Marketplace - Displaced when housing is already strained

Episode Date: January 11, 2025

As many as 10,000 buildings have burned in the Los Angeles wildfires, officials say, and nearly 180,000 people have been ordered to evacuate. Angelenos who want nearby housing in the short or long term will be faced with one of the lowest multifamily vacancy rates in the country. Also in this episode: Airlines are optimistic as business travel ticks up, and 5.5 million Americans would like a job but aren’t actively searching for one. We’ll explain why.

So much for lower interest rates, huh? From American public media, this is Marketplace. In Baltimore, I'm Amy Scott in for Kai Rizdal. It is Friday, January 10th. Good to have you with us. The December jobs report made waves today. The Bureau of Labor Statistics says employers added more than 250,000 jobs last month, about 100,000 more than analysts had expected, while the unemployment rate ticked down to 4.1 percent. Great news for job seekers. Not so much, though though for those pining for lower interest rates. Joining me to discuss are Heather Long with the Washington Post and Sudi Brede at Politico. Thanks for being here.

Hi, Amy. So, Heather, it was a pretty good jobs report. What does that tell you about the resilience of this economy? Yeah, it really felt like a bounce back month. We'd had a couple of months since the summer of either weak hiring or people were out on strike or weird weather events. And so this really felt great to see a big beat with that 256,000 and then seen unemployment rate fall a little bit to 4.1% and for the right reasons because we had more people getting employed, fewer people unemployed, a stronger labor force.

So you just kind of walk through all of the different parts of this report and it felt pretty good, which is a great way to end the year. I will say if you step back for overall into 2024, there were 2.2 million jobs added, which is a pretty darn good year, pretty similar to like a 2018 pace. But two thirds of those jobs were in health care and government. So it was a pretty highly concentrated year of job growth. And that's why you still see people like in the tech sector or manufacturing sector who talk about how hard it is to get hired right now. Right.

Some people are still calling it a tough job market. Sudip, what's your takeaway? Wages also continue to increase? Yeah. And this is an incredibly healthy labor market, especially given all the concerns we've had over the last two years. We've had extraordinarily high interest rates, obviously they've come down quite a bit. We've had a lot of pressure in the labor market and that has been good for people who are

trying to keep up with inflation, but we are obviously on the cusp of another bout of uncertainty over the labor market, over wages, over inflation through product prices and tariffs. But right now to be sitting in this position for all of the doubts we've had over the last two years about the resiliency of the labor market is a remarkable, absolutely remarkable achievement. Okay and yet the market reaction has been pretty negative and that seems to be because hopes have dimmed even further for interest rate cuts. Several banks are now projecting fewer or later cuts from the Fed this year. Heather, why is the report causing such a stir? Well because

as Sudip was saying, this is a pretty darn good economy. I think a few months ago this summer, there seemed to be cracks. We were worried if maybe there were starting to be a little bit of a downward spiral in the labor market. And a lot of those fears have gone away. Obviously, the Fed now is going to have to refocus on inflation. We saw those Fed minutes come out this week where they're clearly starting to worry and talk more about what could happen with the Trump tariffs, or with if there's a lot more spending for these tax cuts in the Trump

administration. And then there's also just the reality that inflation stuck around 2.7%. And we want to see it more like 2%. So I think those realities are very much starting to hit the Fed and starting to hit the markets. Unfortunately good news can sometimes be bad news in a market context because that doesn't look like any rate cuts are coming maybe not till June and maybe not until later than that. Right and Sudeep we've already been seeing the the bond market expecting higher inflation. We've been seeing yields go up long term.

What does that tell us about what investors are thinking? Investors don't want to take any chances, especially bond investors don't want to take any chances when they realize that the slowdown is not around the corner from a labor market perspective, from an economic growth perspective. And so that naturally forces up yields. Yields have gone up in other advanced economies as well. This is a global phenomenon in many ways with the developed world.

And this is going to really put the Fed in a difficult position of deciding, once again, how far do they want to take this. There's a natural feedback loop when the interest rates go up, it's going to dent the housing market, it's going to dent construction hiring, other interest rate sensitive sectors are going to get hit, but the Fed cannot be in a position to lose the inflation battle this time around. And so that's why they indicated in the Fed minutes that they're watching. Warily, there's a lot of debate and dissent within the Fed about how much

tariffs are going to actually hit and raise overall inflation. And it's going to be an interesting first few months of the year for them. You mentioned the housing market this week, Heather, the average for a 30 year mortgage, according to Freddie Mac, was back up near 7% to a six month high. I think a lot of people, myself included, were hoping that rates would come down some

in time for the spring market. Maybe not? It sure doesn't look that way. We're back near 7% and it doesn't look like a lot of relief soon as we've just been mentioning. I'll just say, Amy, I know you also cover housing a lot. I've been thinking about it a lot lately. You just look at those horrible LA wildfires this week and then you look at these 7% mortgage rates and it's just screaming to me that we pretty much totally need to

reimagine housing in America right now. We need it to be safer against all of these climate related risks, whether it's the wildfires or the hurricanes or whatnot, we're going to have to build a lot differently and rebuild a lot differently going forward. And then there's the ongoing affordability challenges for Gen Z and millennials in particular. And that's also going to take a lot of creative thinking a lot of different types of housing like more high rises and townhomes and duplexes and all that sorts of stuff. Homes that are closer together on smaller lots. I know you've written and spoken a lot about all of this. So I really just

look at this week and see that housing is going to have to look a lot different going forward. What we think of as an ideal home. Yeah. And we have a story later in the show about what happens when a climate catastrophe runs headlong into a housing crisis, an ongoing housing crisis. So before I let you go, Sudeep, we've got retail sales and inflation numbers next week. What are you going to be looking for? The inflation report is going to be absolutely critical. It's going to really set the tone for what comes after that. Consumers are uncertain right now.

We've got some consumer sentiment data this morning that has an inflation projection in it. A lot of this gets to be colored by politics. Democrats are fearing more inflation. Republicans are fearing, expecting less inflation ahead. But this is really going to be the thing that sets the direction for the inflation story, for the stock market story, for the start of a new presidency, for the impact of tariffs and reducing the pool of immigrant new presidency, for the impact of tariffs and reducing the pool of immigrant labor. All of that plays into this big report coming next week.

All right. Sudhi Brede, Politico, Heather Long with The Washington Post. Thank you both so much and have a good weekend. Thanks, Amy. Take care. As I mentioned, Wall Street was not happy. We'll have the details when we do the numbers. If you page through that December jobs report, as we around here or want to do you'll see a line item near the top of table a one Persons who currently want a job is the official wording but are not in the labor force These are folks who aren't working currently and haven't actively looked for a job in the past four weeks But who say they would like to work in December that number stood at five and a half million Three percent lower than a year ago. Marketplace's Stephanie Hughes looks at what's going on there.

Stephanie Hughes Reasons why someone might want a job but not look for one. They're taking care of their kids or elderly parents. They decided to go back to school or they just got tired of the job search. Guy Berger Because they're discouraged. They just don't think it's worth looking. Stephanie Hughes Guy Berger is director of economic research at the Burning Glass Institute. He says generally there are fewer people in this situation when the labor market is doing well. Probably what's happening is that when it goes down these people actually start

actively looking and then hopefully they find a job. You could look at this little drop as a sign of solidity in the labor market says Harry Holzer, a professor of public policy at Georgetown. Harry Holzer, Professor of Public Policy at Georgetown It indicates fewer people, not by a huge amount, but slightly fewer people are in that limbo situation. Hosted by Dr. David K. Holzer, Holzer is also a former chief economist at the U.S. Department of Labor. And he says while some people might choose to get back into the job market, others might

decide to stop looking for work and lean full time into maybe being a caregiver or student. Whichever of those paths are chosen, it kind of reflects a greater stability, I think, of where we are, less uncertainty. However, Ron Hetrick, a senior economist at Lakecast, thinks this number should be way lower than it is right now. I'm actually a little perplexed as to why this number isn't really shrinking. Hetrick points out this number is higher than it was right before the pandemic and that with the

combination of job growth and baby boomers retiring since then, there should be fewer people left on the sidelines wanting to work. I think it suggests maybe we're a little bit weaker than we think we are. The measure ticking down over the past year is something to watch, says Guy Berger at the Burning Glass Institute. Guy Berger You know, essentially, yeah, it's improving, but it's like on the scale of squiggles, right? Stephanie Hughes So, not a straight line down, but... Guy Berger Certainly, if it's a sustained downtrend that

sticks into next year, I think in general I would tend to view that as like a good sign. Stephanie Hughes A sign that the labor market, which had been coolish, is getting warmer. I'm Stephanie Hugh Hughes for Marketplace. At last count, the fires burning in Los Angeles County Heather was talking about have forced more than 150,000 people to evacuate. As many as 10,000 buildings have been destroyed. And that means a lot of displaced people are now looking for a temporary or permanent place to live. It's happening in a metro area where there weren't enough available homes

to begin with. Marketplace's Kaylee Wells has more. The people displaced in the L.A. fires won't get to move back to their neighborhoods anytime soon. I think the real restriction is just on labor and getting all that work done. Chief economist Darryl Fairweather says her company Redfin analyzed other California fires, and she says it takes most people at least two years to rebuild. You can't scale up the number of contractors, the number of builders immediately. Most of the victims will still live nearby. Jay Lebig directs multifamily analytics at CoStar, and he says a disaster like this in any metro area would be horrible.

But given that LA is one of the most underhoused metros in the country, it makes things even worse. Liebich says, in particular, LA has one of the lowest multifamily vacancy rates in the country. The big question now is what's gonna happen to rents? This is the, to me, the 800-pound gorilla in the country. The big question now is what's going to happen to rents. This is the to me the 800 pound gorilla in the room. Liebich says rents could jump six, seven percent or even higher.

In the longer term, these homes will get rebuilt and Daniel Cabrera believes there will be plenty of demand for them. He founded a company called Fire Damage House Buyer. He buys damaged property as is if owners don't want to move back. We've bought, I can't even tell you how many fire damaged properties in the past, and we've sold every single one. He says that's especially true for the Pacific Palisades, where wealthier residents can afford the higher insurance premiums that come with the fire risk. I don't think their property values, even with these wildfires, are going to go anywhere. I think they're going to remain right where they're at and they're going to continue to rise

because it's just such a sought after market. And the state is facilitating that too. California has prohibited insurance companies from canceling policies on homes near the fire to make sure victims get payouts to move or rebuild. I'm Kaylee Wells for Marketplace. Coming up. You know, maybe I'm just a beaten down Washington swamp dweller, but you know, I, I'll believe it when I see it. A good policy in Washington. But first, let's do the numbers. The Dow Jones Industrial Average lost 696 points, 1.610% to close at 41,938. The NASDAQ fell 317 points, also 1.610% to finish at 19,161. And the S&P 500 shed 91 points, 1.5% and it 5827.

For the week, the Dow lost 1.1%. The NASDAQ shed 6.0%. The S&P 500 fell 7.0%. Walgreens announced better than expected earnings today, more than $39.5 billion in revenue, up 7% year over year. Walgreens Boots Alliance stepped up 27.5%. Bonds fell, the yield on the ten-year T-note rose to 4.76%.

You're listening to Marketplace. Hi, this is Julie from Centennial Colorado. I listen to Marketplace on my drive home from on my three to midnight ER shifts. Kai and the gang keep me awake and interested for my 30 minute drive. For someone not in the financial field, it's a fantastic synopsis of all things business and economics. I love the commitment to showcasing a steady stream of brilliant and articulate women who It's a fantastic synopsis of all things business and economics. I love the commitment to showcasing a steady stream of brilliant and articulate women who

are experts in their field. Join me in supporting Marketplace with a gift today. Go to marketplace.org slash donate. This is Marketplace. I'm Amy Scott. The holiday air travel season that just wrapped up was the busiest on record, says the Transportation and Security Administration. That boosted profits at Delta, which posted better than expected results for its fourth quarter today. It's not just vacations and family visits driving more passengers to airlines. Delta said business travel picked up too and could improve further this year.

Corporate travel has been slower to rebound since pandemic lockdowns first pushed more people to work from home. Marketplace's Henry Epp has more on what's bringing business travel back. Patrick Shepard In the before times, selling lots of tickets to business travelers was the way major airlines made a lot of their money. Because those passengers are willing to pay more, says Edward Russell, a freelance aviation journalist. You know, if they're not booking day of, they're booking a day or two before and they're paying top dollars to get where they need to go and get to their meetings. And he says airlines would sign big contracts with major corporations to lock up

most of a company's travel business. The pandemic put a stop to all that. Once things opened back up, people flocked back to airports to go on vacations, but a lot of business meetings stayed on Zoom. Now five years later, with more return to office mandates in effect, the volume of business travel may be close to where it was in 2019, says Robert Mann, an industry analyst. Well, we've seen just a slow steady uptick in corporate travel activity, which is to say bookings through recognized corporate travel agencies.

And he says airlines once again are competing for those big corporate travel contracts. Companies like Delta have emphasized the recent growth in that part of their business. But says Samuel Engel with the consultancy firm ICF, When you're in the dark, a small ray of sun looks especially bright. Meaning, while it's improved, business travel is below where it would have been without the pandemic. So, to keep revenues up, airlines have had to compensate, Engel says. They've adapted their network and where they fly to make sure that they're putting more capacity into leisure destinations. And, says Edward Russell, the aviation reporter, airlines have gotten really good at the upsell.

As in charging more for premium offers, even to individual business travelers whose company may have paid for their ticket, he says. There's a big trend towards people willing to pay their own dollar for sitting in nicer seats, premium seats, whether that's extra legroom or first class on domestic flights. So even if the number of business travelers isn't exactly booming, airlines are finding ways to make more money off those who are getting on board. I'm Henry App from Marketplace. Did you make any New Year's resolutions this year? How's that going?

A lot of us have financial goals, maybe save more, pay down some debt. The federal government has some big resolutions, too. President-elect Donald Trump, who will be sworn back into office in just over a week, has vowed to cut wasteful spending with help from a new Department of Government Efficiency, aka DOJ, headed by Elon Musk and Vivek Rameswamy. But as we well know in our personal lives, resolutions can be tricky, as Stacey Vanik-Smith reports. Personally, I've got a whole set of resolutions for 2025. I'm going to cook all my meals, no more ordering in, and I'm going to go to the gym at least five days a week.

Doge had some pretty lofty resolutions too, about cuts to the $6.5 trillion U.S. budget. Here's Elon Musk. Well, I think we can do at least $2 trillion. Yeah! Yes. $2 trillion. $2 trillion is like a third of the budget. But you know what? It is resolution season.

Go big or go home. Of course, a few weeks later, reality seems to have set in. Here's a clip from Yahoo Finance. This week in an op-ed, Elon Musk and Vivek Ramaswamy laid out their plans to target $500 billion in annual spending under their new Department of Government efficiency. I mean, $500 billion is still a lot. It's not $2 trillion, but I get it.

That initial resolution enthusiasm, it gets tempered by real life, right? I mean, you know, like five days a week at the gym is just a lot of days. Not trying to be a bodybuilder. And then my thought was, well, good luck. This is Douglas Holtz Aiken, and he is not talking about my gym ambitions. He is talking about Doge. Holtz Aiken served as an economic advisor

for George H.W. Bush and headed the Congressional Budget Office in 2003. He says Musk and Rameswamy can make all the resolutions they want. They are successful, prominent people. I get all that. But Doge itself has no authority. It's Congress that passes spending bills, not Doge. So they get to think hard and make recommendations. They're a think tank. And I run a think tank. So I know just how ineffective think tanks can be. Holtz-Aikin's think tank, the American Action Forum, has looked at the federal budget a

lot over the years. And he worries Doge is looking for cuts in all the wrong places. Take this clip where reporter John Stossel asks Vivek Ramaswamy about his Doge plans. You've said you would fire over half of the government's workers. That's correct. Yeah. It's correct. Yes. It's big cuts. Yes.

1.5 million jobs, to be exact. Is it dramatic? Yes. Does it make a statement? Yes. But even if Congress were able to do that, would it make a difference to the budget? Holtz-Aitken says not so much. That's not where the money is.

The money is not in federal employment. In fact, compensation for all federal workers totals about 300 billion dollars. That's not even five percent of the federal budget. Of course, Rameswamy proposed other cuts as well. Yeah, I would shut down the U.S. Department of Education. Luis Schaener is an economist specializing in fiscal and monetary policy at the Brookings Institution. It doesn't really make a big difference in the long run fiscal challenges if you eliminate

the Department of Education. Schaener points out the departments of education, agriculture, transportation and law enforcement all put together don't even make up 15 percent of the budget. And she says those departments do a lot. You'd be decimating these programs and that would be a huge mistake because they produce a lot of value. So where should Doge cut? Well, defense makes up about 15% of our budget. Another 10-ish percent goes to paying interest on our debt. But fully half of the US budget is made up of just three programs, Social

Security, Medicare, and Medicaid. Together, those cost the U.S. about $3 trillion a year. Schaener says getting the budget under control, it is totally possible with a varied approach. The combination of tax increases and some modifications to Medicare, Medicaid, Social Security. And the major impediment is politics. Politics. Douglas Holtz-Aiken says after spending years trying to reform the U.S. budget, the issue always comes down to this. You really want to deal with the budget? You have to look at Social Security and Medicare. But politicians do not want to look at Social Security and Medicare because those are beloved programs and the people who use them vote.

Right now if you go to the town hall and say I'd like to reform Social Security you might as well just walk out and start working at the dairy clean. Holtz-Aikin says it is absolutely possible to modify and trim down Medicare and Social Security spending. But it requires politicians to communicate with voters, ask them to come together and tighten their belts for a better future. It would also require Congress to join forces across the aisle. That is what Team Doge is really up against. I don't think this Congress is going to be the one that holds hands and jumps. And I don't see this president as providing the leadership. Okay? So, you know, maybe I'm just a beaten down Washington swamp dweller, but, you know, I'll

believe it when I see it. After all, resolutions can be hard. Like I was all set to go to the gym today, but it is like 21 degrees out and I'm kind of getting over this cold still. I'm feeling really good about tomorrow though. In New York, I'm Stacey Vanick Smith for Marketplace. This final note on the way out today, more consensus is coming in that 2024 was in fact the hottest year on record. Today NASA and the National Oceanic and Atmospheric Administration

said global temperatures averaged nearly 1.5 degrees Celsius higher last year than pre-industrial levels, joining a similar finding from Europe's Copernicus Climate Change Service. If that number 1.5 sounds familiar, the Paris climate agreement, which President-elect Donald Trump is expected to abandon again when he takes office, had set a goal of limiting warming to no more than one and a half degrees to avoid even worse climate catastrophe. Our theme music was composed by BJ Liederman. We had engineering help today from Jess Berg. Marketplace's executive producer is Nancy Fargali. Donna Tam is the executive editor. Neil Scarborough is the vice president and general manager.

And I'm Amy Scott. We'll be back on Monday. This is APN.