Deep Dive
Shownotes Transcript
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 Kyle Risdell. It is Thursday, today the 23rd of May. Good as always to have you along, 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%. Homebuilder sentiment this month.
Let's just call him 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 Marketplace's 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. Economist Robert Frick at Navy Federal Credit Union. There are all kinds of catch-22s 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 4.5 million homes short of what the market needs. And Danushka Nanakara at the National Association of Home Builders says high home prices will also hinder a full rebound. The majority are between 300,000 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. Wow.
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-able 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.
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.
Target. As Marketplace's Supri Benisho 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. Price competition. That was Walmart CEO Doug McMillan 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 1,500 frequently shopped items in many markets. And we're planning additional price cuts on 1,000 more items this summer. Target's
Target CEO Brian Cornell on Target's earnings call. A lot of the traffic has been moving to discount stores. And so there is a huge competition going on now. Denise Dallof 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. We're definitely seeing the return of price competition across a wide variety of core goods. Alan Detmeister is an economist at UBS Investment Bank. Core goods prices have been falling 10 of the past 11 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. Greg Thomas advises restaurant CEOs. 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 Sabree Beneshour for Marketplace. 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. Social Security, Medicaid and Medicare are the best known. And cutting them is
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. 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. 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. Okay.
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.
Thurston's accounts blew up. Hundreds of thousands of people started turning to her for information, advice, 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. 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. So
Thurston saw the change in her DMs. Before then, most questions had been about eligibility or red tape. 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-Schanzenbach, an economist at Northwestern. The number of Americans saying they don't have enough to eat increased from about 10 percent to more than 12 percent. Poverty rates have also risen. It's millions of people. It makes me sick, you know, sick to my stomach.
You know, when I saw the child poverty rates go up by so much, 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. Schanzenbach says this is why cutting entitlements is so hard. Even when you're rolling back a pretty recent temporary benefit, it causes enormous pain.
At the same time, entitlement programs like SNAP, Social Security and Medicare are the U.S.'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 bucks says 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. 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. In New York, I'm Stacey Vanek-Smith for Marketplace. ♪♪
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 Industrials off 605 points today. Scary number, 1.5%. 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&P 500 gave back 39 points, about three-quarters percent, 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 one percent today. Bond prices fell as well. Yield on the 10-year Treasury note, 4.47 percent. You're listening to Marketplace.
This is Marketplace. I'm Kai Risdahl. 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
It's probably the best-known recent example of corporate disassembly. It formally 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 & Johnson, and a number of drug companies. Marketplace's 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. But
When a firm produces fewer, more specialized products, it's easier for investors to look under the hood and judge its value, says Matt Billett 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 Born 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 80s, usually with good results, says Bourne. And she says another factor is contributing to the more recent spinoffs.
We have a very, very hostile antitrust regime right now. In the boardroom, you know, 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.
We're 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 Marketplace's Henry Epp reports, many of those athletes have to juggle training and work.
From a small motorboat, coach Tom Siddell instructs his five-person Paralympic rowing team on Boston's Charles River. Good, Alex. Really accelerate with Ben. You just got to make sure you're out of the water with him. There you go. 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 got to be moving quick in the last few inches to the body. Really accelerate it in the second half. The
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, 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, 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 U.S. 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 USOPC 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 system
sort of built the best athletes. Dion 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. 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 USOPC. Her commission recommended a few ways to do that. Taxing sports gambling, adding a donation checkbox to IRS tax returns. A national lottery used to support high performance athletes.
That's 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. We're only three 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.
Maybe you've heard of it, maybe not, but there is a new trend in fashion, cowboy core, Western-inspired style and outfits that even made it to some runways this year. But it's not just popular and 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 Perrin Creek Custom Boots located in Gloucester, Virginia. I first started 10 years ago and I've been doing it full time now for six years.
Before, I was working in a physics laboratory, an 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 a 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 custom 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. The cost of materials just isn't a big factor.
I mean, 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 anymore.
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. Steve Cristo, 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. Would you marketplace.org slash my economy.
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 Zanetta 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 10 days. John Buckley, John Gordon, Noya Carr, Diantha Parker, Amanda Petra and Stephanie Sieck are the Marketplace editing staff. Amir Babawi is the managing editor. I'm Kai Rizal. We will see you tomorrow, everybody. This is APM. Understanding personal finance can feel like an impossible task, but it doesn't have to be that way.
I'm Janelia Espinal, and on Financially Inclined, I'll guide you through simple money lessons that will change your financial future. Learn about credit scores, how to avoid scams, and why you need a savings account. Plus, we explore the brain science behind FOMO and what you can do to make smarter money decisions. Listen to Financially Inclined wherever you get your podcasts.