Housing in a Fed stress test scenario

The median price of houses sold in the United States in March 1963 was $17,800.

Adjusted for inflation to March 2025, that would be $186,600.

But in fact the median price of houses sold was $416,900, 123% higher.

A 36% shock to that as contemplated by the Fed's recent bank stress tests could bring the median price of houses sold down to $266,800, dialing the clock back to 2013, which is still 43% higher than what the long term price would be merely adjusted for inflation.

A large number of homeowners who have purchased homes from 2020 when prices skyrocketed by 31% could be instantly underwater in this scenario. There have been 4.73 million new large bank consumer mortgage originations since 2Q2020.

Add losing a job and boom, you could have another foreclosure crisis all over again.

The 2007 shock to the median price of houses sold was only 19% 1Q2007-1Q2009, with prices not recovering until 1Q2013, but many millions of foreclosures were completed over the period.

A mitigating factor for homeowners generally today is owners' equity in real estate, which was almost 62% in 2005, but in 2025 is almost 72%, ten points higher. We haven't seen a level like that since 1960. 

Owners' equity had crashed by a quarter to 46% by 1Q2012, the lowest on record in the post-war.

Every major bank passes stress test from the US Federal Reserve

507 banks failed in the United States 2008-2014 inclusive, costing the Deposit Insurance Fund nearly $90 billion. Many millions of homes went into completed foreclosure.

 

Big banks all pass the Federal Reserve’s less vigorous stress tests

 

... All 22 banks tested this year would have remained solvent and above the minimum thresholds to continue to operate, the Fed said, despite absorbing roughly $550 billion in theoretical losses. ...

 

Under this year’s hypothetical scenario, a major global recession would have caused a 30% decline in commercial real estate prices and a 33% decline in housing prices. The unemployment rate would rise to 10% and stock prices would fall 50%. In 2024, the hypothetical scenario was a 40% decline in commercial real estate prices, a 55% decline in stock prices and a 36% decline in housing prices. ...      

 

The 2024 benchmarks are a mixture.

 

Commercial real estate prices year over year fell more than 11% in 4Q2008, and more than 30% in 4Q2009. Planning for a future 40% decline seems appropriate.

 

The 2007 shock to the median price of houses sold was only 19% 1Q2007-1Q2009, with prices not recovering until 1Q2013. But since the median price of houses sold has jumped by about 31% just since 2020, planning for a future 36% decline is more than appropriate.

 

Unemployment peaked at 10% in October 2009. The civilian employment level contracted by almost 7 million 2007-2010 on an average basis, and did not recover until 2014, seven long years later. Pandemic unemployment peaked at 14.8% in April 2020. We got as high as 10.8% in November and December 1982. Great Depression unemployment peaked at 25.59% in May 1933. This one is a crap-shoot. 

 

The average price of the S&P 500 fell 50.8% between October 2007 and March 2009, but in 2007 the S&P 500 was valued about 26% above the long term mean, not 130% as in 2024.

 

That's the datum that worries me. Just to get to its historical median value of 81, the S&P 500 today would have to fall 61%, to about 2425.

 

Imagine the howls. 

 

 

 

  

 

Clueless Ed Kilgore today post-mid-March thinks angry Democrats are in the minority based on a Gallup poll from late January

But this simply ignores everything Trump has flooded the zone with since January 27. That's a backward-looking poll.

Trump's has been a non-stop roll out of actions designed to alienate everyone in every arena.

Republicans are angry, too.

Has Ed been living under a rock?

Ed Kilgore here in "Today’s Angry Democrats Are Not Tomorrow’s Tea Party of the Left":

... it’s not accurate to say that the current wave of anger is ideological or the product of an aroused Left. As Politico notes, Democrats unhappy with their party are not at all united in any ideological diagnosis or prescription:

Despite the restive energy in the party’s progressive wing, the Democratic discontent does not seem to be centered around a desire to pull the party to the left or the right. Democrats cannot seem to agree on which direction the party should move in — recent Gallup polling found that 45 percent wanted the party to become more moderate, while 29 percent felt it should become more liberal, and 22 percent wanted it to stay the same.

I think it's way too early to say this is or is not like the Tea Party period. It was 21 months from Santelli's Rant to Election 2010, so it's still very early innings, the beginning of the game. We're not even two months in. 

The energy I've seen in the interim directed against office holders does resemble the Tea Party movement in some ways, which was a maelstrom of angst for its time, sucking rich and poor and everyone in between into its vortex. Its energy reverberated long after into the November 2010 election and later into the Occupy Wall Street movement.

The violence against Tesla does not resemble the Tea Party. But it is energy. And it is ideological. Elon Musk is a traitor to the green energy movement, making the prospect of climate doom more probable to them. The left is most definitely aroused.

I can still remember my congressman warning me that unless he voted for TARP in September 2008 my credit card might stop working. Politicians like him then weren't focused on ordinary people and their views, same as today at Republican town halls where one tone-deaf politician after another is greeted with derision by people upset about losing their government jobs and in fear of losing benefits they've earned.

The Tesla protesters think climate doom is near, just as the craziest factions of the Tea Party movement were sure another Great Depression was just around the corner.

No, the politicians in 2008 were focused on the big money failures of investment banking like Bear Stearns, Merrill Lynch, and Lehman Brothers, which were outside the FDIC system, not on the people whose traditional banks and jobs were in actual peril.

Civilian employment fell by 3.5 million just from December 2008 to March 2009. 24 banks failed during this period alone, after 22 failures already in 2008 up to that point.

And what the politicians did subsequently fixed nothing.

461 more FDIC banks went on to fail by the end of 2014. Civilian employment crashed by 10.05 million from July 2008 to January 2010, and did not recover its July 2007 level until October of 2014. Between 2006 and 2014 there were approximately 9.3 million real estate foreclosure filings or the equivalent.

Millions were badly hurt. Many never recovered. They and their children voted for Trump in 2016.

People getting hurt is the standard of comparison in these things.

Putting 600,000 government workers out of a job all of a sudden in 2025 is really bad, stupid, and downright mean, but not on the same level as the Great Financial Crisis. But start missing Social Security checks or disappearing your neighbor in the middle of the night because something was wrong on his immigration paperwork and things might get spicy. A shooting war with Canadians or Mexicans, or Panamanians or Danes, would be next level.

American tourists or workers or residents abroad incarcerated in a tit-for-tat with the Trump administration might start to focus even more minds.

Who knows what's next?

Like I said, early innings, the energy is building, but Kilgore isn't here.

 

Al Hunt and James Carville laughably pretend that Obama didn't dominate Washington by flooding the zone with shit like Trump is doing

Hey Obama! Guess where I'm calling from!

Carville: Trump Has Flooded The Zone With Sh*t And We Don't Have A Response 

 

Al Hunt:  And [Trump] dominates today like no other president I've seen. And he dominates with a reckless disregard for truth and more importantly, for the rule of law. 

 

James Carville: The Democrats are depressed . . .. 

 

It's comic how these old farts don't remember 2009-2010, how civilian employment crashed by 6 million, how 6 million homes went into foreclosure, how housing wealth evaporated, how hundreds of banks failed, and how Obama was content to hand off all these problems to Democrat gangsters from Wall Street to bail out their cronies and prosecuted no one, all while providing zero leadership to a divided Democrat Congress preoccupied with . . . Obamacare, as if people losing everything in this situation had healthcare as their number one priority.

 

And then Democrats promptly handed everyone healthcare they couldn't afford and couldn't use.

 

Talk about depressing.

 

Talk about shit.

 

Gallup poll not good for the incumbents Biden-Harris: Economy ranked most important as in 2008 when the voters dumped the incumbent Republicans represented by John McCain

WASHINGTON, D.C. -- The economy ranks as the most important of 22 issues that U.S. registered voters say will influence their choice for president. It is the only issue on which a majority of voters, 52%, say the candidates’ positions on it are an “extremely important” influence on their vote. Another 38% of voters rate the economy as “very important,” which means the issue could be a significant factor to nine in 10 voters. ...

The current 52% of voters rating the economy as an “extremely important” influence on their vote for president is the highest since October 2008 during the Great Recession, when 55% of voters said the same.

More. 

It's not 2008, obviously, where everyone feared a catastrophe with banks failing left and right, homes going into foreclosure, and stocks tanking, but the perception of the economy as lousy today because of high inflation is remarkably high as it was in 2008 as indicated by this poll.

Everyone forgets that the vast majority of the job losses came after Obama was elected in 2008, not before, which took a record number of years to recover, setting the stage for Donald Trump. And pandemic fear drove the election cycle in 2020 and not the economy because of the gargantuan bailouts of the people.

Kicker:

Voters view Donald Trump as better able than Kamala Harris to handle the economy, 54% versus 45%.

Trump and Harris agreeing on ending the filibuster rule reminds me of McCain and Obama agreeing on something inadvisable in 2008

 

They both interrupted their campaigns to vote for TARP on October 1, 2008, which became law on Friday, October 3, but did nothing to stop the panic.

On Monday, October 6 Jim Cramer came on the Today Show at 7am and told people who needed their money in the next five years to sell their stocks.

The S&P 500 fell from 1099 to 848 by October 27th, almost 23%, on its way to the March 9, 2009 closing low at 676 (there was an intraday low of 666 on March 6).

Over 500 bank failures marked the era fueled by these events, and more than 6 million lost their homes.

And no one went to jail.

Nothing good will come of ending the filibuster, either, not with the country this divided.

 

CNBC fact-checks Joe Biden, now that it doesn't matter

 But the article name-checks Donald Trump five times because he's an opponent of Fed decisions.

There's a whole movement out there that wants to End the Fed, composed of Republicans, Democrats, and libertarians, which CNBC is loathe to mention.

Many of them argue that the US 2-year Treasury Note should be the benchmark for the Federal Funds Effective Rate, not the whim of the Fed Chair and the Federal Open Market Committee, who are un-elected, well-connected, and VERY WELL PAID elites who watch out primarily for the interests of the banksters.

For example, despite the disastrous Zero Interest Rate Policy post-Great Recession, DGS2 resisted it and outran DFF throughout the period under Obama and Trump, and anticipated the recent inflationary outburst by starting to rise in the spring of 2021, a full year before the Fed moved to "combat inflation" by raising the funds rate in the spring of 2022. 

Similarly DGS2 also started to fall in November of 2023 despite no change to Fed policy, anticipating the recent decline of inflation rates by almost a year.

The role of the US Treasury Secretary, AS MUCH A CREATURE of the Executive as the Fed Chair, is also huge for interest rates because the Secretary decides how to divvy up the debt securities for auction by duration.

Biden's Treasury Secretary Janet Yellen has been in the news for driving up the issuance in T-bills to 22% when 15% has been customary, which has contributed to longer rates falling and stocks rising, just in time for the election.

But the costs of this have been dramatic, financing deficit spending at the highest rates and driving interest payments on the debt to the third spot in the budget, behind only Social Security and Medicare.

From Hillary's paid speeches to the banksters post-2012: You need both a public and a private position

 Here.

 

 

LOL: Keep the overseer of sexual harassment at FDIC until they can find a replacement who isn't a Republican, because a Republican would be worse

 These people are so damn perverse it makes your head spin.

FDIC Chairman Martin Gruenberg to Resign Following Report Detailing Sexual Harassment at Agency

Gruenberg plans to stay until successor is confirmed, avoiding scenario that would leave a Republican as acting chairman

Janet Yellen: Sexual abuse of female employees at FDIC under Martin Gruenberg "totally unacceptable"

Treasury Secretary Janet Yellen signaled her displeasure, telling reporters Tuesday that “the kind of abuses that were documented in the report are a totally unacceptable way to treat employees at the FDIC and not in line with the core values of the Biden administration.” She stopped short, however, of joining Republican calls for his resignation.

 

More. 

Well now, they've been keeping that one pretty quiet in the media haven't they?

 

There's a different level of scrutiny for Republican appointees, until it gets so bad for Democrat ones that they can't avoid it any longer.

 

Republic First Bank of Philadelphia: First bank failure of 2024 costs the FDIC Deposit Insurance Fund $667 million

 

fdic.gov

Fulton Bank, N.A. of Lancaster, Pennsylvania Assumes Substantially All Deposits of Republic First Bank, Philadelphia

~3 minutes

---

WASHINGTON — Philadelphia-based Republic First Bank (doing business as Republic Bank) was closed today by the Pennsylvania Department of Banking and Securities, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect depositors, the FDIC entered into an agreement with Fulton Bank, National Association of Lancaster, Pennsylvania to assume substantially all of the deposits and purchase substantially all of the assets of Republic Bank.

Republic Bank’s 32 branches in New Jersey, Pennsylvania and New York will reopen as branches of Fulton Bank on Saturday (for branches with normal Saturday hours) or on Monday during normal business hours. This evening and over the weekend, depositors of Republic Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on Republic Bank will continue to be processed and loan customers should continue to make their payments as usual.

Depositors of Republic Bank will become depositors of Fulton Bank so customers do not need to change their banking relationship in order to retain their deposit insurance coverage. Customers of Republic Bank should continue to use their existing branches until they receive notice from Fulton Bank that it has completed systems changes that will allow its branch offices to process their accounts as well.

Customers with questions about Fulton Bank’s acquisition of Republic Bank may call the FDIC toll-free at 1-877-467-0178. The FDIC’s Call Center will be open this evening until 9 p.m. Eastern Time (ET); on Saturday from 9:00 a.m. to 6:00 p.m. ET; on Sunday from noon to 6:00 p.m. ET; on Monday from 8:00 a.m. to 8:00 p.m. ET; and thereafter from 9:00 a.m. to 5:00 p.m. ET. Interested parties may also visit the FDIC’s website.

As of January 31, 2024, Republic Bank had approximately $6 billion in total assets and $4 billion in total deposits.  The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) related to the failure of Republic Bank will be $667 million. The FDIC determined that compared to other alternatives, Fulton Bank’s acquisition of Republic Bank is the least costly resolution for the DIF, an insurance fund created by Congress in 1933 and managed by the FDIC to protect the deposits at the nation’s banks.  Republic Bank is the first U.S. bank failure this year; the last failure was Citizens Bank, Sac City, Iowa on November 3, 2023.

Female examiners left the FDIC because of what they say was a sexualized, boys’ club reports Rebecca Ballhaus

 Strip Clubs, Lewd Photos, Boozy Hotel: Toxic Atmosphere at FDIC...

Five bank failures in 2023 to date costing the DIF $35.569 billion

 11-3-23 Citizens Bank of Iowa: cost to the Deposit Insurance Fund is $14.8 million

7-28-23 Heartland Tri-State Bank of Kansas: cost to the DIF is $54.2 million

5-1-23 First Republic Bank of California: cost to the DIF is $13.0 billion

3-12-23 Signature Bank of New York: cost to the DIF is $2.5 billion

3-10-23 Silicon Valley Bank of California: cost to the DIF is $20.0 billion

Bank failure No. 3 of 2023: First Republic Bank of San Fran Freako, California

 

The FDIC estimates that the cost to the Deposit Insurance Fund will be about $13 billion. This is an estimate and the final cost will be determined when the FDIC terminates the receivership.

More.

The cost of the Silicon Valley Bank failure to the Deposit Insurance Fund dwarfs the number one IndyMac failure, the Signature Bank failure cost will rank fourth highest ever

 SVB will cost the DIF $20 billion. Signature will cost $2.5 billion.

These are enormous sums.

Combined they represent a 17.55% hit to the $128.2 billion balance of the Deposit Insurance Fund as of 12/31/22.

Reported here and here.

SVB will rank numero uno in this list ahead of IndyMac's $12 billion.

Signature Bank will probably rank fourth ahead of Colonial Bank's $2.4 billion. The final costs are yet to be determined.

Until these two recent failures there were just six institutions in the billion dollar or higher club for DIF bailouts.

FDIC member institutions fund the DIF through FDIC-imposed assessments.

It is received opinion that these bailouts will cost the taxpayers nothing. 

It is a fact that the tax-paying customers of these banks end up paying, through high interest rates on loans and effectively zero return paid by the banks on deposits. 

OK, you can safely return to hating the banks now

 

US Treasury yields have tanked 14% since March 8 amid bank failure fears

The yield curve aggregate averaged 4.674 on March 8. Now it averages 4.017.

Bills yields fell from an average 5.09 to 4.52 in nine days, 11%, after rising 6.5% in the month 2/8 to 3/8.

Notes yields fell from 4.45 to 3.55, a whopping 20%, after rising over 12% in the month after 2/8.

Bonds yields fell from 4.00 to 3.68, 8%, after rising nearly 6% in the month after 2/8.

It's been extremely difficult to trade the volatility. $TLT is up 5.31% ytd., but $AGG is up just 1.99% ytd. It is a fool's errand to invest in bonds when they behave like stocks.

Meanwhile $SPX is up 2.42% ytd.

This is my opinion, not advice.

The stocks of regional banks have taken a beating in the last ten days, but the banks are still standing

 

Today's toxic assets, if you're a bank, are AAA-rated 30-year fixed rate mortgages from 2020-2021, and 10-year and 20-year US Treasuries of the same vintage

A bank would normally keep AAA assets happily, and hold them to maturity in many instances.

Having to sell them in a rising interest rate environment is where all hell can break loose.

No one wants to buy a UST paying 0.89% when T-bills pay 4.5%, so you have to sell it at a loss to raise cash.

A bank without cash is a failed bank.

Be kind to your banker. He's not having a good week. Even if he didn't pay you interest like he should have since 2008.

 

Discount window bailout operations for banks are now officially worse in magnitude than in 2008, though not in scope

We don't have 500 bank failures.

What we do have is Dodd-Frank 2010 limits on deposit insurance not keeping up with 2023 realities.

Unless Congress steps in and helps high depositors, there will be an exodus of high depositor accounts all across the country to money center banks which have too big to fail status and an FDIC put as systemically important enough to backstop.

This would mean many local banks will come under stress and at minimum weaken local economies even if they don't fail.

We do not need the big banks to become any more powerful than they already are.

And we certainly must not weaken local economies.

The reasons in the plumbing don't matter at this point. It's too late for that.

The $250k limit has to change. The authorities at the Fed, Treasury, and FDIC are constrained by that in what it is permissible for them to do.

Call your Senator.

Call your Representative.