Hello everyone and Welcome to another

episode of Selling Greenville your

favorite real estate podcast here in

Greenville South Carolina I'm your host

as always Stan McCune realtor right here

in the Greenville area you can find all

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today I want to take a little bit of

a different sort of episode than we that

we typically do

and and I had a listener Nick I'm

sure you're listening mentioned

recently that he'd be interested in my

me talking about Politics on my

podcast not necessarily this one but to

have like a politics podcast

I don't have the time to do that but

there are times when Real Estate and

politics overlap and that has never

been more true than today and so I've

there's a topic that has been very

interesting to me that I felt like I

wanted to share with you because as you

guys know if you've been paying any

attention lately you know that for

several years now the Federal Reserve

aka the FED has had a really outsized

impact on real estate they always do and

they always have but we really felt

it more in recent years as we had the

FED cause super duper low mortgage rates

during the pandemic and now we had

the the most dramatic jump in mortgage

rates that we've ever had in history

that happened you know basically the

past year

and now here we are with rates

that historically are not the highest

but but in comparison to the Past

15 years they're they're not

particularly low

they're more on the high end of

the spectrum for for recent history

and so this is all the direct result

of what the Federal Reserve has been

doing

and there is a bit of in my opinion

I'm gonna jump ahead for a moment

but there's a bit of a ticking Time

Bomb when it comes to the fed and that

is that I believe at some point the FED

will become partisan and at some point

and that will have even more of an

impact on housing than it does now

but before I get too far into that I

just want to kind of

make sure that we're all kind of at the

same Baseline when it comes to just a

very basic understanding of the fed the

fed's a very interesting institution

they're considered one of the final

major non-partisan institutions in the

US government with fed Governors

and fed presidents not claiming any

party affiliation now I'm sure they have

some sort of party affiliation but this

this isn't a part of what they are as

government Governors and presidents

within the FED they're not elected to

their positions

at least not by people the president

of the US appoints the governors and the

Fed chair and the I believe the vice

share as well there might be a few other

things that the President appoints

but those are the main ones and then

the Senate confirms them

and there's not very many

people on the Federal Reserve like it's

a pretty it's a small group

I believe the the entire group of

those that can vote if I remember

correctly are 14. so

it's basically like a board

and so the President appoints the

governors and the Fed chair and then

the Senate confirms them and to my

point that I made earlier about them

being for the most part nonpartisan

many of them have been appointed by a

president from one party and then

reappointed by a president from another

car from another party this was the case

with you you probably heard years ago

Ben Bernanke who is appointed by George

W bush and then was reappointed by Obama

and right now the the FED

chair is Jerome Powell

and it's looking increasingly likely

that President Biden is going to

reappoint him even though he was

originally appointed by Donald Trump so

there is validity to the fact that this

is a non-partisan position in a

non-partisan organization at least

functionally that's how it's been up to

this point

now Fed chair terms what Jerome

Powell is doing are for four years so so

not very long but the FED Governor terms

are really long they are 14 years but

what one thing that's kind of

interesting that you might not realize

is that most of them don't end up

finishing those 14-year terms and

there's a very selfish reason for

that and that's that they can make so

much more money in the private sector

like once you join the FED then you

can't actively trade in the stock

market and things like that because then

you would be incentivized to to do

things that would only help you help

your bottom line out

and so oftentimes people leave the

FED after roughly seven years that's

about the average that the people are

governors in the FED is seven years and

then their vacancy is filled by someone

else who the president reappoints or or

who the President appoints and then they

just finish that time so if one

fed Governor resigned after seven years

when his or her seat is filled when that

vacancy is filled then it's just a seven

year remaining term for for those

people

now I don't want to get too much more

into the weeds of all of that and how

many different members and how many

different positions there are

and and how all the inner mechanics

work I just wanted to lay that

Foundation to lay that groundwork to

make sure that we all had a very basic

rudimentary understanding of what the

FED is and how these people get into the

FED it's kind of a bit of a mysterious

organization and and

I feel like the media talks about

them like they talk about the economy

right

I remember years ago there was a

South Park episode

and if you don't know me very well I

am a big fan of South Park I think it's

an ingenious show it's hilarious

and there was an episode one

time that talked about the economy where

where they made fun of how everyone

talks about the economy like it's a

being like it's something that that

does things where where the economy is

just really it's just a label that we

describe people trading people buying

and selling things that's that's all the

economy is just a label for

trade happening

well the FED is kind of similar I

feel like when the media and when so

many people talk about it they they talk

about it like it's this mysterious thing

well it's basically just a board of

people that tend to have backgrounds in

economics

and they can increase or or lower

rates and they can pull these different

levers that impact the economy

and they are constantly analyzing the

economy and trying to play this role

in whereby they try to keep inflation

and employment where they need to be

right that's what they're constantly

trying to do they're trying to and

you know as much in most situations

they're trying to avoid recession now

right now perhaps you could argue that

they're trying to to put the US in

recession in order to avoid the

inflation issue that's a another topic

for another day

but well maybe not maybe we'll

discuss a little bit later I don't know

we'll see where this goes but

but regardless that is what what the FED

does on a on a big picture level and

that's who they are on a Big Picture

level

bottom line is that the Federal Reserve

is truly one of the last non-partisan

institutions in the U.S when a Fed

Governor resigns it's barely a blip

on the radar I mean do you even hear the

media even talk about it but if a U.S

senator resigns it is all over the

national headlines but a Fed Governor

has way way more power than a U.S

senator there are way more U.S senators

than there are fed Governors a single

Senator generally speaking does not have

that much power in comparison to these

people that are on the fed and so that's

something that's very interesting too

just how the media covers the FED

they don't have as much interest in in

them and that is because it is a

non-partisan institution it doesn't

generate the headlines right it's all

this partisan stuff that that brings

the clicks to CNN and MSNBC and Fox News

it's they it's people you know wanting

to hear stuff about their Camp you

know I'm a

Republican or I'm a Democrat I want to

hear stuff about my people and I want to

hear all the bad stuff about the other

people well the FED they don't

have a side and so I think it just

doesn't benefit CNN and Fox News

MSNBC and all these organizations all

these media companies to talk about them

very much on a on a microscopic level

they talk about them on a macro level

but yeah when you think about it it's

kind of crazy right because the Federal

Reserve in a single meeting can

dramatically impact your ability to

borrow money your ability to purchase a

house you're if you're an employer your

ability to hire employees like in a

single meeting they can make dramatic

decisions that dramatically alter

your life and the lives of those around

you and yet people don't actually sweat

out who is actually in the FED like

that's crazy as I already said they have

way more power than any Senators has

Bill Clinton even half joked one time

and I think it was more truth than

joke that the FED has more power than

him when he was president

and the FED has only grown in power

since Bill Clinton was in office they

they took all sorts of power during the

Great Recession and they did that again

during the pandemic they've really

become a

really one of the most powerful parts of

the US government

so it stands to reason that it is only a

matter of time before the FED becomes

partisan before it becomes Republican or

Democrat just like the Supreme Court

used to be considered nonpartisan until

it became dominated by liberal justices

and I'm I'm gonna say it was the liberal

justices that turned at partisan not the

people are thinking oh it's only turned

partisan in recent years with the with

the Trump conservative justices no and

I'm not saying that I lean one way or

the other if you know me you know I

tend to not be clearly I'm an

independent voter and my vote shifts

depending on from one party to the

next depending on what the principles

are of of the various candidates

but the reality is that the Supreme

Court became partisan with the liberal

justices of the previous decades not the

more conservative justices that have

come in under Bush and Trump

and or the liberal justices under

Obama either it was the liberal justices

way way before all of them

and so

we have we saw the Supreme Court become

partisan in previous decades and I

think we can all expect sooner than

later that the FED which like the

Supreme Court is supposed to be

nonpartisan and currently I think you

can argue is nonpartisan is going to be

the next partisan Battleground we've

already seen some indicators of this

if you want to go back to the Obama

Administration he attempted to appoint

Peter diamond and that was shot down by

a Republican Senate in 2010 due to his

background in labor economics

so that was kind of when partisanship

during the Obama Administration was when

I feel like partisanship really went to

a whole new level and Trump's presidency

Republicans actually also shot

down his appointment of Judy Shelton as

a governor

she was someone who advocated for a

return to the gold standard

which is by most people's Reckoning a

fringe economic idea held on to by some

on the far right mostly like extreme

Libertarians

so so again this was someone who was

a close advisor to Donald Trump he tried

to get her on the fed and and the

Republicans Senate at that point shot it

down had she joined the fed and she was

very critical of the fed too that could

have really had a big impact so we were

very close very very close to to

seeing something that had never happened

before happened that would have been

really the closest we've come to a

partisan an overtly partisan member

of the Fed

more subtly when inflation started

getting out of control last year

President Biden said that a big part of

his plan to reduce inflation was to let

the FED handle the issue like Obama

sorry Biden had basically no plan for

tackling inflation his plan was I'm just

going to let the FED cook he didn't

obviously didn't didn't use that

language but as the kids would say

just gonna let the FED cook

well that's kind of an odd thing to

say right not the cooking part but but

that he was just going to let the FED

handle the issue right and that kind of

an odd thing but I think what he was

doing was letting his party know that he

wasn't ready to take on the Federal

Reserve that he was going to let them do

their thing and not make the FED a

Battleground that would ultimately turn

partisan that's what I think he was

signaling when he said that

and the fact that he needed to say

that that he felt that he needed to say

that makes me think that there are a lot

of people in government right now who

would like it to be a bad ground so I

think that that's a little a little

Easter egg that that President Biden

left for us when he issued that

statement on how he was going to tackle

inflation and of course we all know the

inflation reduction act that he passed

has done absolutely nothing to reduce

inflation none of none of our inflation

reduction that has happened as a

result of that act at all in my opinion

it's anything of the it's the

fed the FED is who is tackling inflation

more than anything there's only so

much that the president can do anyway

so I'm not saying that this is all

Biden's fault

but he hasn't nothing very

little can be attributed to him as a

president in terms of of handling the

inflation issue

but I think that's ultimately where

this is all headed that this is all

headed towards the FED becoming a

partisan institution everything in 2023

is political but somehow somehow the

Federal Reserve one of the most powerful

institutions in the U.S isn't

one of the most powerful institutions

that that impacts how much you have to

pay for a house

that impacts whether small businesses

can borrow money

at an effective rate at a rate that they

can afford that power hasn't become

political yet that's insane you know

that's going to change eventually it it

is definitely going to change and I

suspect as I already said it will be

sooner than later the FED has

essentially said that they intend to

bring about I said I wasn't gonna talk

about this but we will talk about this

for a second they've essentially said

that they're going to bring about a job

loss recession in order to tame

inflation talked a little bit about this

last week

well the reality is think about this

nobody wants inflation but even fewer

people want to lose their job right so

the FED is trying to tame inflation by

causing people to lose their jobs

people want to lose their jobs even less

than than they want inflation at least

if you have inflation and prices are

high if you have a job you can do

something about it right you can become

a more careful spender you can avoid

things that are too expensive for your

budget but when you lose your job

everything is too expensive and so we're

in the early stages think about this

we're in the early stages of a

presidential election Ron DeSantis

is by the time you're listening to

this he will have already come through

South Carolina as part of the kickoff to

his campaign we're full blown in

presidential election mode and the FED

may be causing a recession right in the

middle of that and already some Senators

have expressed a lot of angst about that

and you know what you can't think

that Biden is very happy about that

right going into this upcoming

crucial year for him if we go into

recession at the beginning of of 2024

that doesn't bode well for his

re-election campaign

and so the FED doing this is going to

make a lot of people very unhappy and it

could sway elections next year

and

guess what people the Senators

presidents

Congress people they're not going to

want this non-partisan fed swinging

elections they're not going to want that

to happen and so I suspect that if

the the news next year if it says if if

the The Narrative that is in the media

is that the FED impacted the

elections guess what the FED is going to

very very quickly become partisan it's

going to very very quickly become a very

important part of a media coverage of

the government and so what happens when

the FED becomes partisan I've laid this

this big

Foundation does groundwork well this is

a real estate podcast it's not a

political podcast so I'm going to stick

with real estate slash housing

ramifications

as I've already said before the primary

lever that the FED can pull in housing

is mortgage rates they don't directly

set mortgage rates but they indirectly

set it with the 10-year and and federal

funds rate and different things like

that

and what we've learned is that this

is a very very powerful lever when rates

are low real estate goes Bonkers that's

what happened after during the

pandemic and when rates are high things

slow down dramatically literally just

had a whole podcast where we talked

about this so I'm not going to rehash

all of that but the affordability of

housing is going to be increasingly an

important political issue in upcoming

years and I believe is an issue that

will directly impact people's votes

people are going to vote on housing

we're already seeing it happening but

it's going to be even a bigger issue in

upcoming years because we're we're

entering this long

period of of low inventory is what I

think is going to happen

so it's and and you know housing

affordability

for people in their late 20s early

30s it's not easy right now it's not

easy

those that are retirees trying to

downsize or whatever they're not

going to like potentially having to pay

these higher interest rates

and so again people say they don't

like inflation but as crazy as it was

when Real Estate was appreciating at

unprecedented levels between 2020 and

2022 people mostly liked it right

sellers like getting their homes under

contract quickly for above list price

and for 20 more than their neighbors got

their home under contract for the year

before

buyers didn't like all the bidding

wars when they were finally able to get

a home under contract and could lock in

that three percent interest rates they

were ecstatic so really everyone liked

it and nobody likes this higher interest

rate environment nobody nobody

feels good about it and so the mood now

is much more sober buyers are still in

bidding wars we've talked about this

it's just not as intense as in the past

but what do they have to show for it

after they they finally went out and get

a house under contract there aren't any

more of these record low interest rates

to get excited about and so there's

almost like no payoff it's like a hike

that's like super duper hard to get to

the top and then you get to the top and

there's nothing pretty to look at it's

just like all these you know

ugly trees and and dirt that's what it

feels like to buy right now

sellers and that's what it's going to

feel like to buy for several years

unless rates come back down and sellers

you know it's an uncertain time

right now if you're selling real estate

there's a lack of confidence and what

exactly a home will sell for in this

market even though it's still very

much a seller's market so so right

now the situation that we find ourselves

in is kind of this no win situation

and a a market where what the FED is

doing might be necessary but nobody

really likes it it doesn't feel good

and I'm not saying that that they

that the feds should

change what they're doing on the basis

of people's feelings but what I am

saying is that people tend to take their

feelings to The Ballot Box and they tend

to vote based on their feelings and if

they feel bad if the mood is bad because

of what the FED is doing that is

going to irritate some politicians I

can assure you of that some people that

are up for for election or re-election

in 2024.

and it's not too hard to imagine a

future where Democrats and Republicans

form two camps right there could be the

higher rates lower inflation Camp and

the lower rates higher inflation Camp I

could totally see that becoming a a

political partisan direction that we

go in with the Federal Reserve as the

Battleground I can see other

possibilities as well maybe a Federal

Reserve should be less powerful Camp

which has already kind of been around in

in libertarian circles

but hasn't been mainstream versus

a keep the FED a powerful one which is

basically what both parties up to this

point have have more or less believed

in but maybe that changes and becomes

you know maybe Republicans it becomes

more mainstream that the Federal Reserve

should be less powerful

who knows

most likely I don't see that as

likely of a scenario because I think one

the barriers crossed that the FED

becomes a partisan Battleground then

both parties are going to want to keep

it powerful because the FED can do

things without any oversight right they

nobody is checking the the the power at

the fed and ensuring that the FED acts

in good faith

they are unchecked that is what

is so odd about the situation that that

the FED isn't yet partisan that the

media barely covers them

is that they you know they're

they're like from Star Wars

Palpatine when he has that famous

meme of him saying unlimited power that

that is basically what the the FED is

able to say every single day that the

FED exists

so I think that both parties are gonna

want to keep the fed and just tap into

that unlimited power

as it were

now I can imagine a future

let's just think about this again

thinking about the ramifications well

what if the FED becomes partisan and

what if you know a new president comes

in and is you know appointing very

different fed Governors very

different fed chairs than the previous

president ones that would want to

take the FED in a completely different

direction

I can imagine a future where we're

comfortably settled in with a five

percent and a five percent mortgage rate

environment and a new president comes in

and appoints a new Fed chair and some

Governors and and suddenly we see rates

go way up or more likely way down

overnight with massive real estate

market volatility I could totally see

that like that is the the what could

happen in this scenario that I'm

describing we've talked about it before

but we will really experience the

Day of Reckoning and really years of

Reckoning for the low rates of the

pandemic unless the FED drops rates into

the low low fives or high fours

people sitting on three percent rates

aren't going to move like they normally

would in the upcoming years we're just

going to see this is the low inventory

environment that I'm talking about it's

the people that normally would sell

their homes in the next few years

that won't want to do that because of

how good their mortgage rate is

so that means again continued low

inventory continued bidding wars

continued increases in the cost of real

estate

and the FED can control that and so

why wouldn't a president want to come in

why wouldn't the Senate want to

impact those decisions as much as they

possibly could it is only a matter of

time I'm telling you it is only a matter

of time we've got this very powerful

organization willing to send the country

into recession in an election year

put a put that the housing world

the real estate world into recession

into a crisis mode cause a housing

inventory crisis a lot of Voters who are

angry that they can't buy a house

because of how high mortgage rates are

and you're going to tell me that this

won't become a partisan issue very very

soon

yeah it will I'm going to

make perhaps my boldest prediction yet

and that is that within the next 10

years so potentially you know two or

three presidents between now and 10

years I believe that the FED will become

partisan with it being difficult for for

the Senate to confirm the the

president appointees unless the

president and the Senate are the same

party and we'll see start to see more

fed Governors that are that hold more

overtly partisan views than we've

seen in the past I don't know if it'll

be you know like Judy Shelton wanting to

go back to the gold standard but I think

we're going to see more partisanship

it'll probably start at a basic level

but I think it's going to continue to

grow and I think that that particularly

if Biden is not re-elected we could see

this happen very very soon like if

Donald Trump is re-elected in 2024 I

think that we could see this timeline

get bumped up very very quickly now

remember the Fed chair Jerome Powell

I believe it's this year that he is

going to be appointed by Biden

re-appointed

I believe I'd have to go back and

check when when those terms are so that

won't be able to become partisan just

yet

but it could be towards the end of

the next president's term if that

president is not Biden or even if it's

Biden obviously Biden would get the

choice to do that

so this is this is the next

crazy thing in politics right I'm sorry

I'm sorry that I had to drop this

bomb on everyone that that things are

only going to get more partisan

for some of you probably already

realize this

but

and unfortunately this is the world

we live in and this is just what's going

to happen and it will have an impact on

real estate we know that for a fact

that's all for today's episode I

appreciate you guys listening please

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information is in the show notes thank

you guys again and we will talk again next time