Your Financial News Roundup
September 6, 2023
1. Economy: The ongoing writer and actor strikes have cost California’s economy $5B; while a feud between Disney and cable provider Charter leaves 15M customers without access to Disney’s TV content,
2. Tech: Apple acquired classical music label BIS to take the genre mainstream; meanwhile NYC’s new short-term rental law could kill Airbnb’s presence in the city and in others.
3. World: Life expectancy in Chinese cities went up thanks to air pollution falling 42% from its peak; and United Airlines halted 330+ flights because of an IT issue.
Personal Finance Concept [Part 6/10]: Debt Detox — Mortgages
📉 $5B Wiped From California’s Economy: As the writers’ strike in Hollywood enters its 5th month and the actors’ strike inches toward month 2, financial analysts estimate the strike will cost the California economy $5 billion. Small businesses that support the entertainment industry are bearing the brunt of the work stoppage, including catering companies, restaurants, and dry cleaning businesses. In addition to the lost wages, delayed films, and canceled programming are also contributing to the mounting losses. (Business Insider)
Our Take: Some of the main points of contention dividing the Writers Guild of America (WGA) and the Alliance of Motion Picture and Television Producers (AMPTP) include the distribution of residuals from streaming, use of artificial intelligence for scripts, the size of writers’ rooms, and length of employment.
🏙️ A Cable Clash: 15 million cable TV subscribers lost access to ESPN, ABC, FX, Nat Geo, etc. due to the ongoing feud between The Walt Disney Co. and Charter Communications. Both firms are directing customers to other services, with Charter promoting a 25% to 30% discount for Fubo and Disney pointing its customers to Hulu, Sling, YouTubeTV, and Fubo. Rocked by ongoing writer and actor strikes, Disney has opted to start another fight. (Yahoo Finance)
Our Take: The ongoing tussle between studios and cable providers is a testament to the changing landscape of the television industry on all sides of the value chain. As people shift to streaming, regular cable providers are in a hard place as content makers like Disney seek to hold all the cards and profit from both cable and streaming.
🏙️ NYC Says Bye to Airbnb: Local Law 18, which came into effect in New York City yesterday, will enforce strict regulations on how Airbnb operates in the city. All short-term rental hosts must register with the city, live in the space they are renting out, and only have 2 guests at a time. Other cities across the world, including Dallas, San Francisco, Amsterdam, and Paris, are all implementing their own version of this policy. So far, Airbnb’s attempts to push back against the new law have failed. (Wired)
Our Take: Airbnb’s meteoric rise has enabled local economies to benefit from increases in tourism, but it’s also exacerbated the housing shortage in major hubs, such as London, Barcelona, and Los Angeles. While it’s easy to point the blame at Airbnb, Vrbo, and other short-term rental platforms, this is likely just the tip of the iceberg for these cities’ housing problems.
🍎 Apple Bets on Classical Music: Just months after launching its Apple Music Classical app, Apple has acquired BIS, a renowned classical music label based in Sweden. The acquisition bolsters Apple’s existing classical music catalogue, with the team slated to work in the same division as Apple Music Classical and Platoon. While this latest acquisition gives Apple more credibility in its classical endeavors, the tech giant will still need to overcome major challenges to bring classical music mainstream. (TechCrunch)
Our Take: Compared to other music genres, classical music is much less popular. Translating recording metadata and streaming discoverability have also been difficult, making Apple’s foray extremely tough.
✈️ Airline on the Fritz: United Airlines temporarily grounded all of its flights across the U.S. due to a “systemwide technology issue.” Fortunately, the brief halt did not affect flights already airborne, which continued to their destinations. United quickly identified a solution to the problem, ensuring flights resumed shortly. As a result of the glitch, 7 flights were canceled, and another 330 faced delays, as per data from FlightAware. (BBC News)
Our Take: While technology has streamlined airline operations, it introduces vulnerabilities that can have complex, widespread effects on their systems. This incident echoes the more serious IT and cancellation issues airlines faced last winter, signifying that airlines must focus on robust and reliable IT to keep passenger trust.
🌇 Clearer Skies Ahead: Once infamous for their grey skies, China’s cities have seen a 42% drop in air pollution levels since their 2013 peak. This drastic improvement is adding 2.2 years to the average life expectancy of city dwellers. China’s “war on pollution” involved reducing the amount of heavy industry in cities, limiting coal power plant use, and planting trees. Driven by people power and political will, these measures lowered average global pollution levels. (Good News Network)
Our Take: China’s strides in reducing air pollution underscore the relations between policy, environment, and public health. It’s a reminder that climate change is both a local and global issue and that developing nations do not have to sacrifice economic growth for environmental well-being.
Finance Concept of the Week
Debt Detox [Part 6/10]: Mortgages
Common types of debt and how to best tackle them
Owning a home is an essential piece of the American Dream, symbolizing stability, security, and a place to call your own. It’s a major milestone in our lives and a big step towards financial independence.
But, the cost of homeownership can be debilitating. In fact, for many of us, it’s one of the biggest expenses of our lives. Luckily, mortgages allow us to buy a home without needing to pay the entire cost upfront.
How Mortgages Work
A mortgage is a type of loan typically used to buy or refinance a house. If you take out a mortgage, you’ll repay the lender over a period of 10 to 30 years. The payments are divided into principal plus interest over the loan term. If you default on your payments, the lender has the right to repossess your property. In other words, the property itself is used as collateral to secure a mortgage.
You can get a mortgage from banks, credit unions, or nonbank lenders. When you apply, the lender will verify your income by asking for documents such as your bank and investment statements, tax returns, and proof of employment.
You can either apply for a mortgage after you’ve found your dream home or while you are still looking, a process known as pre-approval. Generally, it’s best to get pre-approved before putting an offer on a home because it signals to sellers that you are serious about the home purchase and you have the means to back up your offer.
If your application gets approved, the lender will let you know how much they are willing to give you and their terms. Once your offer gets accepted, they will verify the details of your mortgage and get an appraisal to confirm the property’s value. They will also hire a title company to check if there are any issues with the home. Once everything has been sorted out, you’ll close on your loan and take possession of the house. At closing, you’ll also need to pay your down payment and other closing costs before getting the keys.
Common Types of Mortgages
- Fixed-Rate Mortgage: In a fixed-rate mortgage, the interest rate remains constant throughout the loan’s lifetime. This means your monthly payments are the same for the entire loan term, making it easier to budget. Fixed-rate mortgages typically come in 15-year or 30-year terms, with the latter being more popular due to lower monthly payments.
- Adjustable-Rate Mortgage (ARM): Unlike fixed-rate mortgages, ARMs have an interest rate that can change periodically, typically after an initial fixed-rate period (e.g., 5, 7, or 10 years). These changes are usually tied to a specific index, such as the U.S. Prime Rate or the LIBOR rate. While initial interest rates on ARMs tend to be lower than fixed-rate mortgages, they can fluctuate over time, potentially increasing your monthly payments.
- FHA Loan: Insured by the Federal Housing Administration (FHA), these loans are designed for first-time homebuyers and have lower down payment requirements (usually as low as 3.5%). They are more accessible to borrowers with lower credit scores, but they also require mortgage insurance premiums.
- VA Loan: Guaranteed by the U.S. Department of Veterans Affairs (VA), these loans are available to eligible veterans, active-duty service members, and certain members of the National Guard and Reserves. VA loans often require no down payment and have competitive interest rates.
- USDA Loan: Backed by the U.S. Department of Agriculture, these loans are intended for rural and suburban homebuyers with low to moderate incomes. They offer no down payment options and competitive interest rates.
Pros of Mortgages
- Homeownership: Mortgages enable you to own real estate without needing to pay for the full cost upfront. This makes homeownership more accessible for people and spreads the cost over time.
- Leverage: Mortgages allow you to leverage your capital, meaning you can purchase a more expensive home than you could afford to buy outright with cash. Generally, homeowners will put 20% down on a house and pay the rest off through a mortgage.
- Tax Deductions: In many countries, including the United States, mortgage interest payments may be tax-deductible, which can result in significant tax savings for homeowners.
- Potential for Home Appreciation: Historically, real estate values tend to appreciate over time, potentially allowing you to build wealth through property appreciation.
Cons of Mortgages
- Debt Obligation: A mortgage is a significant long-term financial commitment. If you fail to make your payments, the lender can foreclose on your house, causing you to lose your home.
- Interest Costs: Over the life of the loan, you may end up paying a substantial amount in interest, especially with longer-term mortgages. That’s why it’s important to consider the interest rate before taking out a mortgage. The higher the interest rate, the more you’ll have to pay over the loan’s lifetime.
- Risk of Negative Equity: If property values decline, you may owe more on your mortgage than your home is worth, leading to negative equity.
- Credit Risk: Your ability to secure a mortgage and obtain favorable terms depends on your creditworthiness, which may be a barrier if you have a less-than-stellar credit history. Additionally, you may incur additional costs for items such as loan origination fees, appraisal fees, and title insurance at the time of closing.
How to Manage Mortgages
- If you don’t already have an emergency fund, you should start setting aside at least 3 to 6 months’ worth of living expenses in a high-yield savings account like Marcus by Goldman Sachs. This can provide a safety net in case of unexpected financial setbacks, such as job loss or medical emergencies, allowing you to continue making mortgage payments.
- Monitor interest rates and consider refinancing if you can secure a lower interest rate. Refinancing can reduce your monthly payments and the total interest paid over the life of the loan.
- Be cautious about taking on additional debt while managing your mortgage. Large new debts can strain your finances and affect your ability to make mortgage payments comfortably.
- Keep an eye on local property values. If your home’s value increases significantly, you may have opportunities to leverage that equity through refinancing or home equity loans.
- If you have an adjustable-rate mortgage (ARM), be prepared for interest rate adjustments. Plan your budget to accommodate potential rate increases.
What Else Is New?
- Tens of thousands of Burning Man attendees were stranded in the Nevada desert for days due to flooding.
- Google turns 25 this week. The company was founded in 1999 by Sergey Brin and Larry Page to “provide information to people.”
- Hong Kong’s Court of Final Appeal issued a landmark decision granting legal recognition to same-sex couples.
Personal Finance Resources
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