Marketplace - Who can afford to buy a home these days?

Episode Date: March 2, 2024

The monthly mortgage payment on a typical U.S. home has nearly doubled since 2020, a Zillow report found. With mortgage rates hovering around 7%, that isn’t likely to improve much in the near future. Plus: Bitcoin investors finally see a thaw, new guidelines encourage the federal government to hire military spouses and a Chinese coffee chain’s apparent recovery from an earnings report scandal.

Well, let's see. Something macroeconomic to start, perhaps? Bitcoin, as a little detour, will end with a cup of coffee in Shanghai. From American Public Media, this is Marketplace. In Los Angeles, I'm Kyle Risdell. It is Friday today. This one is the first of March. Good as always to have you along, everybody. First Friday of the month.

And you know what that means, right? It means we get an extra 30 seconds to talk about the week that was. It's not my rule. The producers get to decide. Gina Smilick is at the New York Times. Sadiq Reddy is at Politico. Hey, you two. Hey, Kyle. Hey, Ty.

Hey, Ty. Gina, let me start with you, if I could. And I want to talk about the inflation measure that came out this week, the PCE measure that the Fed likes, as we all know. If you listen to this program, it's the Fed's favorite measure. Here's what I want you to talk about. I want you to talk core PCE, what it is and why it especially matters. Right. So core PCE is this sort of underlying inflation gauge that is pretty slow moving. And that is why it is basically the Fed's favorite number. It takes out food and it takes out gas.

And it basically tracks, you know, a basket of things that people buy in the economy. And so the Fed watches this number very closely. It comes out every month a little bit after the Consumer Price Index numbers, which people might be a little bit more familiar with because we tend to get more headlines because they come out sooner. And so the Fed watches this number really closely. And it has been and it continued to consistently sort of trending. It has been consistently trending down over the months.

So that is very good news on an annual basis. Unfortunately, on a monthly basis, we saw a little bit of an increase this time. And so I think that the reason that we care so much about that monthly increase is it suggests that what is sort of like happening in the most recent period is that inflation might be not cooling down quite as much as we previously expected, may even be warming back up a little bit. And so I think that's really a trend to watch. It's going to be something that gives beneficial some pause. It kind of complicates this nice story they have been telling

about this real steady, consistent slowdown in inflation. Sudeep, talk to me about that steady, consistent slowdown. It has been, as we've said on this program, Gina said in the piece, the descent of inflation has been bumpy and it is going to be bumpy. How are we going to know whether it's bumpy on the way down or stuck where it is bumpy, if that makes any sense? I think one reason why this is confusing right now is because the economy is not going into the toilet, which is a good thing, obviously. If the economy were falling apart which a lot of

people have predicted over the last two years as the fed raised interest rates the economy would fall apart uh demand would fall across the the economy inflation would drop even further and the the end of that parabola would look pretty pretty clear and instead the economy is actually obviously the job markets is is uh surprisingly robust and strong there are things that are holding up reasonably well which means that things are going to get bumpy right now because if demand for labor is uh is still high if if the the lower end of the labor market is tight uh that means services inflation is going to be higher a lot of things are going to there's going to be price pressure sticking in there. And so that means

that getting it further down is not good. That last bit is going to be harder than people would have thought. But it's in the context of an economy that's holding up reasonably well. Gina, is it your sense based on your reporting that the Fed is concerned about the bumpiness or they're like, yeah, no, we knew this was coming? You know, I think that they knew that it was likely not going to be a completely consistent cool down in inflation. Like they knew that there were bumps possible. I think that we had had so many months of really good data that there had been some optimism that actually we might sort of be past the point of bumps, that, you know, like we might be reaching this perfect soft landing

that happened totally comfortably and we didn't have to worry about the bumpiness. And I think that this really sort of dispels that notion and makes it much less likely that we're just going to have a perfect, easy cool down. And so I think, you know, I think they aren't 100 percent caught off guard here, but I think that they're probably still pretty unhappy about it. Sadiq, you mentioned the economy doing pretty well, not being in the toilet. And point of fact, we learned this week the economy's in the fourth quarter of last year on an annualized basis, growing at an annual rate of 3.2 percent, which is quite nice.

Thank you very much. It was a touchdown from earlier predictions. Here's my question. Look around the rest of the planet. The U.S. is the developed economy doing the best by miles. How come we're not lifting all the other boats, you know? That's a good question. We are still obviously a huge anchor of the global economy, and what we buy does drive what's happening in a lot of other places. Everyone seems to have a

different set of problems. We're all in a different place. So it's not the big synchronized effect that you see coming out of recessions. You could say this is late stage economic behavior on the global economy. That's certainly what you would assume when you see what's happening in Europe and what's happening in China. But, you know, there are things that are actually going OK in a lot of other places. There's a reason why, you know why Japan is seeing a return of a record stock market after decades. There are places that look a little uplifting. And I think this is going to take years to untangle what's happened in the post-COVID economy. But

the entanglement of all of these economies, the separations that we've been forming to not be as reliant on supply chains, not be as reliant on supply chains, not be as reliant on each other, those may be playing some part in this. We don't know yet. It's way too early to make that assessment, but it may be a factor in why we're all operating on slightly different speeds than we might have been at other points the last two decades. Yeah. Sudeep, sorry, just sticking with you real quick. What's your concern level over the politics of this economy right now? You know, we had economic data about consumer sentiment. It wasn't as strong. It dipped a little bit. I think people still feel a little bit uncertain, but there are two things going on right now. Consumer sentiment might dip a little bit, But also today, we saw the headlines

that oil has hit $80 a barrel first time since November. That is the kind of thing that really weighs on people, particularly as the spring and summer approaches and shapes our own perceptions, even if it's an outsized figure and gases and everything. But it does play into all of the dynamics about economic growth, obviously about inflation. And I think that's a big factor to watch about how people feel in the coming months, as long as the job market holds up. Gina, oil makes me just think of the word exogenous shocks, right? As the Fed watches this and as consumers watch what's going on, there's a lot happening that maybe we're not entirely in control of. happening that maybe we're not entirely in control of. Yeah, absolutely. There's a lot that's happening that we're not in control of. I think that exogenous shocks, like sort of the stuff coming from the outside, that matters a lot when you're the Fed, thinking about policy and thinking about, like, can we control this inflation? It's a lot less relevant when you're talking about this

from a political point of view. You know, like you can tell people, oh, we can't do much about gas and groceries. But at the end of the day, people buy gas and groceries. And so when gas and groceries are becoming a lot more expensive, they feel a lot worse about the world. And so I think that that's sort of the sort of difficulty with this inflationary moment is it can be much more politically damaging. Yeah. This inflationary moment. Gina Smalik, The New York Times and Sadiq Reddy at Politico on a Friday afternoon. Thanks, you two. Thanks, guys. See you. Wall Street today, you know, traders were in a generally pretty good mood. Do me a favor, though. Do not look at regional banks.

Just don't look over there. We'll have the details when we do the numbers. The consumer mood right now, as the three of us were talking about just a minute ago, is kind of mixed. The reasons we can all probably tick off on our fingers, higher price levels, inflation mostly under control, but still not all the way settled, a bit bumpy, right? The labor market's real strong. Sadiq was talking about this. Wages are up, but housing is still really expensive. And on that point, housing affordability here is exhibit one. The real estate firm Zillow says that since January of 2020, the mortgage payments monthly, that is, on a typical home in this economy, has nearly doubled up 96 percent, to be precise. That is in just four years. A typical buyer is now going to pay nearly $2,200 a month. Let me frame that a different way.

Home ownership now costs more than the 30% of median household income once thought to equate to affordable housing in this economy. And with the 30-year fixed bouncing right around 7% now, there is not a whole lot of light at the end of that particular tunnel, as Marketplace's Mitchell Hartman reports. With prices rising by leaps and bounds, it's been a good time to sell a home, not so great to try and buy, says Orfei Divangi, senior economist at Zillow. After the surge in home buying demand and mobility during the pandemic, the surge in home buying demand and mobility during the pandemic and the doubling of mortgage rates, home shoppers now need to earn $106,000 to afford the median home in the United States. Back in 2020, the salary needed to afford the median monthly mortgage payment was just $59,000.

Real estate broker Israel Hill has seen the affordability crunch in Portland, Oregon. There's nowhere to go, right? I mean, the prices aren't dropping because there's no inventory. With mortgage rates around 7%, many homeowners don't want to sell and give up their cheaper mortgages. So for would-be buyers... There's a sticker shock for sure, trying to figure out how they're going to make that monthly payment. And some people have to put themselves on the sidelines. Others, says Zillow's Divangi, are getting creative. Half of first-time homebuyers are getting help from family and friends

to at least get the down payment. 21% of last year's buyers reported co-buying, so they're buying with a friend or a family member. The news is not all gloom and doom, says Eddie Seiler at the Mortgage Bankers Association. Interest rates should come down steadily. Hopefully we'll end the year at around 6%. And in time, that probably won't seem so expensive. Guy Sakala at Inside Mortgage Finance points out that in the years before the pandemic, consumers got used to really low mortgage rates. Unfortunately, a lot of people

felt that was normal and that anything above that, they should just wait until they go back to the three and a half, four percent range. And that is not a realistic expectation. Sakala says mortgage rates have historically hovered around five to six percent in a healthy economy, and home buyers will just need to get used to that. I'm Mitchell Hartman for Marketplace. Hey, have you checked the price of Bitcoin lately? No? I get that. I get that. But just to fill you in, the OG cryptocurrency is up about 40% this year, inching ever closer to its pandemic high of nearly $69,000 per.

You know, some of the most devoted Bitcoin investors have a credo. It's called HODL. Basically, hold on for dear life. A mantra to never sell your Bitcoin even when the price is in the relative dumps, as it has been for most of the past couple of years. Let me tell you, or better yet, let Matt Levin tell you, those hodlers, they are rejoicing right now. Sean Longstreet started investing in Bitcoin back in 2017 when it was around 17 grand per coin. The musician and artist has kept buying through multiple crypto winters, those periods when Bitcoin crashed to disconcerting lows. When things go down, you have to lie on your conviction. And there's a phrase, when there's blood in the streets, you buy. So I did not sell.

I just cried and held on to it. Longstreet won't tell me exactly how much he owns in Bitcoin. That's a taboo question for Bitcoiners. But he says he does own more crypto than he does stocks. And while it may be tempting to tell skeptical friends and family, I told you so, he's learned to resist that urge. It causes too much strain if you try to onboard your family and something bad happens. The latest Bitcoin surge is mostly due to the SEC's approval of Bitcoin Exchange Traded Funds,

or ETFs for short. ETFs allow big and small investors to put money into Bitcoin without having to touch a crypto wallet or actually understand what the blockchain is. Ryan Rasmussen is with Bitwise Asset Management. More than a billion dollars have poured into their Bitcoin ETF. Now anyone can open their brokerage account and with the click of a button allocate to Bitcoin. This was kind of like Bitcoin's IPO moment. Pensions and hedge funds and mom and pop traders are saying, sure, I'll dip my toe in that Bitcoin IPO, especially while the price goes up. But Lee Reiners at the Duke Financial Economic Center says more mainstream financial actors

getting in on crypto carries risk when the next Bitcoin winter inevitably comes. Now you sort of created a interstate freeway that's connecting the traditional financial system with the crypto economy, such that a problem in one could easily spill into the other. For his part, Bitcoiner Sean Longstreet agrees another downturn will come at some point, but he's not planning on selling anytime soon. I'm Matt Levin for Marketplace. You know what you should do sometime soon? Follow us for our podcast.

You can do it at marketplace.org, of course, or the platform of your choice. Just listen. That's all we ask. Coming up. Did I make money on the stock? Honestly, I do not remember. Well, that's not a good sign. First, though, let's do the numbers.

Dow Industrials added 90 points today. 9-0 points, 2 tenthsenths percent, 39,087. The NASDAQ gained 183 points, one and a tenth percent, finished at 16,274. S&P 500 up 40 points, about eight-tenths percent, 51 and 37. For the five days gone by, the Dow was down about a tenth percent. The NASDAQ climbed one and seven tenths percent. S&P 500 added almost one percent. Now, about those regional banks. Troubles continue for the regional lender New York Community Bank. We told you a bit about this this week. It admitted, and this is a quote, material weaknesses in how it gauges the riskiness of loans.

That is a very not good thing for a bank. The bank says it's stockpiling cash and has brought in a new CEO. NYCB shares plummeted 25.9% today. Bond prices went up. Yield on the 10-year T-note down 4.18% on this Friday. You're listening to Marketplace. I'm Kai Risdahl. So we are not going to have a government shutdown yet. Anyway, talk to me in a couple of weeks.

But for now, that is good news for people who work for this country's biggest employer, which would be, of course, the federal government. While Congress was working on that kick the can down the road funding package this week, the Biden administration released new guidelines for hiring federal workers, specifically with the goal of improving the job prospects for a chronically underemployed or unemployed group of people, military spouses. Marketplace's Kimberly Adams has that story. It's no secret that military families move around a lot, like the family of Rosella Capella-Zelinski, who teaches political science at Boston University. As a military spouse, married 10 years, we moved six. And all that moving makes it hard for military spouses

to hold down jobs, says Bessa Penciotti, CEO of the National Military Family Association. Military spouses have had an unemployment rate of over 20 percent for decades. And the effects of that add up over time, says Shelley McDermott-Wadsworth, who directs Purdue University's Military Family Research Institute. The earnings of military spouses are as much as 20 percent below those of their civilian counterparts. And that, of course, is a challenge for families. So the Biden administration is telling federal agencies to focus more on giving military spouses federal jobs, especially those with telework or other flexible arrangements,

including, says the Rand Corporation's Thomas Trail, on military bases where their partners are serving. They're trying to make sure that military spouses are able to get employment at the installation they're at or another government job so that they can maintain employment. The new guidelines also mandate training for government hiring managers so they better understand the unique needs of military spouses. Boston University's Rosella Capella-Zelinski has written widely on the economics of the military and says moves like this may help avoid what happened to her family. My husband eventually retired just to help me support my career and my son's needs.

And so he has lost talent. And with almost every branch of the armed forces regularly missing recruitment goals, retention is a high priority for the Pentagon. In Washington, I'm Kimberly Adams for Marketplace. For as popular as tea is in China, which is to say very, the coffee market in the world's second biggest economy ain't no slouch. Starbucks is there, of course, has been for a long time. Also, a domestic Chinese chain called Luckin, which before a multi-hundred million dollar fraud scandal four years ago was going strong. Last week, Luckin reported 2023 annual profits. The company says it's now beating Starbucks,

both in revenue and total stores. Marketplace's Jennifer Pak in Shanghai went out for a cup of coffee. It's my first out for a cup of coffee. It's my first time at a Luckin coffee, and I instinctively go up to the counter, which is completely pointless. The staff here don't take orders. There's not even a machine to order from. You're going to have to teach me how to do this. Well, I've just... Helping me out is Zhang Tianbing, who follows China's coffee industry for Deloitte Asia Pacific. He explains we have to order through the Luckin app. He gets me the latest drink, a chocolate milk infused with this super pricey Chinese alcohol called maotai.

It's 12, right? It's very... It comes to $1.70, not bad. Plus, Zhang gets a digital coupon for another free cup. Gives you some form of incentive to come back and buy again. All this data collected through the Luckin app supposedly helps the company target its customers better. Stock investor Zhang Litao thought the company was overhyped, even back in 2019.

How could this company make so much money and grow so fast even though it's showering customers with discounts? I didn't quite believe their numbers and suspected Luckin was inflating its revenues, which proved to be true. The fraud was extensive. Luckin was listed on the Nasdaq in 2019. The following year, the U.S. Securities and Exchange Commission came down on the coffee chain for overstating its sales.

Luckin had to pay a fine of $180 million and delist. Anne Stevenson Young is the co-founder of J Capital Research. Did I make money on the stock? Honestly, I do not remember. She was among a group of short sellers, people who make money when stocks go down in value, who followed up on an anonymous report and bet against the stock, convinced Luckin was faking its revenues. She says she no longer invests in Luckin, and she has doubts about the company's much-touted recovery. Back in 2020 and before, they had to fake a quarter of their transactions

in order to demonstrate growth to the market. I mean, Luckin just doesn't make sense as a business. Other analysts like Deloitte's Zhang Tianbing disagree. He says, OK, maybe back then Luckin wasn't growing as fast as it claimed. But... The original idea was good and the business model was sound. That model being simply cheap takeout coffee. Zhang Tianbing says it's a shift in taste. According to his research, Starbucks made its stores so comfy in China, coffee was mostly a social thing from 1999 until 2020.

Now, he says, coffee drinkers in Chinese megacities like Shanghai and Beijing drink about one cup of coffee a day. If you're talking about caffeine intake instead of a lifestyle or self-identity, the price component becomes important, right? Luckin, with all its discounts, costs about $2 a cup on average. Roslil, who runs her own coffee shops and drinks up to four cups of coffee a day, isn't a loyal Luckin customer, naturally. But even she has a favorite there. I don't usually like Luckin. I thought it had really awful coffee.

But then I tried its iced coconut latte and I thought, hmm, it's great. Great, she says, for a specialty drink, but not as coffee. Luckin says it's sold more than 300 million cups of its iced coconut latte since 2021. That caught the attention of former skeptic Zheng Litao. He now holds Luckin shares, and he's optimistic about the company since it's changed the top management. Luckin's coconut latte is a phenomenal hit. People are realizing that its sales are growing quite well, and its new products are competitive. While Starbucks has nearly 7,000 stores in China, Luckin says it has well over 16,000. But some, like Ann

Stevenson-Young, still have their doubts about the company's supposed rebound. Sure, I think that Luckin is popular. I just don't think that it's cash generative. Some reports say Luckin has plans to relist, potentially on the Nasdaq again. In Shanghai, I'm Jennifer Pak for Marketplace. This final note on the way out today, which comes with the caveat that market capitalization,

while noteworthy, is not the be-all and end-all. When a company, though, goes parabolic like NVIDIA has, you pay attention. Shares of the AI chip design company closed up 4% even today, $822.79 apiece. Apply the market cap formula, which is, of course, share price. Times total shares outstanding. You get $2.06 trillion. Took 180 trading days for it to go from $1 trillion to $2 trillion. That is a record. Our theme music was composed by B.J. Liederman.

Marketplace's executive producer is Nancy Fargali. Donna Tam is the executive editor. Neil Scarborough is the vice president and general manager. I'm Kai Risdell. Have yourselves a great weekend, everybody. We will see you right back here on Monday. This is APM. All over the country.

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