Welcome to our Friday mailbag edition!

Every week, we receive fantastic questions from your fellow readers. And every Friday, I answer as many as I can.

Up first today, a question from reader Gary about the benefits of smaller banks and credit unions…

I’d like to get out of the Big Banking cartel and am thinking of transferring to a smaller bank like a local credit union. Can you please let us know the pros and possible downsides of going with one of these smaller banks?

Also, how can one check the quality of these various banks? What ratings organizations are credible, if any? I really don’t trust anything I might find online and would love your input and well-informed opinion on this topic, which I’m guessing many Americans are thinking about these days.

– Gary S.

Hi Gary, thank you for that excellent question.

The pros of smaller banks – including credit unions – start with more personalized and community-oriented service, since they are usually local. Also, the profits from credit unions are divided among its members, who are shareholders in the credit union.

That’s why credit unions charge lower interest rates on loans – including mortgages – and why they pay higher yields on savings accounts.

The downside is that they charge a membership fee (but this is usually minor). Another downside is that smaller banks may not offer as many services as the bigger banks, and they may not have as many physical locations.

So, it’s important to make sure the credit union you choose offers the services and technologies you need, such as its terms for products. A great website to compare credit unions with larger banks is www.bankrate.com.

From a quality standpoint, the most important thing is to make sure that your deposits are FDIC-insured.

The FDIC is an independent agency of the U.S. government that protects your money in an insured bank if the bank ever closes or fails.

It insures eligible bank accounts up to $250,000 per person, and it only covers certain financial categories such as checking and savings accounts, money market deposit accounts, money orders, etc.

You don’t need to apply for coverage; you just have to ensure your bank is insured. Not all banks are FDIC-insured, though, so you can find out which ones are through this directory.

Next, Richard wants to know about the general state of the crypto market and homebuilder stocks…

Do you plan to do a general update on crypto? While the amount of bad news and fallout from FTX has slowed down, the fear factor still seems to be reigning. Silvergate Capital has crashed and added to the concern that onshore, regulated companies are at risk.

Also, the large homebuilder stocks seem to be holding up and have rebounded from lows in August. Long-term mortgage rates have eased, and this is propping up their values, and the problem is “transitory.” What will it take to send homebuilder stocks back down?

– Richard S.

Hi Richard, thank you for both of those questions. I’m sure they are on the minds of other readers as well.

Yes, I do anticipate we’ll put out a piece about where the crypto market is heading. Right now, parts of the market have been rebounding with the Fed firmly in Stage 1 of its three-stage pivot. (As a reminder, Stage 1 involves a reduction in the size of rate hikes.)

As of writing, bitcoin is hovering around $24,000 – an increase from its $15,000 two-year low in November.

Meanwhile, Silvergate has been a disappointment for everyone. It championed a long history, a great model, and experienced management. Unfortunately, it has not managed to untangle itself from both the fall in crypto due to rate hikes… and the problems caused by high exposure to the fallen, former-crypto-star FTX.

As for your question about homebuilders, they have rebounded from their lows, and long-term mortgage rates have eased as the Fed moves through Stage 1 of its pivot. For example, mortgage buyer Freddie Mac reported yesterday that the average on the benchmark 30-year rate was 6.5%.

That number was lower than the two-decade high of 7.08% in the fall.

That said, home prices continue to fall. The median home price is down around 13% since it peaked in June last year. And overall, cancellations of projects continue to rise. If that pattern keeps on, it should put more pressure on homebuilders.

Finally, our last question this week is from Ron, who is curious about rental prices in the event of a housing meltdown…

In one of your recent articles, you discussed the possible housing meltdown which seems likely. One subscriber asked about Mid-America Apartments, which seems to be doing very well. If the housing meltdown starts to happen, do you think that rents will increase?

I would think that as houses enter the market due to bankruptcies and/or foreclosures, the housing market could take a challenging new direction in the short term. Any ideas?

– Ron V.

Hi Ron, thank you for your thoughtful question.

I think rents are in for a rough time no matter what happens to housing prices. When housing prices rise, so does rent, since people can no longer afford to buy houses.

On the other hand, when interest rates rise (as they have been), renters can’t afford mortgages – even on slightly lower home prices. As I mentioned above, mortgage rates are still hot.

Even though the 30-year fixed-rate mortgage is currently lower than its peak in November, it’s considerably higher than its 3.89% rate from a year ago.

As a result of higher mortgage rates, fewer renters can buy homes. This forces more renters to stay in the market, increasing the demand for rentals.

Despite lower home prices, landlords still raise rents. So far, we haven’t seen a great dip in rental prices. In fact, the median rental price has increased by roughly 18% from 2021 to 2023.

So if the economy enters a recession that impacts jobs and wages, people would start defaulting on their loans or rents. And in that case, we could see home prices get slashed.

Even if that happens, though, rents won’t decrease significantly. People will still need places to live in.

And that’s all for this week’s mailbag. Thanks to everyone who wrote in!

If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.

I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.

And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write to me at [email protected].

Happy investing… and have a fantastic weekend!



Nomi Prins
Editor, Inside Wall Street with Nomi Prins