Inflation remains hotter than expected, muddying path for Fed rate cuts

I don’t think any real world people really give a shit about a single quarter point rate cut, nor do I think there would be “massive pressure” to push one before the election. That seems silly on its face. If anything, if there are signs of new inflation the political pressure might be to do a few more hikes to get it under control. But considering it takes time for rate hikes to work through the system that would be a fruitless endeavor either way.

 

Anyone who thought you could add $6-7T of free liquidity to our economy over a short 2-3 year period (between two administrations) while restricting worldwide manufacturing output and clogging international supply chains and NOT have prolonged inflation is just lying.

And anyone who thinks the inflation in the US is worse than the rest of the world or caused by one person (who is otherwise viewed as somnabulant on everything else) is also just lying for partisan political reasons.

Inflation Rate by Country 2024

 

The rise in interest rates has helped me more than hurt. I had some cash laying around in a few bank accounts that is now in CDs collecting on average 5% interest. I’m 71 and don’t want to get back into the market any more than I am. I’m getting close to the required minimum withdrawal on my TDEs.

 

It’s not just what the rate does, it’s also about what it says.

 

Money market is decent around 4% for my cash account.

 

No, new normnal needs to be somewhere in between. Underwirting doesn't work with current rate and prices.

 

Its helping most every day American, but its killing the non single family home construction industry and hurting regional bank lending.

 

We put our pencils down about 18 months ago. Almost impossible to make numbers work and/or raise capital for speculative industrial or MF development and debt is very difficult.

Just finished a 1.2M sf spec distribution facility and immediately leased 70% of it for about 120% of proforma NOI (due to rental rate increases) so interim cash flow is great but the exit is certainly uncertain. Fortunately we bought a 2 year interest rate hedge in June ‘22 when we broke ground at 3.25% so we’ve saved millions on carry.

 

. I can’t keep up either. Is the left wing narrative that the border is a manufactured crisis and inflation transitory?

 

If the fed hypothetically cut for political reasons, despite their being inflationary signals, the only thing it would say is that they are idiots.

The market might not even respond well to it. As I said, it would be fruitless.

 

IMHO, home prices need to decline. People need to learn to live in smaller homes or multi-home units with less land. Also, you don't really need a pool that is costing high five figures, now. It's just stupid that homes that sold for $600K a few years ago are now listed at 7-figures!

 

Where was I wrong? I said early on that the ridiculous levels of government spending in a supply strained economy would cause inflation. It did.

I have not been one to predict recessions, depressions, or other economic armegeddon. My main point is that the inflation will be with us for quite a while. I hope they kill it now while the economy can handle it rather than later.

Inflation is very much like Nole fans; the longer they hang around, run their mouths, and eat your food and drink your drink, the harder it is to clean up the mess

 

Starter homes are the way to go. By that I’m talking about a small 2-1. That’s where me and my wife were. Then once she became pregnant with out second child we moved to a small 3-2. The spare bedrooms were less than half the size of homes these days. Then after our second was born we custom built a 3-3 that could transition to a 4-3 if needed. No pools except for the 6’ plastic one in the back yard filled by the garden hose. There are inexpensive homes available if you’ll swallow your pride and live among the lower class to lower middle class. Fixer uppers are even cheaper.

 

Do you think the collapse of the bridge in Maryland and its effect on shipping contributes to inflation? I'm no expert, but I would think a shortage of good would be a contributing factor.

 

Yes.

 

Not yet, but I wouldn't be shocked to see that impact new car prices. Everything else is pretty easily shifted, but a lot of cars come into Baltimore.

 

Hence, prices should come down - or at least stabilize.

I know people keep pointing to the structural lack of supply which goes back to the Great Recession/Financial Crisis/Housing Bubble. I’m not disputing that. But seems to me there are signs of the froth coming out of this market. At least in Florida, but it usually works similarly in all the “hot” markets.

The long term supply situation I see as something that maybe puts a floor under the market and makes a RE collapse seem unlikely, but it doesn’t necessarily support some of the outlandish prices. I’m already seeing some people who were obviously flippers getting burned because builders are starting to undercut them. So you bought a house for 800k and are trying to flip for $1.1m because a year ago maybe a few were able to, but the builder is now selling basically the same house for 700k. Sucks to be you! Starting to see a bit of that. I’m guessing some flippers and RE agents are seeing that too, and it’s going to cause a tick up in cancellations in the coming year. What happens to cancellations? They come to market as inventory that builders must move. Again, just anecdotes but in the developments I’ve been watching some of this inventory sits around for awhile until they start cutting prices. Nothing drastic, but definitely below “a year ago prices” or the fevered dreams of house flippers. There was much less of that a year ago.

 

We need to replace the 9 million employed undocumented immigrants in the USA with that robot workforce you must know about. The one that doesn't require housing, healthcare or have kids requiring education. Coulda ya help out and maybe provide some insight on who's gonna do those jobs?

You must be referring to the CARES Act signed by Trump ? Ya know, the largest federal assistance program in history.

 

I'm not talking about single family construction. The materials for apartments complexes, commercial buildings and self storages don't come down. In my career, I've never gotten a letter telling me concrete prices per yard or a bundle of shingles were dropping. The only material we use that regularly does move down is lumber. A ton of projects are on hold. If we waited for prices to catch up to inflation with current rate, we'd be waiting a decade. Rates need to come down a bit. Even 1.5 pts would enable alot of movement on the development/lending side.