubled, he started betting on whichever coins he thought would be most lucrative. But one exchange turned out to be scam, and another based in New Zealand lost millions in a hack. Norris’s investment went to zero, but two years later, he got back in the game with another $5,000. Again, he watched it soar, then crash as the 2022 “crypto winter” set in. “I was a rookie – I didn’t understand what I was doing. I was putting my crypto into dangerous places,” Norris said. For now, he is taking a break from software development to focus on building a crypto-backed hip-hop gaming project. Norris said he has no regrets because investing introduced him to the possibilities of the blockchain. “I come from nothing,” he said. “I don’t come in expecting anything to be fair.” Copyright 2023 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission. The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
Good news for homebuyers. Mortgage rates just dropped again
- Source: CNN Business " data-fave-thumbnails="{"big": { "uri": "https://media.cnn.com/api/v1/images/stellar/prod/220520163214-us-homes-for-sale-0314.jpg?c=16x9&q=h_540,w_960,c_fill" }, "small": { "uri": "https://media.cnn.com/api/v1/images/stellar/prod/220520163214-us-homes-for-sale-0314.jpg?c=16x9&q=h_540,w_960,c_fill" } }" data-vr-video="" data-show-html="" data-check-event-based-preview="" data-network-id="" data-details=""> Washington, DCCNN — Mortgage rates dropped again this week for the second week in a row amid lingering concerns about bank failures and uncertainty in the financial markets. The 30-year fixed-rate mortgage averaged 6.42% in the week ending March 23, down from 6.60% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 4.42%. “Mortgage rates continued to slide down as financial market concerns came to the fore over the last two weeks,” said Sam Khater, Freddie Mac’s chief economist. That’s good news for homebuyers who are seeing rates retreat slightly and home prices stabilize. “If mortgage rates continue to slide over the next few weeks, look for a continued rebound during the first weeks of the spring homebuying season,” he said. The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit. Fed signals rate hikes coming to an end After hitting a 2022 high of 7.08% in November, rates had been trending down. However, they started climbing again in February. Robust economic data suggested the Federal Reserve was not done in its battle to cool the US economy and would likely continue hiking its benchmark lending rate. It did so on Wednesday. The Federal Reserve raised interest rates by a quarter point in an effort to continue to fight stubbornly high inflation while taking into account recent risks to financial stability. Yields on 10-year US Treasury bonds climbed on Tuesday ahead of the meeting as investors prepared for the impact of the committee’s revised rate projections, said Hannah Jones, economic data analyst at Realtor.com. But rates fell on Wednesday on news from the Fed that its series of aggressive rate hikes could be coming to an end. Five big takeaways from the Fed's extraordinary meeting: The Fed emphasized a commitment to cooling inflation to its 2% target, but pulled back its stance on additional rate increases. Fed Chair Jerome Powell said recent banking sector instability is likely to lead to tighter lending requirements, which could serve to cool inflation. “Depending on the extent of the impact of a tighter banking sector, Powell expressed a ‘wait-and-see’ approach to further contractionary policy,” Jones said. “However, the federal funds rate is expected to remain elevated through the end of the year, meaning that a higher interest rate environment is here to stay for the time being, including for home loans.” The Fed does not set the interest rates that borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow. Home affordability is not improving While a slight retreat in rates over the past week boosted applications, home affordability worsened through February. “Mortgage applications increased for the third consecutive week, despite the ongoing volatility in the financial markets and the broader economy,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association. While rates remain much higher than a year ago, he said MBA is forecasting a gradual decline, with the 30-year fixed rate falling to around 5.3% by the end of the year. Homebuyer affordability declined in February, according to MBA, with the national median monthly payment for those applying to purchase a home rising nearly 5% to $2,061 from $1,964 in January. New home sales rose for the third month in a row: Ongoing affordability challenges weigh on buyers and sellers preparing for the spring housing market, said Jones. “Each downward tick in mortgage rates is met with increased buyer demand, as many eager home shoppers take advantage of the slightly lower cost of financing a home,” she said. “Home shoppers are looking to find the optimal combination of prices and mortgage rates before entering the market.” But, she added, elevated rates and high prices mean that point doesn’t yet exist in the market for many would-be buyers. “At the current price and mortgage rate level, the typical housing payment on a median-priced home is 43% higher than one year ago,” said Jones.
Feb. New-Home Sales Rose 1.1%
NEWS & MEDIA JoSon, Getty Images MARCH 23, 2023 Feb. New-Home Sales Rose 1.1% By Kerry Smith Sales rose month-to-month but are down 19% year-to-year, with Feb.’s sales falling solidly into the “not good news but not bad news” category. WASHINGTON – Higher mortgage rates and home prices, as well as increased construction costs contributed to lackluster new home sales in February, but signs point to improvement later in the year. Sales of newly built, single-family homes in February increased 1.1% to a 640,000 seasonally adjusted annual rate (the number of homes that would sell in one year at the current month’s rate) from a downwardly revised reading in January, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. However, new home sales are down 19% year-to-year. “The lack of existing home inventory means demand for new homes will rise as interest rates decline over the coming quarters,” says Alicia Huey, chairman of the National Association of Home Builders (NAHB). However, Huey also notes builders’ ongoing challenges, including “higher interest rates, elevated construction costs and access to critical materials like electrical transformers.” NAHB Chief Economist Robert Dietz says February’s data “points to an increase for the monthly pace of single-family construction starts later in 2023 given a rise in builder sentiment and an increase for sales of homes not yet started construction.” Dietz’s top concern, though, is possibly tighter credit conditions stemming from recent bank problems. He says that could impact acquisition, development and construction loans for smaller builders. New single-family home inventory fell for the fifth straight month. The February reading indicated an 8.2-months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. However, single-family resale home inventory stands at a reduced level of 2.5 months. The median new-home sale price rose in February to $438,200, up 2.5% year-to-year, based largely on elevated costs of construction. A year ago, roughly 15% of new-home sales were priced below $300,000; that share is now just 10%. On a year-to-date basis, new home sales fell in all regions: Down 29.2% in the Northeast, 21.3% in the Midwest, 7.3% in the South and 40.6% in the West. A new home sale registers when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the February reading of 640,000 units is the number of homes that would sell if this pace continued for the next 12 months. © 2023 Florida Realtors®
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