Bad housing news comes in threes

This episode discusses the current challenges in the American housing market, focusing on recent trends in home sales, interest rates, and market sentiment.

1. The housing market is experiencing a downturn, with both new and existing home sales declining.
2. Mortgage rates above 7% are significantly impacting buyer affordability and freezing market activity.
3. Home builders are feeling pessimistic about the market, reflecting broader economic uncertainties.
4. Retail sectors like Target and Walmart are engaging in aggressive price competition to attract consumers.
5. The episode discusses the broader implications of high government debt and the challenges of managing entitlement programs like SNAP.

1: Market Overview

Host Kai Ryssdal introduces the troubling trends in the housing market with key statistics on home sales and builder sentiment. He highlights the impact of high interest rates on the market. Kai Ryssdal: "Welcome to the American housing market, circa the fourth week of May, 2024."

2: Detailed Analysis

Mitchell Hartman and economist Robert Frick discuss the specifics of the housing market freeze and potential federal responses. Mitchell Hartman: "Mortgage rates sitting above 7% have frozen the housing market."

3: Consumer Impact

The episode shifts focus to how high housing costs are affecting consumers and other economic sectors like retail. Kai Ryssdal: "If real estate prices are a worry for American households, then retail prices are surely another."

4: Government Debt and Entitlements

Discussion on the challenges of managing large government debt and the impacts of reducing entitlement programs. Kai Ryssdal: "Doing that, of course, getting the debt down means we as a country are going to have to raise taxes or cut spending or both."

1. Consider locking in mortgage rates if you're planning to buy, as rates might rise further.
2. Explore state and local programs that offer housing assistance for first-time buyers.
3. Evaluate your long-term housing needs against the current market to decide if buying now makes sense.
4. Keep an eye on retail sales and promotions, which can offer savings during economic downturns.
5. Stay informed about changes in government policies affecting housing and finance.

This week, we got some gloomy news on the housing market: In April, new homes sales fell 4.7% and existing home sales dropped about 2% from the month before, and in May, homebuilder confidence took a dive. The most likely culprit? High mortgage rates. Also in this episode: Why DuPont is splitting its company into three, what Olympic and Paralympic athletes are doing to raise funds for Paris, and how business is going for a maker of custom cowboy boots in Virginia.

People

Kai Ryssdal, Mitchell Hartman, Robert Frick, Danishka Nanakara

Companies

Freddie Mac, National Association of Home Builders, Target, Walmart

Books

None

Guest Name(s):

None

Content Warnings:

None

Kai Ryssdal
This is it, everybody. Our May fundraiser ends on Friday, and it's your last chance to help us reach our goal this month. Revenue sources for newsrooms like ours are changing, and donations from you, our marketplace community of listeners, are more important than ever. So please help us reach our May goal before Memorial Day weekend and fund public service journalism for all. Give now@marketplace.org.

donate and thanks.

Instead of location, location, location. For real estate stories, might we suggest interest rates, interest rates. Interest rates from american public Media. This is Marketplace in Los Angeles. I'm Kai Rizdahl.

It is Thursday today, the 23 May. Good as always to have you along. Good morning, everybody. That thing about bad news coming in threes. Welcome to the american housing market, circa the fourth week of May, 2024.

In no particular order, here are the particulars. Sales of new homes off 4.7% in April. Sales of used homes existing homes, in other words, dropped about 2%. Home builder sentiment this month. Let's just call them bummed out.

Officially, it's the National association of Home Builders Confidence Index, which had its first monthly drop since last November. The easy finger pointing, of course, goes straight to the cost of money. According to Freddie Mac, the average interest rate on a 30 year fixed rate home loan popped back above 7% in mid April, down just a touch since then, but not too much. Housing, though, is complicated and it's important. So as we do when we've got a what is going on here?

Story, we put marketplaces Mitchell Hartman on it. Mortgage rates sitting above 7% have frozen the housing market. Buyers can't afford the high monthly payments. Sellers don't want to move and give up their low mortgage rates. The housing market is a mess right now.

Mitchell Hartman
Economist Robert Frick at Navy Federal Credit Union there are all kinds of catch twenty two s and things locked up. One piece can't move because another one can't. Frick expects the Fed will start cutting rates eventually, hopefully later this year. But they need to come down a lot. How low do they need to go to unfreeze the market?

Probably to around 5%. At 5%, people with 3% mortgages go, yeah, okay, I'll list my house. Now. People will be paying hundreds of dollars less in their monthly mortgage payments, so they'll be more willing to buy. It'll be a slow thaw at best.

Since the great Recession, there's been a slump in building, and Frick says we're still four and a half million homes short of what the market needs. And Danishka Nanakara at the National association of Home Builders says high home prices will also hinder a full rebound. The majority are between 300 to 500,000, which is by historic standards, it's very expensive. Of course, some folks looking for an affordable first home will just figure out a way to make it work. I wasn't very well versed in real estate.

Anthony Darmiento and his wife just bought a mid century modern home on the outskirts of Portland, Oregon. The decor wasn't exactly what they wanted, but they were able to get their monthly payment down with some creative accounting. One thing that was new to me was that you can buy down the interest rate. We were able to bring it down from 7.75 to 5.75. Even with that, Darmiento says, we were looking for any house that seemed Airbnb or rentable.

They plan to rent out the downstairs to earn extra money to pay their mortgage. I'm Mitchell Hartman for marketplace on Wall street today. That saying about sell in May and go away. Turns out it's true. We'll have the details when we do the numbers.

Kai Ryssdal
If real estate prices are a worry for american households, and they are, then retail prices are surely another. So it was good news for consumers this week when the CEO of Target said the company is going to cut prices on thousands of items. As we mentioned yesterday, store traffic and the number of purchases people made at Target were down in the first quarter. So this apparently is the plan to lure customers back and to get them to buy more. But it's not just target.

As marketplace Sabri Beneshaw reports, price competition seems to be making a comeback too. Walmart did great in the first quarter. Revenues were up almost 6%. Why? Customers are responding to our price leadership.

Sabri Beneshaw
Price competition that was Walmart CEO Doug McMillian on the company's earnings call. Low prices drew crowds. A week later, Target, which did not do great in the first quarter, seemed to fire back. We've made price cuts on 1500 frequently shopped items in many markets, and we're planning additional price cuts on thousand more items this summer. Target CEO Brian Cornell on Target's earnings.

Danishka Nanakara
Call a lot of the traffic has been moving to discount stores and so there is a huge competition going on now. Denise Daloff is director of marketing and communications research at the conference board. Walmart said a majority of its new customers are coming from higher income groups seeking refuge from high prices elsewhere. So they want to hold on to those shoppers. But this is not just a Walmart Target thing.

Kai Ryssdal
We're definitely seeing the return of price competition across a wide variety of core goods. Alan Dettmeister is an economist at UBS Investment bank. Core goods prices have been falling ten of the past eleven months. Even some businesses that have been conspicuously needing to raise prices, like restaurants, may soon feel a need to just not. You're seeing the decline in guest traffic.

Sabri Beneshaw
Greg Thomas advises restaurant CEO's. He's with BDO. He says some low income diners have just stopped eating out at some places. And now you're starting to see where McDonald's and Wendy's both going after value menu items to try to win back the customer. This is, of course, all happening, perhaps because people have just reached their limit, what prices they can tolerate.

But also stores are carrying more things. Inventories are up, so it's easier to shop around. It all bodes well for goods prices this year. Services, though rents, insurance price competition hasn't hit there quite yet. In New York, I'm Sabri Benachore for marketplace.

Kai Ryssdal
According to the Treasury Department, the total outstanding debt owed by the federal government as of the close of business yesterday was a bit more than $34.5 trillion. And everybody from the World bank to credit rating agencies and many, many in between are saying Congress and the White House need to get their spending under control. Doing that, of course, getting the debt down means we as a country are going to have to raise taxes or cut spending or both. Nobody wants to pay more taxes, right? But cutting spending is no easy thing either.

Most of what we spend every year falls into the category broadly labeled entitlements. So security, Medicaid, and Medicare are the best known, and cutting them makes people's lives harder. Take just as one very relevant example, SNAP, the supplemental nutrition assistance program. At the beginning of the pandemic, Congress nearly doubled the SNaP budget to give people extra help when they needed it. At the height of the pandemic, more than 40 million people, that's more than 10% of the population.

That money was always meant to be temporary, but when the expansion expired right on schedule, it did cause a whole lot of problems, as Marketplace's special correspondent Stacey Vanek Smith explains. Jenna Thurston was 21 when she went on food assistance. She had just had a baby and was really struggling. But navigating snap and her new EBT card was not easy. I was a new single mom, and it's very frightening going on EBT, so you have a lot of questions.

Doug McMillian
Thurston lives in Wisconsin, and there were local resources, but she ended up turning to Facebook for help. There. People exchanged information, tips, support. Like one really rough Easter when someone told her that snap could help. And that bought Easter baskets for the children.

Danishka Nanakara
And they didn't know back then that I was struggling, you know, and if it wasn't for that, you know, they might not have had an Easter. A couple years ago, Thurston started offering her own tips and advice about Snap on a Facebook page and a TikTok account. Texas, this video is for you. A lot more people in Texas may now be eligible for EBT. During the pandemic, unemployment spiked and millions of people got government food assistance for the first time.

Doug McMillian
Thurston's account blew up. Hundreds of thousands of people started turning to her for information, advice, and the occasional low budget recipe. Hi guys. I'm going to show you kind of an EBT hack. Hey guys, come make a green bean casserole with me.

Danishka Nanakara
How good does that look? But a year ago in March, everything changed. The emergency snap benefits Congress had put in place during COVID expired, which meant basically overnight, millions of people suddenly had hundreds of dollars less per month for food. Thurston saw the change in her DM's. Before then, most questions had been about eligibility or red tape.

Doug McMillian
But now people just needed food. Do you know anywhere I can get free food? A lot of people were even asking about formula for their babies. It was just tough to see. And here, I guess Thurston's own family was okay.

They could manage with less. But a lot of people reaching out to her were not. I would stay up until midnight helping people find food pantries in their area. Those pantries, meanwhile, were getting slammed. Jim Conwell is with the greater Chicago food depository.

It supplies food pantries, soup kitchens, shelters, feeds nearly a million people in the Chicago area. Conwell says when snap was cut back right away, they saw demand rise up by about 26%. But that's huge. Yeah. Conwell says.

People tell him their pay just isn't keeping up with grocery prices. More than 10,000 new people are coming for food every month. We're seeing more and more people who they have a job. They might have more than one job, but at the end of the month, there's not enough left for food. Rolling back Covid era snap benefits had profound effects across the country, says Diane Whitmore Schonzenbach, an economist at Northwestern.

The number of Americans saying they don't have enough to eat increased from about 10% to more than 12%. Poverty rates have also risen. It's millions of people. It makes me sick, sick to my stomach. When I saw the child poverty rates go up by so much.

Denise Daloff
We know what that means it means. Those kids are less likely to graduate, less likely to hold a steady job, and more likely to have health problems as adults. Schansenbach says. This is why cutting entitlements is so hard. Even when you're rolling back a pretty recent temporary benefit, it causes enormous pain.

Doug McMillian
At the same time, entitlement programs like SNAP, Social Security and Medicare are the US's biggest expense by far. If Congress is going to tackle rising debt, cutting entitlements will probably have to be part of that. We're going to have to do some things to get our budget balanced, and that is going to involve some hard choices. To be sure, shunts and boxes, really high debt can destabilize an economy, and that is not good for anyone. Of course, right now people just need help, and without the extra snap benefits, they're turning to food pantries, soup kitchens, Jenna Thurston's Facebook page.

Danishka Nanakara
I've sent some food items to people as well out of my pocket. It's just very hard to see people like that, you know? Thurston and her family went off of snap last year. Work has been steady, but she gets messages every day from people who are desperate. She's hoping Congress will see that desperation, too, and find some other place to cut.

Doug McMillian
In New York, I'm Stacey Vanek Smith for marketplace.

Brian Cornell
Coming up, I enjoy the labor so much. I mean, I feel guilty for charging for that. Love my job first, though, let's do the numbers. Dow industrial is off 605 points today. Scary.

Kai Ryssdal
Number one and a half percent finished at 39,065. Remember, it's a price weighted index. Look up Boeing if you're curious. The Nasdaq down 65 points, about four tenths percent. 16,736.

The S and P 500 gave back 39 points, about three quarters per 52 and 67. We heard earlier from Mitchell Hartman about the gloomy feelings around housing developer Pulte group sank one and three tenths percent today. Rocket Company's parent of Rocket mortgage and Amrock title insurance slumped three and three tenths of 1% today. Bond prices fell as well. Yield on the ten year treasury note 4.47%.

You're listening to marketplace.

Alan Dettmeister
My name is Lee Hawkins. I've been a journalist for over 25 years. On my new podcast, what happened in Alabama, I get answers to some of the hardest questions about how things came to be for many black Americans and the truth that must come before any reconciliation can happen. I investigate my family history, my upbringing in Minnesota, and my father's painful nightmares about growing up in Alabama. What happened in Alabama is a new series confronting the cycles of trauma for myself, my family and for many black americans.

Listen now.

Kai Ryssdal
This is it, everybody. Our may fundraiser ends on Friday, and it's your last chance to help us reach our goal this month. Revenue sources for newsrooms like ours are changing, and donations from you, our marketplace community of listeners, are more important than ever. So please help us reach our may goal before Memorial Day weekend and fund public service journalism for all. Give now@marketplace.org.

donate and thanks.

This is Marketplace. I'm Kai Rysdal. The general vibe in corporate America is, and has been forever that bigger is better, merge, acquire, grow. But market forces have a funny way of changing established dynamics. General Electric is probably the best known recent example of corporate disassembly.

It formerly split into three last month. Now it's DuPont's turn. The company, which dates back to 1802, says it, too, is going to turn itself into three separate publicly traded firms, one focused on water, one on electronics and a third on the company's traditional core business of chemicals. There has been a fair amount of deconglomeration going on lately. Ge, as I said, Johnson and Johnson and a number of drug companies.

Marketplace Daniel Ackerman looked into what's driving. All that in a relationship, when partners realize they don't share interests anymore, it's probably time to break up. That's kind of what happened to the divisions of DuPont, said Jared Horford at the University of Washington. They just got bigger and tried new things and got to the point where they had some fairly disparate businesses, and it made sense to let them kind of go their own way and focus. Focus on themselves for a bit, on what they do best.

Mitchell Hartman
When a firm produces fewer, more specialized products, it's easier for investors to look under the hood and judge its value, says Matt Billet at Indiana University's Kelley School of Business. You're going to get far more investor transparency when you have separate companies. Those separate companies after breakup often wind up being worth more than the parent conglomerate was. Take Fortune brands. For years, the firm was a many headed beast, everything from security to adult beverages to golf equipment, master lock, Jim Beam Whiskey, titleist golf balls.

When Fortune brands split in 2011, investors rewarded the new, more focused companies with double digit run ups in stock price. Laura Bourne at the University of Chicago calls this phenomenon the diversification discount. The idea is that the market will not give you full credit for the full growth of your businesses when you're part of a mishmash. Unwinding those corporate mishmashes has been happening since the eighties, usually with good results, says Bourne. And she says another factor is contributing to the more recent spinoffs.

Danishka Nanakara
We have a very, very hostile antitrust regime right now in the boardroom. You call your antitrust advisor lawyer before you call your investment banker, Bourne says. Rather than deal with legal headaches, some conglomerates may just decide to break themselves up. I'm Daniel Ackerman for marketplace.

Kai Ryssdal
Were two months, give or take, from the Summer Olympics and Paralympics, taking place in France later this year. Training to compete in Paris means putting in a whole lot of time and effort, of course, and coming up with the money, or most of it, for training and coaching and travel and equipment and all the other expenses on the road to the games falls mostly to the athletes or their parents, according to a report from a congressional commission earlier this year. Those costs, on average, come to about $12,000 a year. And so, as marketplaces Henry Epp reports, many of those athletes have to juggle training and work. From a small motorboat, coach Tom Sadel instructs his five person paralympic rowing team on Boston's Charles river.

Mitchell Hartman
Good, Alex. Really accelerate with Ben. You just got to make sure you're out. Out of the water with him. There you go.

Greg Thomas
The team is made up of four rowers and one coxswain training to compete in Paris. And today the focus is on form. Yep, yep. The handle's gotta be moving quick in the last few inches to the body. Really accelerated in the second half.

The rower who sets the rhythm for everyone sits in what's called the stroke seat in this boat. That's 23 year old Ben Washburn. We're going for gold. In pursuit of that goal, Washburn says he gets a fair amount of support from the United States Rowing association boats, coaches, training equipment. He also gets a monthly stipend, which.

Mitchell Hartman
Quite honestly, isn't enough to cover, like Boston living expenses that you might imagine, since it's like one of the most expensive cities in the United States. But it's a big rowing town, so that's where he trains. And he pays the rent by working a business development job at a green energy company. That is a full time job, which makes it a little bit difficult sometimes. With all the training, the job is fully remote with flexible hours and unlimited paid time off.

Greg Thomas
But it means that after practice, he's got emails to respond to. I already looked at my messages for what I missed while I was out on the water. Not every Paralympian or Olympian has this kind of job flexibility, but many have jobs, some more than one according to a survey conducted by that congressional commission, under 6% of athletes said they have sponsorships, and only half said they receive any kind of compensation from their participation in the games, which means paying for. Training could come from people working extra jobs, which a good many Olympic athletes do. They might have some family support, they might get some crowdfunding support.

Lee Eagle is a professor at New York University. He says expenses for high level athletes add up. Equipment, travel, training, the US Olympic and Paralympic Committee and sports specific organizations cover some of those costs for some athletes, but their budgets are limited, in part because of the way they're funded. In almost every other country, it's run through the government. But in the states, the private, nonprofit US OPC relies almost entirely on sponsorships, licensing fees, and broadcast revenue.

That setup was intentional, meant to contrast with the state supported soviet bloc teams of the Cold War. We aimed to show the world that the free market and private enterprise sort of built the best athletes. Dionne Kohler is a professor of law at the University of Baltimore, and she co chaired that congressional Olympic Commission. She says the games have changed a lot. For one, they now include many more sports.

Danishka Nanakara
And so the ability of the United States Olympic and Paralympic Committee to support this infrastructure, it's really showing its age. And it's not meeting athletes financial needs. She says she was struck by just how many athletes told the commission that they feel financially insecure. It was a constant concern for them to the point where they said it affected their ability to train. One way to fix that, Kohler says, would be direct government funding for the US OPC.

Greg Thomas
Her commission recommended a few ways to do taxing sports gambling, adding a donation checkbox to IR's tax returns. A national lottery used to support high performance athletes. Thats part of how the United Kingdom funds its Olympic and Paralympic teams. Great Britain also happens to be the longtime defending champion in the four seat paralympic rowing competition. Ben Washburn's boat came in second to them at the world championships last year.

Mitchell Hartman
We're only 3 seconds off so, you know, we're hoping that's a good sign. He'Ll be training to close that gap between meetings and emails. I'm Henry Epp for marketplace.

Kai Ryssdal
Maybe you've heard of it, maybe not. But there is a new trend in fashion. Cowboycore, western inspired style and outfits that even made it to some runways this year. But it's not just popular in high fashion. People everywhere are leaning in.

In fact, the week after Beyonce's new country album dropped, western boot sales jumped better than 20%. So we thought, what better time than now to reach out to a western outfitter for an installment of our series, my economy. I'm Steve Christo, and my business is parent Creek custom Boots, located in Gloucester, Virginia.

Brian Cornell
I first started ten years ago, and I've been doing it full time now for six years. Before, I was working in a physics laboratory in accelerator in Newport News, Virginia, as a technologist. And I've always been interested in cowboy boots, but my feet are so flat and wide that it was impossible to find anything off the shelf to fit me. And I thought, well, you know, I can build nuclear detectors. I should be able to make a boot.

So I tried, and it was kind of disastrous looking boot, but it fit great. And I thought, boy, this is something I could do. And I've been doing it ever since.

The cost for a pair of customers boots in my shop ranges from between $2,200 and $3,500, depending on the complexity of the design. When you get into heavy inlays, complicated designs, it can take a month to make a pair of boots.

The cost of leather, since COVID has gone up about 30%, I haven't raised my prices to adjust for materials. Cost of materials just isn't a big factor for me. It's the labor. And I enjoy the labor so much. I mean, I feel guilty for charging for that.

You know, I loved my job. It was so interesting. But when I started making boots, I realized that I really was under stress, and I didn't know it. I used to get migraines every week, and I don't get them at all now. You know, I have a retirement that I'm not using.

It's just Social Security and the income from the boot shop, and I feel great. I can do anything I want. I could travel if I wanted to. I don't want to. I just look forward to coming into the shop every day.

Kai Ryssdal
Steve Christo loving his job crafting cowboy boots in Gloucester, Virginia. We cannot do this series without you, no matter what you do, whether you love it or not. In point of fact, tell us about what's going on with you. Widgetmarketplace.org myeconomy this final note on the way out today, for which I hope you will forgive a certain sense of deja vu, saw this on CNBC data from the ocean shipping data company, Zaneta. That spot container shipping rates, that is, you want to get something on a container right now, are up 30% over the past couple of weeks and are likely headed higher.

It's a combination of bad weather and ships taking longer routes to avoid the Suez Canal. See also Pirates in the Red Sea. Now, why is this a thing now? Well, because, believe it or not, shipping season for the holidays starts in like ten days. John Buckley, John Gordon, Noya Carr, Diantha Parker, Amanda Petra and Stephanie Siek are the marketplace place editing staff.

Amir Bibawi is the managing editor. I'm Kai Rizdal. We will see you tomorrow, everybody.

This is 08:00 p.m. Hey, everyone, it's Rima Grace, host of this is uncomfortable. If you're looking for some good recommendations on books to read, well, you should join. This is uncomfortable's summer book club. Every other week in our newsletter, well share a new book thatll make you rethink your relationship to money, class and work, while also featuring an interview with the author or an expert on the topic.

Danishka Nanakara
Plus, when you join, youll be entered in a giveaway where you could win some this is uncomfortable merch. Be sure to check it out. Sign up today@marketplace.org. bookclub.