'Paycheck to paycheck': Majority of U.S. households feel they are living on the economic edge
From many middle-class and lower-income households living paycheck to paycheck to financial pressures on community and regional banks and the commercial real estate sector, the
The
Fed Chairman
"We have raised interest rates by 5 percentage points in a little more than a year. We are seeing the effects of our policy tightening on demand in the most interest rate-sensitive sectors of the economy, particularly housing and investment. It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation," Powell said
Tough times for many
Inflation has eased some with the latest Consumer Price Index showing
Still, a new national survey by financial firms
Roughy two out of three 'Gen-Xers' and younger 'Gen-Zers' also reported living based on pay cycles. The same survey showed 28% of
Prices remain high for food and shelter and inflation is also a global concern with high rates in parts of
Powell acknowledged the interest rates hikes are challenging two sectors also at the forefront of economic stresses — commercial real estate and banking.
"The
Banking troubles?
The failures of
The failures in February have resulted in significant deposits and other money being moved from small banks to larger 'too big too fail' institutions with more cash reserves and more certain federal backing. That has resulted in big money moving to big banks such
Powell stressed at a
"Conditions in that sector have broadly improved since early March, and the
Still, regional and community banks face financial pressures if they lose significant deposits and capital reserves to bigger banks and face tighter lending rules.
That could reduce real estate lending and investing — especially in smaller markets. Regional and community banks make up 70% to 80% of commercial real estate lending, according to Moody's Analytics.
That could be as unpleasant as it sounds.
"I think there will be 30% fewer regional and smaller banks in five years," Baen said. "I think there will be mergers, etc."
In the aftermath of February's bank failures, President
Those local institutions tend to make more of the small business and real estate loans in mid-sized and smaller markets.
Commercial and multifamily real estate landlords and investment groups with short-term loans that previously took advantage of lower interest rates have tough situations and decisions on the horizon when they need to refinance.
"They are going to hand them back," Baen said of landlords and real estate investment trusts potentially defaulting on commercial loans and giving "the keys' to properties back to lenders. "We don't call them foreclosures. They are asset reallocations."
The
Baen said as much as 50% of the
He said consumers are getting smacked by inflation and now higher interest rates that drive up the costs of mortgages, car financing and other expenditures.
"Consumers are living on credit and negative savings. Balances are skyrocketing," Baen said in a market analysis report last month before a
The investment firm is concerned about the banking situation and its impacts on commercial real estate markets.
"Recent turmoil in the banking industry has renewed concerns that the crosswinds buffeting commercial real estate could turn into headwinds. Of particular concern are midsized and regional banks, which purchase commercial mortgage-backed securities (CMBS) and are active commercial real estate lenders. A pullback in lending by regional banks could create a credit crunch that would have a negative impact on real estate valuations," AllianceBernstein analysts write an
He hopes the Fed eases up on interest rate hikes as more expensive lending costs exact their own economic toll in the inflation fight.
Longhofer said the higher rates puts pressure not only on real estate lending but pushes investors and big capital players away from real estate into financial securities and other investment options.
"There is softening demand for those real estate assets," he said.
Longhofer and other real estate industry experts expect to see 'a flight to quality' mentality among investors. That could see capital focus on established, larger markets potentially at the expense of smaller and outlying areas.
He also warns against big national brushes predicting real estate and banking trajectories.
"There is no such thing as a national real estate market. Every market is local and has a very unique situation within it," he said.
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