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Why the Fed Should NOT Lower Rates, Spartan Summit Presentation
• 43 minGet our free real estate course and newsletter: GRE Letter I state the reasons why I DON’T believe that the Federal Open Market Committee should lower interest rates. Rates are currently normalized. Watch the full Spartan Summit Presentation here. The first half is played on this episode. President Biden is trying to help the housing market’s poor affordability and undersupply. Fed Chair Jerome Powell made recent remarks on the real estate market. He emphasized the lack of supply. High rates = strong economy Low rates = weak economy Lowering interest rates to zero is artificial and introduces distortions in an economy. If we have a recession, we need “rate cut ammo” in order to make cuts at that time. Lowering rates also sets up an inflationary environment. That’s bad for society, but leveraged income property investors benefit. A “Fed pivot” means that the FOMC changes from raising rates to lowering rates, or vice versa. Resources mentioned: Show Page: GetRichEducation.com/493 Full Spartan Summit presentation video: On YouTube Freddie Mac mortgage survey: https://www.freddiemac.com/pmms Mortgage News Daily mobile app For access to properties or free help with a GRE Investment Coach, start here: GREmarketplace.com Get mortgage loans for investment property: RidgeLendingGroup.com or call 855-74-RIDGE or e-mail: info@RidgeLendingGroup.com Invest with Freedom Family Investments. You get paid first: Text FAMILY to 66866 Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review” Top Properties & Providers: GREmarketplace.com GRE Free Investment Coaching: GREmarketplace.com/Coach Best Financial Education: GetRichEducation.com Get our wealth-building newsletter free— text ‘GRE’ to 66866 Our YouTube Channel: www.youtube.com/c/GetRichEducation Follow us on Instagram: @getricheducation Keith’s personal Instagram: @keithweinhold Complete episode transcript: Keith Weinhold (00:00:01) - Welcome to Greece. I'm your host, Keith Whitfield. President Biden tries to help the housing market. Everyone wants to know when interest rates will be cut. I'm asking, why would we cut rates anytime soon? Yes. Some fed talk today and a lot more on get rich education. When you want the best real estate and finance info. The modern internet experience limits your free articles access, and it's replete with paywalls. And you've got pop ups and push notifications and cookies. Disclaimers are. At no other time in history has it been more vital to place nice, clean, free content into your hands that actually adds no hype value to your life? See, this is the golden age of quality newsletters, and I write every word of ours myself. It's got a dash of humor and it's to the point to get the letter. It couldn't be more simple. Text gray to 66866. And when you start the free newsletter, you'll also get my one hour fast real estate course completely free. It's called the Don't Quit Your Daydream letter and it wires your mind for wealth. Keith Weinhold (00:01:15) - Make sure you read it. Text gray to 66866. Text gray 266866. Corey Coates (00:01:27) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education. Keith Weinhold (00:01:43) - Welcome, Jerry from Bowmanville, Pennsylvania, to Louisville, Kentucky, and across 188 nations worldwide. And Keith Wayne Holden, I'm grateful to have you here with me for another week. This is get rich education. I'm about to discuss the case for not lowering interest rates, and you'll hear a clip of Jerome Powell commenting on the real estate market shortly. But first, President Biden recently made a state of the Union address, and he unveiled his plan to help the Undersupplied housing market. Part of the plan was to help the buyer side the demand side with incentives, which I'm not sure that we need the support over there on that side. And now that would juice real estate prices. More on housing supply side. Biden's plan creates a $20 billion fund to build more rental housing and kill some construction restrictions. Okay. Keith Weinhold (00:02:35) - Yeah, that's the key part of the plan. And that's more helpful. Help that supply side. Perhaps the most interesting part of the plan is a $10,000 credit that's meant to incentivize people to sell their starter homes. That's our president on housing. Let's pivot over to Club Fed. Yeah. Welcome in to Club Fed. There's no cover charge for some reason Janet Yellen still hanging around chaperoning. And she still looks like my grandma. Earlier this month, Fed Chair Jerome Powell acknowledged that the commercial real estate loan problems could cause manageable problems for regional banks, possibly for years. I find it interesting that he uses the word manageable when acknowledging problems on the commercial side. I mean, we'll see, but that kind of reminds me of one of Powell's predecessors, former Fed Chairman Ben Bernanke, in 2007, saying that the subprime loan problem was contained is the word that he used. And we all know that. I know the mortgage meltdown contagion of 2008 was anything but contained. Today, when we talk about Powell and interest rates back around 2021, he got beaten up pretty badly for not acknowledging rising inflation sooner. Keith Weinhold (00:03:56) - But he's brought inflation down to about 3% without a recession. So some credit is due there, but not too much credit because the game's not quite over. And it took that torrid set of interest rate increases where they climbed a cliff in order to quell inflation. And that already hurt a lot of people, including those erstwhile commercial real estate people in their loans that jumped up to a higher interest rate. Now we're talking about interest rate policy. Let me give you something that's easy to remember. High rates mean a strong economy. Low rates mean a weak economy. With that in mind, let's look at where we've come from. And then we'll look at the future. A lot of people got drunk with easy money starting 15 years ago, because it was nearly free to borrow an interest rate of zero at the federal funds level. That gives you no incentive to save and more incentive to borrow and spend. Well, the federal funds rate was zero from 2009 to 2015 to get us out of the Great Recession. Keith Weinhold (00:05:04) - And then it was zero again from 2020 to 2022 to help lift us out of Covid. That's the past since the federal funds rate, which a lot of other interest rates are based off of two since it quickly shot up starting two years ago, it's now been a full eight months since rates have moved at all. They haven't budged since July of last year. So that's where we are now and I'm fine with them staying here for a while now. Jerome Powell recently testified to the House Financial Services Committee. Let's listen in to him discuss real estate as he's questioned. Jerome Powell (00:05:44) - The housing market is in a very challenging situation right now. You had this longer run housing shortage, but at the same time, you've got a bunch of things that have to do with the pandemic and the inflation and our response with higher rates. So you you have a shortage of homes available for sale because many people are living in homes with a very low rate mortgage that they can't afford to refinance. So they're not moving, which means the supply of regular existing homes that are for sale is historically low and very low transaction rate. Jerome Powell (00:06:14) - That actually pushes up prices of of of other existing homes and also of new homes, because there's just not enough supply. The builders are busy, but they're running into, you know, all kinds of supply issues still around zoning and, and workers and things like that. So, so it's quite challenging. And of course, rates are high. So people who are buying a lot of the buyers are, are cash buyers or able to actually pay without a mortgage because mortgages are expensive, I will say. The first problem. The longer run problem of supply is a longer run problem. The other problems associated with low rate mortgages and high rates and all that, those will abate as the economy normalizes and as rates normalize. But we'll still be left with with the housing market nationally where where there's a housing shortage. Keith Weinhold (00:07:02) - That's Jerome Powell on real estate. And I'm surprised that he said rates are high. Do you know what the long run federal funds rate is? It is 4.6%. That's the average. And currently it is at 5.3% where it's been for a while. Keith Weinhold (00:07:18) - So it's not that much higher than average. The 30 year mortgage long run average is 7.7% for Freddie Mac. And that's been hovering around 7% for months now. So therefore both key rates are close to normal today. But despite that fact, seemingly everyone is waiting for the fed pivot. And what the fed pivot means is when they reverse their monetary policy stance. Meaning when they start lowering rates again after the long increase cycle that we're coming off of. Well, I'm here asking why should the fed pivot in lower rates since they're near normal now? All right. Let me give you some real perspective here. Look I'm going to describe a scenario to you and tell me what you think about this. Imagine a dreamy bygone era where there happened to be this period that saw a strong national labor market, plenty of jobs, steady GDP growth, rising wages and inflation a little above normal. All right, now that you're done imagining that cloudy slice of economic Americana. Pretty rosy scenario. Well, then you might consider raising rates in a situation like that to help cool off wage and price inflation. Keith Weinhold (00:08:37) - Well, you know what I just did? I actually just described to you where we are today. That's what today's condition
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