Marketplace - The housing sector droops under a labor shortage and price hikes

Episode Date: November 26, 2024

The homebuilding industry is short over a quarter-million workers, according to the National Association of Home Builders. It’s one reason new home sales fell significantly in October — expensive materials and high home prices are others. Also in this episode: A Baltimore warehouse business navigates obstacles, Yelp celebrates 20 years of maybe-trustworthy reviews, and consumers replace tech purchased early in the pandemic.

Weakness in the housing market, a brewing trade war with our closest neighbors, and a look at 20 years of Yelp. Stick around from American Public Media. This is Marketplace. In Baltimore, I'm Amy Scott in for Kai Rizdal. It's Tuesday, November 26. Good to have you along. We'll start with some housing news.

First, home prices nationally kept growing in September, though more slowly than the month before. That's from the S&P CoreLogic Case Schiller Home Price Index, which rose 3.9% from a year before. Number two, from the U.S. Census Bureau, sales of new homes fell sharply in October. Some of that weakness was expected, as parts of the South are still recovering from hurricanes Helene and Milton. But as Marketplace's Justin Ho reports, other issues are weighing on the market for

new homes and the companies that build them. A big challenge that homebuilders are dealing with is the amount of available labor. Dhanushka Nanyakara, with the National Association of Homebuilders, says the industry has more than 250,000 open positions it's trying to fill. We have an aging labor force. We need young people to go into trade schools. We need to attract women to

come into the trades. Nanyakara says that shortage pushes up construction costs. Construction materials, including electrical transformers, are also in short supply. We have seen record high price growth in the last few years because we don't produce enough domestically. And then there's the sheer price of new homes. Charlie Doherty, senior economist with Wells Fargo, says homebuilders do have some tricks they can pull to take the edge off sticker prices, including mortgage rate buy downs

and other incentives. But at the end of the day, mortgage rates are elevated, and I think that just discourages the home buying process overall. Some of these issues have gotten a little better recently. Mortgage rates are lower than they were this time last year. And Doherty says material prices have started to calm down. Right. They're still very elevated compared to where they were, say, back in 2019.

But the pace of growth has been fairly steady and to the benefit of home builders, more predictable. One input that's actually gotten cheaper recently is lumber. Greg Cuda, CEO of Westline Capital Strategies says prices are down more than 70% since their recent peak about two and a half years ago. But Cuda says, remember, we get a lot of our lumber from Canada. And if the new Trump administration raises tariffs on imported Canadian lumber, guess what? Prices rise. From an industry that needs demand, that's, you know, the home builder industry, the softwood lumber industry.

It's definitely tough to say that an increase in tariffs is going to benefit the consumer. Especially since right now, Cuda says home buyers can't really stomach any more price increases. I'm Justin Ho from Marketplace. Wall Street today? Unfazed. We'll have the details when we do the numbers. Coming back to those tariffs Justin was talking about, yesterday President-elect Trump made

international waves when he announced plans to impose tariffs of 25% on all goods coming into this country from Canada and Mexico, plus an extra 10% on all imports from China. Here to talk us through what that might mean for U.S. international trade agreements and consumer prices is one of our weekly wrap regulars, Anna Swanson at the New York Times. Anna, good to have you back. Thanks so much for having me. So we have had a free trade agreement with Canada and Mexico in place, what, for three decades now? The last agreement signed by Trump himself in 2020. Would this basically

tear up that deal? So it would definitely put a lot of pressure on it and that's kind of one of the ironies of what the president Trump, what president-elect Trump was talking about last night. The three countries, Canada, Mexico and the United States have had a free trade agreement for more than three decades. That's led our economies to be very tightly knit together. In his first term, President Trump criticized that agreement, NAFTA, as the worst trade deal ever negotiated, and he replaced it with something called the United States-Canada-Mexico Agreement. Now, what he's proposing, a 25% tariff on both of those countries, would definitely

violate the terms of that agreement, which that you know for certain products tariffs should be zero and that if you have a trade dispute you should handle it through certain channels. So it remains to be seen you know what would happen to President-elect Trump's own trade deal if those tariffs do go through. How are those countries Canada Mexico, responding to this announcement? So there was a lot of activity immediately from officials in both of those capitals, a lot of concern, of course, about what this could do. The Mexican president put out a statement today saying that she had already been working with the United States on migration and that tariffs weren't the answer, that they would hurt industries that go across the US-Mexican border. But still, Mexico is prepared to respond with tariffs of its own.

Canada has similarly talked about drawing up its own tariffs. And officials there today said that they would work with President-elect Trump to try to defuse the tensions. There was also one opposition leader who suggested if we need to, we could just jettison Mexico entirely from the US-Mexico-Canada agreement. Not sure that will be too popular down in Mexico. Wow. Yeah. I mean, so we know that tariffs are paid by companies that import products and then passed on to their customers. Justin was just talking about the potential effect of higher lumber

tariffs on housing. So what would the consequences be for other industries and their customers? Well, the estimates are still coming out. But I did see that there were some estimates today by, for example, the Center for American Progress, which is the left-leaning think tank, that a 25% tariff on Canada and Mexico and a 10% tariff on China would cost the typical American family $1,300 a year. There were also other estimates, for example, from the Tax Foundation, that the tariffs could reduce GDP by 0.4 percent, cut employment by 350,000 jobs. Another estimate by Goldman Sachs talked about pushing up a core inflation index, closely watched

by central bankers by 0.9%. So definitely some economic impact because after all, these are America's three largest trading partners. Trade with Canada, Mexico, and China accounts for more than a third of US imports and US exports, and it supports tens of third of U.S. imports and U.S. exports. And it supports tens of millions of jobs. So there's a lot on the line with these trade relationships. All right. Well, we hope to have you back to talk more about this as it becomes more clear. Again, this was just a social media post. It's hard to know what exactly is going

to happen with these proposed tariffs. Anna Swanson, writing about trade at The New York Times. Thanks so much. Thank you. I'm sure you haven't noticed, but the holiday shopping season is already upon us. And while many of us are busy making lists and hunting for Black Friday bargains, retail analysts and investors and consultants will be watching us closely to see how people are spending. More and more, those analysts are looking at real-time data, credit card swipes and mobile app clicks and basically anything that might give a glimmer of insight into why consumers do the things

they do. Marketplace's Kaylee Wells has more. This whole industry of different data types is older than you might think. Darrell Smith is head of research at the firm New Data, and he says it all started with analyzing the details of where people were using credit cards and what they were buying. That is really something that's been used for what since the early 2000s by hedge funds and asset managers. Now the data includes footfalls like where you're physically shopping, satellite

images of store parking lots, delivery app orders, social media clicks. The list goes on. It's kind of another plane of information that an investor might be accessing. There are two main selling points here. One is how specific the data can be. Matthias Vernego is an economics professor at Bucknell University who says unlike traditional data sets like quarterly earnings and company filings, They get much faster and localized and sectoral.

And in addition to specificity, Vernego says, the data provides insights in real time, much faster than say, the consumer confidence index. When people ask me about, oh, but consumer confidence is low. Yeah, well, who cares? I mean, it's lagging data. As for this holiday season, Jonathan Chin says he's already seeing signs of price pressure. He is co-founder of a data company called Factius that analyzes credit card use. Things are just expensive and people's wallets are a lot tighter.

And I'm seeing some of that in the data. People are spending more, but they're getting less stuff. He says people are spending more on each transaction, but the total amount they're spending is flat. Also, it's a big year for Chinese companies selling affordable products. Tmoo, Shien, and TikTok's shop have all seen spikes in sales this year. I'm Kayley Wells for Marketplace. Sticking with how consumers are spending money, the electronics retailer Best Buy did not have its best quarter.

Today the company said its comparable sales for the third quarter fell about 3% from the same time a year ago. One exception, though, sales of laptops grew 7% year over year. The biggest increase, Best Buy said today in its earnings call since April 2021. Marketplace's Stephanie Hughes has more. This fall, Joshua Spokes is taking a graduate-level course in geospatial analysis. His computer needs to be able to wrangle some hefty data sets and his old laptop just wasn't cutting it. Even when I closed other

applications it was still struggling to the point that basically like it wasn't able to run what I needed it to run. So about 10 days ago Spokes bought a new laptop. It cost just under $2,000. It's really nice to have something that's just a lot snappier. People typically replace their laptops every three to four years, says Seth Basham with Wedbush Securities. And remember what a lot of us were doing four years ago? Hunkering down and buying computers. Consumers who bought laptops during the pandemic

now are sitting there with laptops that are outdated in terms of battery life, processor speed, etc. Basham says that desire to upgrade is driving laptop sales at Best Buy and across the electronics industry. He says there's a similar replacement cycle for tablets, where sales have also been popping up. There's a life cycle to every gadget that you buy. Some argue for extending that life cycle, like Kyle Weins.

He's the CEO of the online repair guide, iFixit. It also sells parts and tools, some of them through Best Buy. And he says the first thing that peters out in a laptop is the battery. There are pouches of chemicals and they wear out, just like the battery in your car wears out. You have to replace it every so often. And it's actually really straightforward to replace the battery in most laptops. Weins says he's also a fan of buying a laptop where it's easy to add new memory or storage to it.

Or take it out, if need be. Ween My wife spilled wine on her laptop the other day and we just pulled her memory module out, stuck it in another laptop and she was good to go. Stephanie Hughes Another thing that could drive sales in the future, laptops with AI capabilities. Wedbush's Seth Basham says as those computers become more advanced, more people will be willing to buy one.

I'm Stephanie Hughes from Marketplace. Coming up... You're being lied to by the 5-star system. I knew that place was overrated. But first, let's do the numbers. The Dow Jones Industrial Average rose 123 points, 3 tenths percent, to finish at 44,860. The NASDAQ added 119 points, a little over 6 tenths percent, to close at 19,174. And the S&P 500 gained 34 points, 6 tenths percent, to end at 60.21. Today, a U.S. District Court judge in Missouri granted final approval to that big National

Association of Realtors settlement over broker commissions. Checking in on some housing stocks, Redfin fell 2 tenths percent, Zillow deposited 6 tenths percent, and Compass Inc traded up 1.4 percent. Bonds fell, the yield on the 10-year T-note rose to 4.29 percent. You're listening to Marketplace. I'm Amy Scott. It was eight months ago that the Francis Scott Key Bridge in Baltimore collapsed, killing six workers and closing the port for weeks. During that time, I met Sue Monahan, president and CEO of Baltimore International Warehousing and Transportation. She'd had to lay off truck

drivers and then send them long distances to pick up goods from other ports. Today, the Maryland Port Administration figures the Port of Baltimore is back to about 85% of its typical vessel traffic. So we called up Sue to check in. Good to talk with you again. Sue McAllister Nice to talk to you too. Kasey Sire We last talked, I guess, in July when the Port of Baltimore was just opening back up. And at the time, you said business felt touchy. How has it been since then?

Sue McAllister Well, it's definitely picked up in November, but it still was pretty spotty through August and September. A lot of the business didn't return right away. We still had cargo coming into Norfolk, so we kind of lost that transportation piece of the business that we would have had out of Baltimore. And then there was that three-day port strike that affected Baltimore. How did that affect your business?

That affected our business. It really shut down the port for a week. And then because the vessels were delayed, we didn't have everything coming in for a couple weeks. So we were really slow a couple weeks after that. And I think that had to do with vessel scheduling. Is this a busy time for you or is the holiday rush already over? Because we have so many different kinds of products that we store, we experience it differently.

We don't always handle a lot of retail. But we suspect that we might have a lot more cargo coming in to try and beat a potential strike for January because they haven't settled this, the negotiations yet. Right, it was a tentative deal, so you could be facing that all over again? Yes. And how do you gear up for something like that? Well, we do have someone that's handling business development. And so we are looking to diversify so that not everything is coming from the port, so that we can handle deliveries that are coming, you know, a direct customer to another customer

instead of port to customer or port to warehouse. So we have been successful, you know, picking up some cargo that way. What are you hearing from your clients as they return to Baltimore and start using your port again? Have things gotten somewhat back to normal since the bridge collapsed? I would say that they have. I think that most of the clients are happy to be back in Baltimore.

We did lose a small amount of business to New York and Norfolk, where people were able to make some kind of concession that made it more attractive for them to move through those ports. It wasn't significant, but it was there. And some of those customers have stayed with those ports? Yes. How do you win them back? Do you have a pitch that you give? It's pretty much time. If they can get the same service.

A lot of people are really driven by pricing right now. So it's cheaper to go into New York and Norfolk, ocean freight wise, but we are inland. So the inland freight is less expensive. So it depends on where exactly those customers are going from. As you know, the incoming Trump administration has promised to raise tariffs on many imports. Does that, were you at all in terms of the potential impact on the customers that you serve? We suspect that people will try to bring in cargo prior to any tariffs that could go into effect. So that might be another driver. It might have an increase in traffic coming in

to any port, actually. So you might see an initial boost? Yes. I suspect it'll be somewhat like COVID was. Everybody was bringing in a lot of product, then it'll fall off again, as there's some level of, if you can call it, normalizing after that. Were there lessons that you learned as a business owner from all this and the recovery?

We didn't give up. We just shifted and did what we needed to do to keep the drivers running, to keep the warehouses operating, and we did, we were successful. All right, Sue Monahan running Baltimore International Warehousing and Transportation. Thank you so much.

Thank you so much. Thank you. This next piece is one of those anniversary stories that can make you think, wow, has it been that long? And also, was there ever a time this thing didn't exist? That thing in this case is Yelp, which this fall is celebrating its 20th birthday. The user review platform launched in late 2004 and has now accumulated almost 300 million reviews worldwide. Marketplace's Megan McCarty Carino has this review. Reviews are everywhere, but only a small share of customers actually take the time to write

them. Richard Probst has written more than 1,700. I think I'm one of the first Yelpers who figured out there was a word limit. Probst has been a Yelp elite member in Indianapolis for 11 years. It's a designation for the most prolific and insightful Yelpers. He mostly writes about restaurants, but also doctors and medical services. Because I am somebody who's a very active wheelchair user, I do kind of feel a responsibility to review as much as I can because, you know, obviously people in wheelchairs want to get out too.

Prope says including accessibility in his assessments is the kind of thing you might not find in your average newspaper restaurant review. He says platforms like Yelp also help to elevate businesses that are off the beaten track, like Futuro Pizza a few miles away, which Luke Tobias started in his own Indianapolis home during the pandemic. He says Yelp was instrumental in communicating with customers and getting their feedback once he moved the operation into an actual restaurant in early 2021. You couldn't even go into a restaurant at that time. With a tiny staff and a new baby, Tobias kept limited hours and asked customers to order a day in advance. Still, online reviews helped grow the business. People started finding out about it

and people started really talking about kind of the quality of the pizza. This year, Yelp named Futuro the number two pizza place in all of the Midwest. But as soon as online reviews became powerful, even years ago, It also was very clear that they could be easily faked. Dina Maislin is a marketing professor at the University of Southern California. She says about 10% of online reviews are fake, and AI tools have made forgeries easier. Yelp, like many platforms, says it uses a combination of user reports and algorithms

to detect fake or solicited reviews so they don't factor into a business's star rating. But even when reviews are genuine, they can be pretty noisy to interpret. You're being lied to by the five-star system. YouTube star Freddie Wong's advice for finding authentic Chinese food went viral a couple years ago. Go on Yelp and look for restaurants with three and a half stars. Exactly three and a half, not three, not four, three and a half stars is the sweet spot for authentic Chinese food.

The formula is based on Wang's theory that cultural differences and expectations can result in reviews being very polarized. A restaurant might have great food, but lack the kind of touchy-feely service many American consumers expect. Some people think service is very important for me. I don't care. The same goes for things like parking, ambiance, or portion sizes. Thus, the sweet spot of three and a half stars. Lately, though, Wong says he's given up on online reviews.

I would rather have a human being tell me, go to this place. This place is interesting. I trust that more. But to Richard Probst in Indianapolis, reviews are more than their star ratings. It's about local. It's about good people figuring out how to make the community better. His latest five-star review just posted for Luke Tobias' Futuro Pizza. I'm Megan McCarty-Carino for Marketplace. This final note on the way out today, we got a peek into Fed deliberations on interest rates with the release of minutes from the last FOMC meeting, November 6 and 7, showing

that all 19 participants approved the quarter point rate cut decided at the meeting and that officials, quote, remained confident that inflation was moving sustainably toward 2 percent, although a couple noted the possibility that the process could take longer than previously expected. Our Digital and On-Demand team includes Carrie Barber, Jordan Mangy, Dylan Mietinen, Janet Nguyen, Olga Oxman, Ellen Rolfes, Virginia K. Smith, and Tony Wagner. Francesca Levy is the Executive director of Digital and On Demand. And I'm Amy Scott. We'll be back tomorrow. MUSIC This is APN.