Marketplace - Do modern-day starter homes exist?

Episode Date: February 27, 2024

The U.S. saw a boom in “entry level” homes for young couples post-World War II. Today’s housing market, and first-time homeownership, may be unrecognizable from the vantage point of the 1950s. In this episode, a look at the origins of starter homes and how sales agents are reframing the homebuying timeline. Plus, Macy’s announces a major pivot, CEO turnover cranks up and durable goods orders reveal where businesses stand on expansion.

Hey, Marketplace listeners, you know around here we like to think you're never too young to learn about the economy and financial basics. That's why we're bringing the Million Bazillion Live Tour to schools to teach important lessons about budgeting, investing, saving, and more. It's all the fun of the podcast, but now live, immersive, and interactive. Special thanks to our tour partner, Greenlight, the debit card and money app for kids and teens. Learn more about Greenlight at greenlight.com slash million. That is greenlight.com slash million. In no particular order, goods of the durable kind, homes of the starter kind, and economics of the political kind.

From American Public Media, this is Marketplace. In Los Angeles, I'm Kai Risdell. It is Tuesday today, the 27th of February. Good as always to have you along, everybody. We begin on this Tuesday with today's entry in the Corporate Communications Department working overtime sweepstakes. Macy's, in case you haven't heard, is entering a bold new chapter. All caps, by the way, bold new chapter. That's what the company is calling the new strategy it announced on its earnings call this morning, balancing, and I'm quoting here, the art and science of retail. To make that happen, the balancing act, Macy's is going to close 150 of its 481 stores over the next three years. And Macy's is not, of course, the only department store fighting a dusty and dated image. So Marketplace's Kristen

Schwab starts us off today with department stores' role in retail and how it has changed. When department stores followed urban sprawl into the suburbs after World War II, they became local centers of shopping and socialization. You get people in the door and you don't get them to leave. You could spend the entire day there. Michael Lisicki is a historian who's written several books about department stores. He says they sold clothing, furniture, and appliances, and they had restaurants, salons, and photography studios. And these massive emporiums, as they grew, were able to stock things that you could not buy anywhere. They had a monopoly, in a sense, on retail. Of course, between globalization and online shopping, the monopoly didn't last, and the department store's strength as a place for everything became its weakness. Because

Christina Boney, senior vice president at Moody's, says browsing now happens on your browser. You don't go to the store to do inquiry in the same way you used to do. Today, you have a good idea of what you're looking for. And if you don't, you likely want a curated selection to help you cut through the infinite choices online. To many shoppers, Macy's old model as a place for everything can be overwhelming. If you had a magic wand, people would not have department stores the size that they are today. Macy's doesn't have a magic wand, but it does have a few tricks up its sleeve, like its other stores, including Bloomingdale's, which caters to higher-spend customers,

and Blue Mercury, which sells skincare and cosmetics. David Swartz, senior equity analyst at Morningstar, thinks it will take more than that. There's really no place for the traditional department store anymore. He says closing 150 locations will give the company some capital to refocus on its discount store, Macy's Backstage, and smaller concept stores. I think there's a future for Macy's. It's just not going to be the old Macy's. The bigger and more iconic the brand, Schwartz says, the harder it is to change. I'm Kristen Schwab for Marketplace.

Ticker symbol M, by the way, gets you to the share price for Macy's Incorporated. Traders liked what they heard about the company's bold new chapter. M up better than three and a third percent today. The major indices mixed. We'll have the details when we do The fundamental outline of the American housing market right now, you know. Mortgage rates are high, inventory is low, and prices keep going up. Up to record highs in point of fact. Home prices in the 20 biggest metro areas in this economy peaked as last year due to a close.

That's according to the S&P CoreLogic Case-Shiller Home Price Index, which came out this morning. Among many other challenges, that kind of market makes it tricky at best for people to get into what's historically been called a starter home. The proverbial foot in the door of the American housing market. The light on frills, light on square footage, but also light on the wallet property. Young families can maybe spend a couple of years in, build up some equity, and then trade up. Starter homes do, of course, still exist, but they look a whole lot different than they used to. Marketplaces Amy Scott and Matt Levin have this bi-coastal glimpse into the past, present, and future of the starter home. All right, Amy. I went to check out a starter home in San Jose, California,

the most expensive starter home market in the country, according to Redfin. So I'm guessing it costs like a million dollars? Sadly, you are not far off. Here's what one of those starter homes look like. Vamos. off. Here's what one of those starter homes look like. Isaias Castro and his realtor Mina Fernandez are giving me a tour of his 776 square foot house in East San Jose. The Redfin listing calls it a cute as can be starter home for, get this, $839,000. It's a quick tour, two beds, one bath, but it's got a pretty big backyard,

which came in handy when all four of Castro's kids were using that one bathroom in the morning. When I go for the pee-pee, no problem. I go outside, like a ranch. So really, it's one and a half bathrooms. You can make your jokes, Amy, but Castro says he loves this house. Castro bought it for around 300 grand more than 20 years ago. Back then, he was a driver for a local medical supply company.

Bay Area housing wasn't cheap in the early 2000s, but it was possible for Castro to get his foot in the door. Now he's selling, partly to be closer to two of his adult children. Both moved to California's much cheaper Central Valley to find their starter homes. Yes, they tried to buy something here, but it was too expensive for them. That's why they left to buy out there. buy something here, but it was too expensive for them. That's why they left to buy out there. Castro's house was built in 1959 at the tail end of the post-World War II starter home boom. Elaine Stiles is an architectural historian at Roger Williams University. She's looking at photos of the property. The thing that really signals that this is a starter home is that when you open the front door,

bam, you're right in the living room. Developers in this era specialized in fun-sizing the trappings of the middle class, a dining alcove instead of a room, an extended roofline over the front door instead of a porch. And according to a newspaper ad for this model from 1959, this home cost just $10,750. Wow. Okay, Matt, just to pop in here. So what would that be in today's dollars? Still upsettingly cheap.

That's only $112,000. And cheap mortgages from the federal government made that even more affordable, but almost exclusively for white borrowers. Latinos, Asians, in some cases people who are of the Jewish faith, and African Americans don't have access, equal access to any of this. But for working class white families, starter homes were a major step in building generational wealth, a symbol of upward mobility. You start small and you work your way up. And then, as you know, Amy, homebuilders just kept building affordable starter homes for the rest of time, and the American housing market lived happily ever after. Yeah, no.

It's almost like the starter home is gone. So this is Jenny Nichols. She follows new home trends at John Burns Research and Consulting. And Nichols says builders have a hard time making money on small homes these days because land, materials, and labor just cost so much more today. And so then you run into, if I build something small, I still have to charge too much for it. Some builders are trying to meet demand for entry-level housing, though. I went to see a brand new development in rural Delaware called Hamlet of Tillery. Hamlet of Tillery? Can we cue the loop music?

Hamlet of Tillery? Can we cue the loop music? Yeah, the sales agent actually wants to have a Renaissance-themed grand opening this spring. Eventually, Hamlet of Tillery will be 27 homes on half-acre lots selling in the mid-$300,000 range, and their smallest model, called the Acclaim, does look like a modern version of the classic starter home. A small white box, basically, with a blue door. The sales rep, Sasha Greenlee, with the builder Reward Homes, shows me inside. This is your 1,300 square foot home. It actually has three bedrooms and two baths. Wow, you can almost fit two of my San Jose starter homes in there.

Yes, but by today's standards, it's small. And the price? $332,000? Greenlee says you're not going to find a detached single-family home for much less around here, especially with all the trappings buyers expect today. You're getting the two-car garage. You're getting the primary suite with an en suite and a walk-in closet. The large open concept, you know, kitchen and living and dining room area. Walking around the house, you can see some of the ways the builder has kept costs down. Vinyl flooring instead of wood, hollow doors. But the big reason these houses are more affordable is the location. Land is cheaper out in the country. Caitlin McKenzie

bought one of the houses in August with her fiance, Nestor Gonzalez, after looking for a year closer to town. We were almost worried, like, oh, we're in the middle of nowhere. Is this going to be okay? They're in their mid-20s. She manages a pediatric dental office. He works at Verizon. And they definitely see this as their starter home. Absolutely.

Yeah, probably not add on as much, but if anything, move into something else and use this as like a rental property or something. They feel like they got in just in time. But if anything, move into something else and use this as like a rental property or something. They feel like they got in just in time. Since they bought their house, prices have gone up. So does their house have a name like the Acclaim? Yep. Their model is called the Triumph, which, you know, is a pretty good description of what it feels like to actually land a starter home these days.

In Greenwood, Delaware. And in San Jose, California. I'm Amy Scott. And I'm Matt Levin for Marketplace. Should it so happen that you miss something on the air? We get it. Life's hard. Try our podcast, though.

Marketplace.org or follow us on the platform of your choice. You want government data on this economy, there are the go-tos, the Bureau of Labor Statistics, the Fed for certain things, the Department of Energy for energy stuff, the Bureau of Economic Analysis, too. Also, and often overlooked, the Census Bureau, which does way, way more than just count people. Among its offerings, the monthly report on durable goods manufacturers, shipments, inventories, and orders, or for short, durable goods, which in January, we learned this morning, fell 6%. But the ever-volatile transportation sector was a big drag last month. So we had Marketplace's Elizabeth Troval look beyond the top line numbers to get a sense of durable goods circa the rest of 2024. It's been another noisy month for data on shipments and new orders of durable goods, a.k.a. stuff that doesn't need to be replaced for at least three years, like computers, airplanes.

We had this extraordinary circumstance of an airplane having a door ripped off in midair. John Diamond with Rice University says that skewed overall durable goods data. In January, new orders for non-defense aircrafts were down nearly 60 percent. So if you take away aircrafts and look at, say, capital assets. Not just shipments of goods, but actually what are they investing in to produce goods in the future? Capital goods are up. New orders are up 0.1 percent. Unbalanced, it's a rather tepid report, but it's by no means anywhere near as awful as the headline number makes it look. Mike Montgomery with S&P Global Market Intelligence went over the numbers.

Electrical equipment, small plus. Motor vehicles, a drop, but they've been running exceptionally strong late in 2023, so that's not overwhelmingly surprising. 2023, so that's not overwhelmingly surprising. A standout category was computers. New orders in January were up almost 6%. Kathy Bustchanczyk is an economist with Nationwide. From a year ago, orders for computers and related products were up very strongly. Compare that with, say, machinery, which includes things like... Construction machinery, oil field and gas machinery, metalworking machinery, turbine generators.

Orders year on year have been flat. You can see it kind of like the tales of two economies here, even within, you know, the more industrial or the business side, that companies are hesitant to expand investment in the machinery. But they're still investing in computers to keep up with the latest technology. I'm Elizabeth Troval for Marketplace. Coming up. People are still sort of dealing with the fact that prices are a lot higher than they were, and it's bumming them out. Yes, yes, we are. And yes, yes, it is. But first, let's do the numbers. Dow Industrial is off 96 points today, a quarter percent, closed at 38,972, did the blue chips. The Nasdaq picked up

59 points, about four-tenths percent there, 16,035. The S&P 500 up eight, two-tenths percent, 5,078. Kristen Schwab was telling us about department stores. Macy's, as I said, up three and four-tenths percent. Competitor Dillard's gained about a half percent. TJX, which operates stores like TJ Maxx and Marshalls, increased one and three-tenths percent today. Grocery brand giant J.M. Smucker reported cheery earnings today. That's the parent company of those namesake fruit jams, as well as Jif peanut butter.

Folgers and more recently, hostess brands like Twinkies, Smucker, smacked down 2% on the day. Bonds fell. The yield on the 10-year T-note increased to 4.30%. You're listening to Marketplace. I'm Kai Risdahl. Alongside the durable goods report that Elizabeth was talking about a minute ago, we got consumer confidence numbers today from the conference board. Less confident is how consumers have been feeling this month. The first down report after three months of gains.

Among the big concerns, the conference board said the political environment. We are, as you cannot help but be aware, in an election year. President Biden and Democrats are trying to convince voters the economy is working. Thus far, it has to be said without much success. So we're going to talk about why with Victoria Guida from Politico. She had a column the other day, the headline of which was liberals dreamed of this economy for decades. What if voters don't like it? Victoria, good to talk to you again. Great to talk to you, Kai. I want to go straight to the first line of this

piece. I need a definition here. This is what you write. This is the future liberals wanted. What does that mean? So for a really long time, liberals, people on the left, I use the term liberals pretty broadly. When they talked about what they wanted to see in the economy, this was basically it. They wanted to have unemployment go as low as possible because they wanted people to be able to have more leverage to work for higher wages. And also, that can lead to productivity because as companies employ more and more people and have to compete more for workers, they have more incentive to invest more in technology so that the workers they have are more productive. And it can lead to higher economic growth. And that's basically what we have right now. As you say in this piece, higher wages, higher growth, higher productivity,

win, win, win. I will counter with what some people in this piece that you talk to say. One word, three syllables, inflation. Yeah. So this will not shock anyone listening, but people don't like higher prices. And, you know, it's not just inflation, which is rising prices. Right. But now that we've had inflation, prices are also higher. Right. You know, rent and groceries have gone up 20 percent in the last three years. Electricity has gone up 25 percent. These are obviously very basic things that people need to pay for. And so even if inflation has come down, which it has, people are still sort of dealing with the fact that prices are a lot higher than they were. And it's bumming them out. It struck me as I was reading this column that what this is, what this what you're talking about really here is the politics of this economy and whether somehow Democrats and President Biden can translate the win, win, win that you say they've gotten with the challenge that high price levels, right?

Inflation has been taken care of mostly, but price levels are high. Can they translate that into political victory? Right. And there's this is has huge implications for the progressive economic policy movement, because if people don't really feel what the macro data says, which is that, you know, people are doing better financially, that is sort of a crisis for a lot of the Democrats. It was interesting, though, you got some pushback from former Biden administration officials who say, listen, consumer sentiment is not a referendum on these economic policies. How do you square that circle? So basically, they point to, you know, the popularity of a lot of policies,

some of which are no longer in effect. So we have the enhanced child tax credit. And then people like the idea of investing in infrastructure. People like the idea. A lot of people like the idea of investing in green energy. These things pull well. And so they're saying, well, it's not the policies. It's just inflation, which they think is caused by things that weren't the things that they did.

But ultimately, the economic outcomes have to translate into something that people want, that people like. What does this mean then for the crisis next time? Because we've had a huge economic shock in the pandemic. The Fed did what it did. The Biden administration did what it did, and the Trump administration did some of it too. What do you suppose this means for willingness to be as aggressive policy-wise the next time there's a crisis? It's really interesting because obviously this crisis was strange. You know, the next crisis might look a little bit different, but I think that generally a lot of economists would say that, you know, the data has borne out in terms of

Congress went really heavy on supporting the economy and the economy has been really resilient. And so the concern would be that people don't act as quickly the next time because it's still not totally clear how much overboard we went on spending and how much of that is responsible for inflation, how much of this was just sort of, you know, jumbled supply chains, for example. Right. And the catch, of course, is that economists don't really get to decide. It's the politicians who get to decide what we do next time. Right. And so this comes back to this notion of if they did make the right decisions for, you know, helping the economy recover, if it didn't lead to an economy that people are happy with, that's not a political incentive to do it again. So the question is, you know, what is an economy that people are happy with?

That's another column, I think, for you, right? Yeah, maybe 10 columns. Yeah, maybe. Victoria Guida, she's an economics columnist and a reporter at Politico. Victoria, thanks a lot. I appreciate your time. Thanks so much, Kai. The economic data of the week to come, and yes, I know we're working ahead a little bit here, but bear with me. It's going to include an update on how many workers in this economy are quitting or changing jobs. JOLTS comes out Wednesday next, the Job Openings and Labor Turnover Survey.

We did get a bit of insight today, though, into what turnover is like in C-suites across the land. The outplacement firm Challenger Day and Christmas reports nearly 200 CEOs stepped down in January, and then in all of last year, more than 1,900 corporate heads headed for the exits, the most the firm has reported since the mid-2010s at least. Marketplace's Henry Epp is on the jolts in the C-suite beat for us today. When a CEO steps down, that likely means one of two things, says Yojud Chang at the University of Virginia's Darden School of Business. It can indicate that things are good, the economy is stable, the firm is performing well, CEOs are collaborating with their boards to set a transition timeline. And then there are times when a CEO is pushed out or leaves abruptly, which could mean… Increasing competition, poor performance, basically resulting in more CEOs being pressured out of their roles.

being pressured out of their roles. Both of these scenarios probably played out with chief executives who stepped down last year. But Andy Challenger at Challenger Gray and Christmas thinks one theme might run through a lot of them, the pandemic. Companies were loathe to let go of their leaders in the middle of a crisis. Now he says they're not

because the economy is more stable and companies see an opportunity to make a change. It is actually a positive sign of more stable, and companies see an opportunity to make a change. It is actually a positive sign of more certainty, more ability to make long-term major decisions at a company than we've seen over the past few years. CEOs' job descriptions have changed post-pandemic too, says Aaron Terrazas, chief economist at Glassdoor. CEOs, you know, five, ten years ago used to be strategic, top-down deciders, whereas now they have to be more listening consensus builders.

And they have to listen to a growing array of stakeholders, says Yojud Chang at the University of Virginia. Not just shareholders, but employees, suppliers, community members, politicians. And all of that pressure from all of those different directions adds up, Cheng says. And it could mean that more frequent CEO turnover becomes the new normal. I'm Henry Epp for Marketplace. This final note on the way out today, there will not be, sad to say for the Apple aficionados out there, an Apple EV. The company announced today that 10 years and multiple billions of dollars on trying to build an electric car was enough. Bloomberg broke the story this morning.

There will be some layoffs, also some transfers to Apple's AI projects as well. Our digital and on-demand team includes Carrie Barber, Jordan Mangy, Dylan Mietenen, Janet Nguyen, Olga Oxman, Ellen Rolfes, Virginia K. Smith, and Tony Wagner. Francesca Levy is the executive Director of Digital and On Demand. I'm Kai Risdahl. We will see you tomorrow, everybody. This is APM. All over the country. We need to improve reading in Wisconsin. This is APM. podcast has changed my life. And I'm going to share this podcast with everyone I meet. Sold a Story investigates how teaching kids to read went wrong.

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