Marketplace - Will I ever own a home?

Episode Date: June 14, 2024

Housing affordability is on everyone’s mind — a new survey shows it’s a “somewhat to very important issue” for the majority of voters, especially younger ones. We’ll discuss whether housing has historically determined elections and get realistic about what a president can do about housing prices. We’ll also look at how the government measures housing costs for homeowners, even if their mortgages are paid off. Plus: The history of all-you-can-eat deals.

On the program today, what to know about the week it was, of course. We will do some housing as well and then a little bit of all you can eat. From American Public Media, this is Marketplace. In Los Angeles, I'm Kyle Rizal. It is Friday today. This one is the 14th of June. Good as always to have you along, everybody. If one is keeping tabs on this economy as one should, I don't know that one could ask

for more than what one got this week. An update on inflation, a glimpse into the thinking of Jerome Powell. Judah Smilick is at the New York Times. Rachel Siegel is at the Washington Post, here to make it all make sense. Hey, you two. Hey, guys. Gina, let me start with you. It seems clear from Chair Powell's press conference and what we are hearing from the Fed that rates are going to be higher for longer. I would like to know from you what that actually means out there where the rubber meets the economic road as it were.

Yeah. I mean, I think it means that we are all going to be paying higher interest rates on everything we want to borrow money for for a while. You know, what this really translates to is continued higher mortgage rates, continued higher credit card rates, you know, for consumers at home who are thinking about, you know, holding off on that big purchase until rates came down, which, you know, we talk to people who are in that boat all the time. It means that that that weight is going to be longer or potentially, you know, if you're if you're really looking to buy a house, you might end up deciding to do that even with rates higher.

And so I think I think that's the sort of situation we're in. And now the Fed is going to keep tapping the brakes on the economy For a little while here And also as you pointed out in the paper this week that hits the lower end of the income spectrum harder than it does the top end Absolutely. So we're starting to see delinquencies move up quite a bit for things like credit cards If you are a credit card borrower, which those are just disproportionately heavily people on the lower end of the income distribution, the people who hold balances, you probably know that rates are up, you know, for some credit cards above 25%. We've heard people saying like above 30%, you know, it's a painful period to be borrowing

money in. So I think that that is going to unfortunately continue to be the case for a while, obviously all in the service of bringing down inflation. It does seem though, Rachel, that we have maybe come to another bend in the road, another bump, another, I think the word you used was, was blurry point in this economy where first-time claims for unemployment went up last week, inflation ticked down a little bit. So promising signs, maybe? I think maybe is really the key word there. It's always good to see data pointing in that direction, right? You want to see inflation trending down.

You want to see the job market staying strong. What's sort of been absent though, is just enough time to know that that is really sticking. And the message that we got from the Fed this week is that they're looking for that same confidence too. They don't want to celebrate a good report in the same way they don't want to overreact to a bad report. And even though they want more of this kind of data, they want more of it. That's really what's key. They need time to see it coming in month after month after month. And only then might they be able to think about cutting rates in a way that would give

some relief to the kind of people, households, businesses that Gina was just talking about. Gina, on that idea of time, much has been made amongst analysts and folks who follow the Fed that there are only four meetings left in the year and the Fed doesn't really have much time to do that one interest rate cut now that we're thinking about. I would submit that the economy doesn't care how many meetings are left in the year. They're playing the long game and the Fed's playing the long game and who cares if it's now or you know next January Right, and I think you know chair pal the the Fed chair basically said this during his meeting You know, it's the long in the long sweep of history We are not going to look back and really remember if we had one rate cut 125 basis point rate cut this year

225 basis point rate cuts this year, two 25 basis point rate cuts this year. It's not going to be that important. I do think the thing that will be important though is just sort of when that shift in tone happens, like so much of Fed policy is not about when the Fed actually makes a move, but is instead about when the Fed signals that it is at a pivot point.

This is why we use the word pivot at the Fed all the time, because that's what everyone's constantly waiting for, is the pivot. And so I think that the really interesting thing to watch, and the reason that the Fed is going to remain interesting this year, is that's what we're waiting for now. It's not so much about how much they cut,

it's not about whether they get those two cuts in, it's when does that pivot come, and we're clearly not there yet. Rachel, what are you gonna be looking for to see what that pivot might be? Is it a language thing? Is it, I don't even know. Language tone, I mean, to use the word

that we all are reaching for lately, vibes. And I think that's also a sense of consensus. We saw in the projections that were released this week that officials are still kind of all over the map, at least relatively speaking, for where they think policy could go. Just a couple of months ago, there was the sense that maybe there would be three cuts this year. This time, no one thought there would be three cuts this year. You've got some people clustered around one, you've got some people clustered around two, you've even got a couple

thinking that maybe there won't be any cut this year at all. And that all depends on where the data goes. So I feel like we have to all be looking for some combination of what is the data saying on inflation, on the job market, on everything else, and how is that being processed by Fed officials when they're looking at the calendar, thinking about the options left and what they're gonna do about it. Right.

Gina, I want desperately not to get too wonky with this next question, so help me out here. I think it was you who asked the chair about you know whether the Fed's policy is sufficiently restrictive whether you know it was implied the neutral rate that that policy rate at which it's not too hot it's not too cold and everything status quo with the economy. I want you to help people understand why it might matter that that neutral rate that perfect little rate might be higher than what we have been thinking it might matter that that neutral rate, that perfect little rate, might be higher than

what we have been thinking it might be. So I'm just going to point out that it's a little cruel to ask somebody to talk about the neutral rate and then tell them they can't be wonky. I know, I know. I'm sorry. But I will try my best. Also, you have one minute to do it in. No, I'm just kidding.

So the neutral rate is basically the dividing line between tight and easy policy, policy that's soaking the economy and policy that's slowing it down. And I think the way to think about the Fed's policy setting at any given time is what's the gap between that dividing line and where policy is today? Because if the gap is really big,

it means that you're really pressing on the brakes hard. And if the gap is little, you're just pressing on the brakes a little bit. And so what we found out this week is that that neutral rate, that sort of dividing line moved up a little bit, which means that the gap between where policy is today and where a neutral setting would be isn't as large as we previously understood, AKA we're not pressing on the brakes as hard as we previously thought perhaps. That said, that is the theoretical explanation. That said, I asked Jay Powell about this during the press conference, and he was highly dismissive of my question. He got a little cranky, and he's not a guy who gets cranky in

public. He did not feel that this was a very important signaling device that they had made, or that he really dismissed the neutral rate as a theoretical concept that matters in the long run, but not immediately. That said, all the economists I've talked to since then have said, you know, I took a lot more from that than I think he signaled it was. So I think, you know, it clearly sent some amount of signal. I think they're going to downplay how much of a signal, but that is the theoretical takeaway from it. Junus Malek at The New York Times, Rachel Siegel at The Washington Post on a Friday afternoon. Thanks, you two. Thanks, Guy.

Have a great weekend. Wall Street on this Friday, a mostly quiet end to a big week. We'll have the details when we do the numbers. The list of challenges that the Federal Reserve is dealing with as it tries to get inflation down to where it wants it to be is long. Right near the top, though, is the cost of housing, shelter in official ease. Housing inflation tends to be sticky. Once it starts, it is slow to come back down. And because housing costs count for more than a third of the consumer price index, well,

you do the math. You can see why it's a big factor housing is in keeping inflation above that 2% target that we talk about all the time. The problem is that figuring out how much we actually spend on housing is a pretty complicated proposition. Powell this week called it one of the hardest things to think about when you think about measuring inflation.

About a third of households in this economy rent, so it's easy enough to figure out what they're paying, right? You do the rent survey. But most own their homes, and that comes with all kinds of ancillary costs, small and large. So the Bureau of Labor Statistics, whence the CPI comes, uses something called Owner's Equivalent Rent, OER.

We had Marketplace's Kelly Wells spend some time finding out how OER is calculated, how it is used, and how maybe it's a little bit limited too. I'm one of those millennials who doesn't own the roof over my head, so let's use some guy named Bob as a hypothetical example. He owns a home, pays a mortgage and property taxes and insurance and upkeep, but the CPI doesn't care how much that comes out to. Connell Fullenkamp is an economics professor at Duke University.

What the economists of the government try to do is they try to put everything on a level playing field by estimating what you would have to pay if you didn't own your home and had to pay rent, hence owner's equivalent rent. In other words, what Bob would get if he rented out his home. OER is such a big percentage of CPI because the majority of people in this country own

their homes. And it reflects the fact that housing is one of our main expenses in life. But Bob is almost certainly paying less than the OER for his house every month. Because for one thing, he may have locked in a low mortgage interest rate years ago. So that OER doesn't represent his actual cost of living. It's inflated. If rent goes up and you say that his shelter costs are higher because of rent going up, I get why that sort of seems off. But OER is not actually off, says economist Steve Reid with the Bureau of Labor Statistics, because it measures the market cost of living in the home.

And so that opportunity cost of living in his house is going up even if he's not directly making payments for it. There are some downsides to that. Bob might be living in a neighborhood that's gentrified so much he wouldn't be able to afford it today. Menze Chin says that's not the point. He's an economics professor at University of Wisconsin-Madison. They're really just pricing disease.

So you can say, well, what's the price of a hamburger, irrespective of, you know, can you afford the price, can you afford to buy that hamburger? Chin says OER might be imperfect, but measuring homeowners' housing cost any other way would miss the point. People can debate about what's a better approach, but you don't want to just change your methodology midstream because then your numbers won't be comparable to the previous numbers. So you won't be able to measure change.

And since that's the biggest goal, OER is what we'll keep using. I'm Kaylee Wells for Marketplace. Coming up. I had 200 pieces of shrimp. All you can eat indeed. But first, let's do the numbers. Dow Industrial is off 57 today, two tenths percent, 38,589. The NASDAQ added 21 points, about a tenth percent. 17,688 to the S&P 500, up two. That's less than a tenth percent, 54 and 31.

For the week, the Dow off a tenth percent. The NASDAQ expanded that same tenth percent. S&P 500 basically flat. I am just back from a reporting trip to Kentucky, which gets me to this. Today is National Bourbon Day. Many bourbon makers are privately held but some are publicly traded. Brown Foreman which makes Woodford Reserve increased 1 and 9 tenths percent. Diageo which owns Bullitt and has traded on both the London and New York exchanges up two

tenths of 1 percent. According to the Kentucky Distilleries Association by the by, distilling and bourbon accounts for more than 23,000 jobs generated. By distilling in that state you're listening to Marketplace. My name is Lee Hawkins. I've been a journalist for over 25 years. On my new podcast, What Happened in Alabama, I get answers to some of the hardest questions about how things came to be for many black Americans and the truth that must come before any reconciliation can happen. I investigate my family history, my upbringing in Minnesota, and my father's painful nightmares about growing up in Alabama. What Happened in Alabama is a new series confronting the cycles of trauma for myself, my family, and for many Black Americans.

Listen now. [♪ music playing, wind blowing, drums playing, and strings playing in background. At Alternative Access Funds, we believe that all people deserve the ability to invest in a wide variety of asset classes. That is why we launched the NYSE-listed ETF ticker AAA, an ETF containing floating rate bonds that seeks capital preservation and income while mitigating the effects of changes in interest rates. NYSE listed ticker AAA. Investing involves risk. Principal loss is possible.

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The prospectus contains this and other important information about the investment company and is available at www.aaetf.com. Please read it carefully before investing. Distributed by ALPS Distributors Inc. This is Marketplace. I'm Kai Rizdahl. A couple of data points about the politics of this economy by way of setting up our next piece. Data point number one, a Gallup poll not too long ago showed housing is, after inflation, the second biggest financial concerns for Americans overall. Point number two is a survey from Redfin that found housing

affordability is the top voting issue for Gen Z. That's above the economy overall, abortion rights or student loan debt. How much though can a president really do about housing anyway? Marketplace's Amy Scott is on that one. Housing is up there as a voting issue for Peyton Swift. They're 27 and work at an insurance tech company in Washington, DC, one of the country's most expensive markets. It's really demoralizing, I think is the best word for it.

Swift says between the cost of housing and student loan debt, they and their friends feel like they may never be able to become homeowners. It just feels sort of like the American dream is not something that's accessible anymore. Swift is voicing a feeling a lot of people in their generation share. Redfin asked roughly 3,000 people to weigh the importance of various issues and how they planned to vote. 91% of members of Gen Z said housing affordability was somewhat or very important, a higher percentage than any other issue they were asked about. That's compared to 87% of

millennials and 83% of Gen X. Each generation that was older seemed to care a little bit less about housing when it came to the presidential election, I think, because housing affordability is less of a concern if you already own a home. Daryl Fairweather is Redfin's chief economist. She says for young adults just starting their careers, the one-two punch of higher home prices and higher mortgage rates can make home ownership feel impossible. But even 80% of baby boomers who are more likely to own homes outright or have lower mortgage rates said housing affordability was an important issue. Jenny Schutz researches housing policy at Brookings Metro. LESLIE KENDRICKS When housing prices go up, that means that property tax bills go up, and a number of states are seeing that. There are also a number of states, including California and Florida and Louisiana, that have been hit repeatedly

by natural disasters, and so their property insurance premiums have gone up a lot. STACEY KENDRICKS As for what a president can do about the high cost of housing, though? LESLIE KENDRICKS People need to keep pretty realistic expectations As for what a president can do about the high cost of housing though? People need to keep pretty realistic expectations about what the president by himself can do and the federal government more generally. For one thing, the independent federal reserve, not the White House, sets interest rate policy. The Fed is keeping rates high to fight inflation, another top voting concern.

And the main reason housing is so expensive is because there just isn't enough of it where people want to live. Schutz says policies that could encourage more building, like looser zoning rules to allow apartment buildings and single-family neighborhoods, are controlled at the local and state level. Traditionally, the way the federal government has intervened has mostly been through subsidies providing things like the mortgage interest deduction or subsidies to low-income renters. And of course, subsidizing demand when we have tight supply can actually be counterproductive and wind up pushing up rents and prices more.

Voters who want more housing in their communities should look further down the ballot, says Daryl Fairweather. So pay attention to whether your mayor is pro-housing or not, whether your city councilors are pro-housing or not, and then state legislature. Both on the right and the left, there's been movement to have more liberal zoning. There's another way home prices might affect the presidential election, though. Aaron Chiffie teaches finance at Austin Peay State University in Tennessee. He was part of a recent study that found in the last six presidential elections, swing

counties with high home price appreciation were more likely to vote for the incumbent. Those with lower price appreciation were more likely to go for the rival candidate. Cifci says for most homeowners, their house is their biggest asset. When the price goes up, you know, they feel happier, they feel wealthier, and they feel like they are doing well, right? So as a result, they think that is because of the incumbent party. In other words, even if presidents don't actually have that much to do with the price of housing, they get the credit or the blame, depending on your perspective.

I'm Amy Scott for Marketplace. We talked a little bit when it happened last month about the shellfish-induced bankruptcy of an iconic American restaurant chain. Red Lobster has closed some locations, left others open, as it looks for a way to keep going. The much-valued endless shrimp promotion was far from the biggest issue at the biggest seafood chain in this economy, but it sure didn't help. It was a big money loser, and it turns out that's a trend. All You Can Eat has been a big money loser for a lot of restaurants for a long time.

And yet, it keeps happening. We sent Stacey Vanek Smith and Sabri Benishaw out to experience the ill-fated endless shrimp deal themselves for a case study in the economics of all you can eat. The place? Red Lobster in Times Square. The time? 8 p.m. The mission? Vanquish my endless shrimp challenger, Marketplace's own Sabri Benishor. I'm very hungry. I came here right from the gym.

I came here right from my couch. Yeah, that whole hungry from the gym thing, it's not great for me. But I have a secret weapon. I have been coached by a legend. Last month, Joey Kinsley spent 10 hours eating shrimp at a Red Lobster in Olmsted, Ohio. I had 200 pieces of shrimp.

Kinsley posted this endless shrimp journey on his YouTube channel, SirYacht. His advice, avoid the sides. No baked potato, no french fries, and especially no Cheddar Bay biscuits. And finally? Have the grilled shrimp, it's less breading. Less filler.

Yeah, yeah. Sabri and I grab a table near the bar, put the grilled shrimp. It's less breading. Less fillers. Yeah, yeah. Yeah. Sabri and I grab a table near the bar, put in our order. I'm gonna get the endless shrimp, please. Grilled shrimp. I might just not get a side. Could I please have the jumbo coconut shrimp? Coconut shrimp, breaded and fried.

Big mistake, Sabri. And endless shrimp seems like it was a big mistake for Red Lobster. It lost $11 million in three months. It's a really remarkable example of corporate amnesia. Restaurant consultant Aaron Allen says back in 2003, Red Lobster was almost taken out by another crustacean. They put together an endless bucket of crabs promotion.

Crab Fest. Customers sucked down so much snow crab, the company almost went under. The CEO lost her job and was crab, nearly killed them. All You Can Eat deals have nearly killed a lot of restaurants. Olive Garden lost millions on endless breadsticks, Pizza Hut lost big

on its endless pizza buffet. Sizzler blamed its 1996 bankruptcy in part on people abusing the endless salad bar. Apparently, if you offer Americans all they can eat, they will until you are bankrupt. Meanwhile, back at Red Lobster, Sabri and I going head to head. I just put away seven shrimps, Sabri. Oh, eight. So why do restaurants keep rolling out this deadly deal? They do get a short spike from it. Aaron Allen says all you can eat gets butts in seats.

When Red Lobster's endless shrimp deal was made permanent last year, customer traffic jumped 40%. And right now, restaurants like Red Lobster, Chili's, Applebee's need that business. They have been losing customers to fast casual chains like Chipotle and Panera. All you can eat brings them back. Like a swarm of locusts. I just ate 19 shrimp like it was nothing. I think same. I think I ate 17 or 18.

I can eat more shrimp. Um, could we get two more skewers of grilled shrimp? But the economics of all you can eat are tough. Food prices are high, labor costs are up, and the chilies and red lobsters of this world have to stay affordable. Still... I don't think we're anywhere near the end of endless. the chilies and red lobsters of this world have to stay affordable. Still, I don't think we're anywhere near the end of endless.

Restaurant consultant Darren Tristano says, in this world of $8 lattes, the all you can eat deal is this one moment where people feel like they're actually getting a bargain. They're winning. Now restaurants just have to find a way to crack the economic code of endless. Very likely it will become more limited and more expensive.

Like IHOP's $5 endless pancakes or the dollar margaritas at Applebee's, both deals lasted a few weeks. Some restaurants limit seating time or use tricks to get people to fill up faster. People like Sabri. Oh no! Sabri, this is a rookie mistake. You're eating the biscuits. I walked right into their trap.

You walked into the trap. But they are so good. Don't blame yourself. Well played, Red Lobster. The chain is trying to come back after filing for bankruptcy. It now only offers endless shrimp on Mondays, and the price has gone up.

In Times Square, the deal went from 25 bucks to 30. Okay, so I have now eaten 23, 24, 25 shrimp. What about you, Sabri? I'm at 26. I feel completely like I can't eat anymore, but also like... Like you're going to. Yeah.

Of course I'm going to. I came to win. We've now been at Red Lobster for two hours. Our table is covered with skewers and shrimp tails. We keep eating. Oh, this is my 40th shrimp. Hooray! 40 shrimp. Congratulations, Sabri. Yum. This is my 40th.

You want 41? Yeah, I think my body's starting to revolt. Final tally? Me? 40 shrimp. Sabri? 42. Sabri won. And maybe so did Red Lobster, if they can turn us into regulars. I mean, I kind of like would maybe come here again. What are you doing next Monday? At Red Lobster in New York, I'm Stacey Vanek Smith for Marketplace. This final note on the way out today, in which I suppose it's a word to the wise. I saw this on Bloomberg.

There was a thing that happened early in the pandemic as people started working from home where their employers would install software on their computers that tracked the movement of their mouses trying to make sure people were really, you know working when they worked from home, right? Well surely as night follows day what are called mouse mover or a mouse jiggler technologies came to be software or hardware that would actually or electronically move one's mouse. Cutting to the chase here, Wells Fargo revealed in a filing this week that it fired a dozen people last month after a quote, a review of allegations involving simulation of keyboard activity, creating an impression of active work. Our theme music was composed by B.J.

Liederman. Marketplace's executive producer is Nancy Pargalli. Donna Tam is the executive editor. Neil Scarborough is the vice president and general manager. I'm Kyle Rizal. Have yourselves a great weekend, everybody. We will see you again right back here on Monday, all right? This is APM. My name is Lee Hawkins.

I've been a journalist for over 25 years. On my new podcast, What Happened in Alabama, I get answers to some of the hardest questions about how things came to be for many black Americans and the truth that must come before any reconciliation can happen. I investigate my family history, my upbringing in Minnesota, and my father's painful nightmares about growing up in Alabama. What happened in Alabama is a new series confronting the cycles of trauma for myself, my family, and for many Black Americans. Listen now.