KGCI: Real Estate on Air - Understanding Quantitative Easing to Become the Economic Expert for Your Clients

Episode Date: July 1, 2026

Summary:In this episode, the hosts dive into the mechanics of Quantitative Easing (QE) and its direct impact on the housing market. Agents will learn how the Federal Reserve injects liquidity into the economy by purchasing government bonds and mortgage-backed securities to lower long-term interest rates. The discussion covers the historical context of QE since the 2008 recession and provides a tactical strategy for using this "nerdy" knowledge to stand out as a market expert during client consultations.

And welcome to another edition of the nerdy agent podcast. The feedback from the viral videos is that you want more randomness in the conversation. Is that what you want? What is it called? More discussion. Discussion. Bander. Banter.

I'm your host, Luke Pedersen with my brothers and fellow nerds, Josh and AJ. I'm still a little quiet in the mic, but I think we're going to be okay. Today I walked into the office and I set a topic that we're going to talk about. because that's how we roll on this podcast. And I said, we're going to talk about QE, quantitative easy. And Josh said, is anybody going to listen to that? And I said, I guess we'll find out. We're going to find out.

We're going to find out. We're going to. Sometimes we nerd out. Like the goal of this podcast was to inform people, right? And to really nerd out with you to help you get better. But sometimes I think we get topics from like, man, are we getting to the point where we've, we've exceeded the nerdy threshold that people have for us. And this one is really nerdy. But I've, I've been following what the Fed said.

I listened to a podcast about the, Quantitative easing, the money printing, the inflationary stuff about it. And I do think that real estate agents, honestly, anybody should be aware of this. And so I just want to specifically, we'll talk about what it is and what it means and how it can affect you. But I want to make sure they understand the terms if they see this in the news because I think they will see this. So to start, I think we should explain what quantitative easing means. Do you want to give an actual definition of it? Sure. Or you can't explain, and then we can explain it as well. Right. So this is, um, uh, this was the strategy. And again, I'm not like a super dorked out econ mastermind on this stuff, but, um, since when was he not? I just like, isn't like our entire, this, this one is, this is our entire podcast. That's exactly how I would describe this. This is why Josh said maybe we shouldn't have this topic, because it is a very nerdy topic. I'm trying to make it as easy as possible. Um, so what, what it is, is it's

when the central bank, notably the Federal Reserve in the United States, they buy financial assets like government bonds from banks, injecting cash into the economy because they're paying money for these bonds. They're taking them off the books of the banks. And the idea is that that should lower long-term interest rates. So notably, we've talked about the 50-year mortgage and the portable mortgage, all these things that they're trying to do to inject some, some assets. into the housing market. This is your very basic age-old tactic that helps to reduce longer-term interest rates, notably mortgage rates, and other similar products. So that's the whole purpose of quantitative easing. And it's the same strategy that they used between like 2010 and 11 through

2019 when they slowed it down. And then they had to pick it back up once the pandemic hit. So they were trying to unwind it before the pandemic and then they had to pick it back up and now they've slowed it down again. That's what's led to these spreads being so high. Age old, but also pretty new. 2008. That was the first time. It was the first time. Okay. There you go. Because of that pandemic. Because of the recession. Because of the recession. What I don't know, and I'm just going to throw this out here because I did hear this on a podcast, the, the rumor is that it was the BlackRock CEO who suggested quantitative easing during the great recession. Interesting.

Exactly. So essentially they're trying to create more liquidity in the markets. They're giving money back to the banks. And what Gemini says, which is pretty funny, how it works, central bank creates money. Huh. There you go. The central bank creates new money electronically, not by printing physical cash. So they just make up money.

Yeah. I don't think they print money anymore. I think they just make it. They just make it electronically. Yeah. Then they buy the assets, large quantities of them, usually long. long-term government bonds, treasuries, and mortgage-backed securities. They inject the liquidity, and then the increased demand for bonds pushes their prices up and their yields down, making

borrowing cheaper for businesses and consumers. And if borrowing is cheaper, the businesses go on and spend more money, maybe they hire more people, which causes the economy to essentially... Well, and it's a way, I mean, we've talked about this before. It's a way to bypass the overnight rate in some regard. And what we saw, you know, when I got into real estate, when they were still doing this. The spread between the 10-year, we've talked about as many times, the 10-year treasury yield, the mortgage interest rates on 30-year fixed mortgages was trading roughly 150 basis points or 1.5% above the 10-year treasury yield.

So what that looked like was the 10-year yield was at 3.0% and the mortgage interest rate on a 30-year fixed mortgage was 4.5%. What we saw when they started unwinding that in 2022, when the rates started going up and they stopped buying, we saw that spread get up as high as like over 300 basis points or 3.0 percent, which would mean in the same Treasury yield market, you'd see a 6 percent interest rate versus a 4.5 percent interest rate on the mortgages. So that's what you're seeing now is the 10 years still going up. It went up today. But the mortgage rates are not going up in lockstep with it anymore. They're compressing. And the goal, I mean, if you back to politics, right,

the goal right now is you hear affordability a lot. That's the biggest concern, I think, administratively. And you hear a lot of push because of interest rates on that whole concept, right? So if there's a ability to get interest rates down, it spurs the economy. It helps build more business. It helps drive the housing market. It helps drive a lot of different things. And so the efforts being placed right now, the goal, at least from them, is to make that happen. Now, the Fed operates independently. We've talked about this number of times. They just had their last meeting. They lowered by a quarter point, which is what everyone thought. They're continuing to kind of move at the pace they feel comfortable with. but there's a lot of dissension between the administration and even people on the different boards across the country and the actual Fed chair and what they're doing.

So this also could be something of a we're going to keep the pace with the quarter point, but we're also going to do this other stuff that may help reduce interest rates, which is what really they want. You're trying to kind of balance the different components to it. So, I mean, I think at the end of the day, it's pragmatic in that way. you're hopefully trying to continue to land the plane as gently as possible, minimize inflation and keep rates down. So, but the thing that I read about that historically happens is they start quantitative easing, which means they go into their computer and they say $40 billion. And now we have $40 per month.

And now we have $40 billion more in the economy, in the economy, which weakens the dollar and inflates prices. And so there's an argument to be made that if they're that aggressive and what, What I don't know is if $40 billion is a lot from a quantitative easing perspective compared to previously. I have that statistic that I can give you in a little bit here. That's what I'm curious about. So in November of 2008, the Federal Reserve, when this became a concept, committed to buying $600 billion in mortgage-backed securities. And by the end of the quantitative easing, by March, no, sorry, in 2010, they held $2.1 trillion worth of bank debt, mortgage-backed securities and Treasury.

What do they hold right now? Because it's not fully off the balance sheet, is it? I don't believe it is. And bonds. Making the sausage live. That's the best part. But the thing, too, there is if they print money, theoretically inflation happens. If they print money and they quantitative ease and they continue to cut the Fed rate and the compression gets smaller and rates go down, theoretically prices go up as well.

And it gets more competitive in the spring. You're always trying to balance those two things, right? You're trying to balance not overheating the economy and having prices and inflation rise with monetary policy, with not structuring the economy a way where it's unaffordable. And so I thought this was important because I feel like you're going to see a lot in the next three to six months of articles that say, Quantia aviesing, Fed cuts, interest rates, and your clients are going to say, what's going on? And I think there's going to be a lot of the talk in the New Year is going to be. be that same stuff. It's going to be, they're going to cut the overnight rate and the 30 year is

going to go down and it's going to rip and yada yada. And I really think that if you want to be the expert in the room and you want to stand out and you're with your friends, 100%. Bring up quantitative easing. Do you guys know what QE is? No, no, no. You saw they cut the overnight rate 25 bips, but did you see what they said about quantitative easing? The thing they created during the Great Recession in 2008. Yeah. And the $40 billion they're going to, they're going to buy treasury bonds with every single month in 2026 and you instantly are going to win like it's over yeah there's no one else that's doing that level of thought it's the easiest and and it's really easy to understand if you just read about it for a little bit or listen to this podcast yeah but also like I think it once again

I'm not trying to like we're we're doing our crystal ball I feel like when we talk about interest rates every month probably continue to reinforce the belief that it's like something's probably coming with interest rates that's going to bring them back down into a sub six level and it probably like I said earlier, I think they'll be steady through the end of the year and then we'll see some sort of decline happening as we get to the spring of 2026. So if you want to steal that, if you want to run with that and see these different reasons as why interest rates way move in a different direction or specific direction, this is another good thing to Luke's point to know. I've got to create a Google notebook on the one I'm reading right now. It's got charts and stuff. It's pretty cool. What's a Google notebook, AJ? We talked about that briefly on the AI podcast. It makes podcasts out of our already. It's pretty fun, pretty good. It makes a podcast out of the heat. So if you're someone who drives a lot for real estate, for example, and you don't like

reading articles, get some stuff sent to your inbox, throw it into this solution, and then you can actually listen to the article's summaries on a podcast. So you make your own podcast about the things that you're actually interested in. And it actually works really well. We've tested it out. It's phenomenal. And you can also talk to chat GPT or just talk to Gemini. Open up your app while you're driving and just say, hey, Gemini, what's quantitative easing?

It's a fact. It's a definition. So you can learn all about it. It'll just explain everything you need to know about it. And the funny thing is, is what I've been reading on a lot of these articles when I've been looking into this is that they're not calling this quantitative easing. They're calling it RRMPs. They're saying like our balance sheet has rolled off enough.

We need to rebalance it and buy some stuff. And everybody's like, the article says, one of my read was like, if you've never owned a business before, you might believe what they're saying. actually this is not actually what's happening. And they are quantitative easing. They're just not saying that's what it is. And that's why also it's important to understand because I feel like whatever it is going on, you know, not to be, you know, saying they're trying to trick people, but it's like you

should understand what's actually going on because they're not saying it directly. But it's exactly what's happening. Did you get what else did? They're both the same thing. It's just one is aiming for broad economic stimulus to cut rates. And one is aiming for low key operation focused on ensuring sufficient liquidity. in the banking system. Yeah, so there's the article I just read on Financial Times, which is the one that I'll probably

make into some sort of podcast. So they only vary in an intent. Yes, exactly. And they're saying that this is not going to be purchases made from the non-banking sector. So there are repo markets and there are hedge funds that would participate in quantitative easing. In this case, this is only large banks that are going to be participating in this. That's who they're going to be buying from.

There has to be some underlying concern with the banking. sector right now because deposits probably are down. You're seeing unemployment go up. And for those of you that don't understand banking, you probably should look it up, but just know, they only have like 10 to 12 percent of your money at the bank at any given time. If anyone hasn't read stress test by Tim Geithner, you should read that book. It's a great, great book. It tells you all about the realities of how banking work, but in the scope of the 2008 crisis. And one, I believe there was, and it always is preceded by a period of derelict. regulation. I believe that recently happened across some larger banks. I know Jamie Diamond was yelling about it for a long time trying to get some changes made. So there was some deregulation going on in terms of reserves, in terms of the way that they were doing their balance sheets. And when that happens, you end up with, you know, kind of a wealth grab for those businesses potentially and those banks. And then the Fed has to come in and say, well, we can't have that. You know, when when Bear Stearns like failed,

Yep. It's like, what are we going to do now? You know, this is a disaster. They fail because they don't have enough liquidity to give the money back to the people that come and try and take their money out. A run on the bank. It's called a run on the bank. And it happens when the bank is kind of upside down on certain things. And it's more complex than just they don't have the cash.

But that's what the simplest form of this is the banks, if, you know, JP Morgan Chase is saying like, we're short and they go to the Fed and they're like, we need to roll off some of these long-term treasury bonds. We need a buyer for these. We need 10 billion. Then they can, the Fed can step in, make 10 billion and then buy the 10 billion in treasury bonds from them, put it on their balance sheet. And now JP Morgan got rid of that negative thing that they had and they turned it into actual cash. That's what you call too big to fail. Yep. I think is the exact definition. Well, yeah, it is. And what's interesting is, you know, we've talked about this. learned a lot from Gus, my go-to lender on the mortgage-back security market, but basically

these mortgages get bundled up into thousands of mortgages at once. They get graded, and then they get sold based on the rate that they are at. And so the mortgage-back security market operates with, you know, the 5.5 MBS, and that covers a certain subset of interest rates within those mortgages. And what ends up happening that's very interesting is all the way down to the originators. There's a perceived or there's an implied sense that we can originate loans at a lower spread because we know there's a buyer because mortgages all just get sold all the way down the line and then someone buys them on the back end. It's not always the Federal Reserve. It's Fannie and Freddie are holding these.

There's probably hedge funds holding these. There's people that hold these mortgage back securities, but you see the rates decrease when you know there's for sure a buyer because the Fed is a for sure buyer because they can just create money. They don't even have to, look at it and be like, this is a juicy option. It changes. 100%. They buy 40 billion. All of a sudden,

the demand has gone way up for something. Think about if the government said, we'll take the Zestimate of any house and we will pay that price if you can't get it. Right? Yeah. That would change things, right? You'd be like, whoa. And it's not guaranteed the Fed's going to buy it.

But it's an implied, like, we have a certain amount of money we can just create and we will purchase the house at the Zestimate number. That's what they should do. That might help the supply. It would create pandemonium. I think you'd have to, you have to attack it from a little bit less. It wouldn't help a supply.

It would create so much supply that it would be chaos. And then the federal government would run out of money because they're paying too much money for the houses probably. Well, I mean, they're back $40 billion goes a long way

in the real estate market. You'd be surprised how much volumes being traded every day. Well, you'd do it under a certain price threshold. Yeah, you could. 80% of the median area price. But that's essentially what's, happening here, right? It's, it is a entity within our economy that's saying, hey, we're back.

We're a buyer, you know? It's like I buyer, right? It's like Ryan sold this house to, who was it? Who was the big one? The big I buyer. Open door. I'm envisioning the, the billboards of the government's guaranteed offer program. Think about it. It'd be so funny to see. Guaranteed treasury buy. No, it'd be like Trump buyer is what it'd be called. Did the Fed say, Did they say anything else about the plan for next year as far as Fed? They're going to taper off sometime next year, but they're going to start buying today. Today's the day. So December 12th, they are unsure of what kind of cuts they're going to make to the overnight rate, I believe.

Chair Powell indicated the Fed is position to wait and see for future moves. There you go. It's exactly what he says every time. But he's going to be, he's going to be gone. And so once the news, this is what I said to somebody yesterday, I said once the news of Trump has officially selected this person to be nominated and they start going through congressional hearings and stuff starts happening that person starts talking you are going to see rates compress more and more and more because the anticipated outcome is that's what it's going to be but i don't think that trump has the votes

which i don't think we've taught us before shouldn't be a thing but um i don't think he has all the votes he needs in order to actually control the rates yeah because he's still fighting with this uh this Lisa the cook, I think, on her second home type mortgage fraud case. They're going after mortgage fraud on all these people. What's funny is on that topic, sorry, it's a little off topic, but they caught, somebody found out that Trump did the same thing in the 90s and had two personal houses. Yeah. So everybody's, it's going to be super interesting to see how that all plays out.

But you still will with a chair that's, you know, running the show. You're going to see some reactions to, to, to, to who the pick is there, I think, as far as long-term rates and compression on that market. And right now we're sitting at, like I said, we're at 150 between 2010 and 2020, basis points over the yield. Then it went up to, during the pandemic, the treasury, 10-year treasury was at like 0.1. Yeah. Oh, yeah. So, and the rates were at 2.5. So it's like 240. Then when the, when the, when the, they started raising rates, the Fed, it went to four and a quarter on the 10 year. And we were at 7. and a half. So we were like over 300. And now you're seeing it creep. It's creeped down since then.

It's been slow. But today it sits at it's like right around 200 basis points. It's like 2%. It's like 4.2 and 6.2 according to Mortgage News Daily. So that's an interesting thing to follow too, is will it get down to 1.5 getting our rates into the 575 range? That'd be kind of fun. You can guarantee we'll talk about the Fed chair changes when they come about because that's going to be an interesting time. Well, I hope we weren't too nerdy today. We'll check how many people listen to this one. That's all we have today. And as always, remember, be better.