FED Holds Steady

[DTB]

I think Powelll with have to relent before then and move the interest rates marginally lower although I think its impact will be minimal.

Too much of the market has been geared to destroying older but serviceable housing and replacing with more expensive homes. They are buying properties with houses that have remaining life but because they paid way too much for the lot, they have to destroy the existing building and rebuild a McMansion to resell. This is systematically reducing the supply of starter homes and homes for the average working guy and gal... and further, we are seeing more single-person housing needed but that is a no-no apparently. Builders think they cannot make enough money. The problem should be obvious. Tearing a house down to build a new one adds not one single thing to housing supply. Why not buy and remodel? Or perhaps remodel and add an ADU. THAT would add to the housing supply.

I did 8 new construction houses last year in a small town. They sold like hot cakes and sold for less than $150k. 2 bed houses, all new, modest but livable. Young people do not need McMansions. They need affordable housing and then spend their surplus money on investments and savings.
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I agree with your sentiment 1,000% but it does come down to individual choices.

Back in the 2000-2010 era, I was making big bank but I knew I had quite a bit of risk as well. Rehabs, rentals, deposits on condos in AZ and FL. I always had a plan in case of an implosion, believe it or not at that time, 100 miles from Chicago one could be many, many house <25K.

I always kept that much at home in case it all blew up. I figured I could commute to Chicago, stay in a rehab if need until I clawed our way back. Fortunately all was good until stung for 35K on the last one-cost of playing the game.

Point being, people need a plan. Won't always work but w/o one, it'll never work.

 

[Terrel L. Shields]

I think Powelll with have to relent before then

One other thing. Yellen put a lot of bonds in short terms 2 years or so and those are dominoing = meaning they are necessarily refi'ing the federal debt at higher rates. We spend on interest exactly what we spend on defense. That's unsustainable without huge economic growth. The M-2 money supply is ballooning. The rates must come down or the debt issue alone may sink us.

 

[Mark K]

One other thing. Yellen put a lot of bonds in short terms 2 years or so and those are dominoing = meaning they are necessarily refi'ing the federal debt at higher rates. We spend on interest exactly what we spend on defense. That's unsustainable without huge economic growth. The M-2 money supply is ballooning. The rates must come down or the debt issue alone may sink us.

Absolutely true. Problem is... the politicians are only thinking short-term, like until the next election. There's very few in DC that care about the things you mentioned. They only want Powell to lower the rates to try to stimulate the economy a small bit before their next campaign season. Luckily, Powell thinks a bit deeper and longer than the average idiot in DC. They play checkers and Powell is playing chess.

 

[Non Sequitur]

At the end of the day, how low do rates need to be to pull the real estate economy out of the hole and avoid a collapse in CRE? Below is a post from Rebel C. on LinkedIn (bolding mine), he posts ratios and CRE exposures on a regular basis. The feds have been kicking the can for 2-3 years, can they keep kicking?

"I calculated nonperforming loan ratios for "owner occupied" and "other" nonfarm nonresidential mortgages for the 157 banks with more than $10 billion in assets (as of Q1 2025). The results are quite surprising.

In general, the banks with the highest CRE exposures are reporting much lower NPL ratios than the very largest banks (i.e., JPM, BAC, C, WFC). At the four largest banks, NPLs for "other" nonfarm nonresidential mortgages are 3.4%, 6.2%, 4.4% and 5.9%, respectively, while the NPLs for "owner-occupied" nonfarm nonresidential mortgages are 1.1%, 1.0%, 0.2% and 1.5%, respectively. Clearly, “owner-occupied” CRE mortgages are performing much better than “other” CRE mortgages.

Meanwhile, at the seven banks with CRE exposures greater than 500% of equity (Live Oak Bank, Dime Community Bank, Flagstar Bank, ServisFirst Bank, Bank OZK, Eagle Bank, and Merchants Bank of Indiana), NPLs for "other" nonfarm nonresidential mortgages are 2.0%,1.1%,10.0%, 0.4%, 0.2%, 6.2%, and 5.3%, respectively, while the NPLs for "owner-occupied" nonfarm nonresidential mortgages are 5.0%, 0.5%, 2.5%, 0.7%, 0.5%, 4.0%, and 2.0%, respectively.

How is it possible that CRE mortgages are "performing" so much better at these highly exposed banks relative to the four largest banks in the country, which are subject to far more rigorous stress testing and regulation? The answer is quite simple: the exposed banks are engaging in “extend and pretend” on a massive scale, modifying but not classifying mortgages to borrowers who otherwise would default. Why are bank supervisors and examiners allowing this to happen? That is a question to which there are no good answers.

My source is the quarterly Report of Condition and Income ("Call Report") filed by each bank with its primary regulator and made available to the public by the U.S. FFIEC. You can download the Call Report at:
Bank: https://lnkd.in/g9ikSct6
Bulk: https://lnkd.in/et4jMyNA
Much of my analysis can be found at FAU's Banking Initiative Website:
https://lnkd.in/eA8hsQuu"

 

[Non Sequitur]

 

[Zoe]

Absolutely true. Problem is... the politicians are only thinking short-term, like until the next election. There's very few in DC that care about the things you mentioned. They only want Powell to lower the rates to try to stimulate the economy a small bit before their next campaign season. Luckily, Powell thinks a bit deeper and longer than the average idiot in DC. They play checkers and Powell is playing chess.

Inflation has the Federal Reserve Bank in handcuffs. Tariffs are hurting inflation and Federal Reserve Bank don't see a light at the end of tunnel on inflation continuing to climb due to tariffs. The Consumer price index jumped way more than was predicted in July and many tariffs are just now being put in place.

The Fed Funds borrowing rate to federally insured lenders controls the money supply. So if inflation is already climbing more than expected, then lowering the rate would put more money in the economy and also be a boost to higher inflation. The higher the Fed funds rate is, it shrinks the money supply and lowers inflation.

People with certificates of deposit in federally insured banks love high fed funds borrowing rate. It raises the interest they get paid on their cerficate of deposit. Same way on interest bearing savings or checking account in a bank.

 

[Terrel L. Shields]

Luckily, Powell thinks a bit deeper and longer than the average idiot in DC. They play checkers and Powell is playing chess.

Again, many of the fed governors are not with Powell. They recognize that if we continue to fund bonds at higher and higher rates, we rapidly spend far more on interest than on defense. We need lower rates to refi the debt more so than to stimulate housing. Houses are too expensive. a small cut in rates won't help prices. But a small cut will save a lot of big bucks on interest.

 

[Zoe]

Again, many of the fed governors are not with Powell. They recognize that if we continue to fund bonds at higher and higher rates, we rapidly spend far more on interest than on defense. We need lower rates to refi the debt more so than to stimulate housing. Houses are too expensive. a small cut in rates won't help prices. But a small cut will save a lot of big bucks on interest.

I understand you point but the Federal govt can't go broke. Inflation is thing holding Federal Reserve Bank in handcuffs. The Federal Govt can just keep printing money and going further in debt.

Many foreign countries hold United States bonds as an investment.

BTW, Powell is not raising or lowering the fed funds borrowing rate and I am trying to tell you it is because of tariffs and increase in consumer price index in July.

 

[Zoe]

BTW, Powell is just a figure head. Similar to Trump. The Federal Reserve Bank has tons of doctors in economics working for them and studying national and international economics.

 

[Zoe]

Trump fired the lady that was doing unemployment numbers. The woman had worked for republican and democrat presidents. She had no reason to lie on the numbers. The numbers changed because reports came in later than when they released employment numbers. BTW, that is something else Federal reserve focuses on, but they focus more on inflation than anything.

The Fed Reserve Bank wants that inflation rate at 2%. Some are predicting 4% inflation rate soon. I don't have the numbers they look at. Idk.