Roughly 100 colleges in the US now offer Income Share Agreements (ISA). These agreements can vary quite a bit, but the idea is pretty straightforward. Instead of taking on debt the student sells stock in themselves or a percentage of their future earnings. This story follows a student at Purdue which was one of the first schools to start this program. That particular program has a 15% of annual salary payback with a max payback of 2.5X the original investment over 8 working years. Some programs are much more generous in their terms and cap you at paying back a maximum of what you borrowed.
Mortgage Rates increased this week as the price of Mortgage Backed Securities (MBS) declined in response to inflation data and a strong jobs report. Fortunately the price of MBS remained in their positive trading pattern. Rates are up approximately 2.5% from this time last year.
Jobs – the July Jobs Report was stronger than expected with over double the jobs creations that were anticipated. The U-6 all-in unemployment rate which includes individuals that ‘want a job’ but haven’t looked in the previous 4 weeks remained at 6.7%. If GDP is declining and jobs are increasing this signals a decline in productivity which creates inflationary pressure. As we know inflation is the nemesis of mortgage rates.
Home Values increased 0.6% in the month of June and are up 18.3% year over year. Core Logic is predicting 4.3% year over year growth moving forward which is in line with historical averages and still very meaningful. On a $400,000 home with 10% down that would be approximately $16,000 gained in one year which if you consider leverage that is a 40% return on investment.
Inflation – the Consumer Price Index increased 1.3% in June and is up 9.1% year over year. If you strip out food and energy prices (the core rate) the index increased 0.7% in June and 5.9% year over year. Energy is up a whopping 41.6% year over year.
Mortgage Applications to purchase homes increased by 1% last week and are down 16% year over year. Refinances increased 2% last week and are down 82% year over year. Refinances make up about 31% of transactions.
New Podcast release! Tune in for our august 3rd market update.