Marketplace - Will mortgage rates follow bond yields down?

Episode Date: June 18, 2024

With bond yields dropping, lower mortgage interest rates may be on the horizon. That’s great for people who’ve put off buying a home because they felt priced out. But will rates fall enough to make homeowners with older, cheaper mortgages consider selling? Also in this episode: Buy now, pay later attracts vulnerable consumers, electric vehicle sales growth slows and product designers chase down copycat products.

In which we do a little bond market cause and effect. From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdall. It is Tuesday today. This one is the 18th of June. Good as always to have you along everybody With the full understanding that this makes two days in a row that we're starting with the bond market our jumping off point On this Tuesday is the 10-year Treasury note the yield on which continued its long slow March lower today 4.21 percent if you're looking for the actual number,

which as Mitchell Hartman told us yesterday, is a reflection of what bond traders think the Federal Reserve is going to do, namely lower its main interest rates sooner rather than later. An obligatory disclaimer here that Fed officials have pretty consistently been saying, oh no, we're not. Anyway, all of the above is likely to have a knock-on effect on another key rate that matters to a whole lot of people, interest rates on 30-year fixed-rate mortgages, which has on average been hovering around 7% of late.

And relief on mortgage rates will be key to recovery in the American housing market. Here's Mitchell one more time It's not a hundred percent certain nothing is in this economy But it is very likely that mortgage rates will fall in conjunction with long-term US Treasury bonds Guy Ciccola at Inside Mortgage Finance helped me explain the bond markets mysterious machinations yesterday So I brought him back today for another swipe. Once the 10-year Treasury gets to 4% or below, I think you're looking at closer to 6% mortgage rates in the not-so-distant future. Even a moderate decline in mortgage rates would encourage some first-time and trade-up buyers,

who've been priced out over the past year as mortgage rates spiked to nearly 8% to jump back in, says Eric Friedman at US Bank. If you see that first number go down to six, that does have a psychological impact on potential buyers. But there's a limit to how much a slight drop in mortgage rates would help the housing market, says economist Kurt Long at America's Credit Unions. He points out that a few years ago rates were less than half what they

are today. Every percentage point matters, but I think if there are respective buyers out there waiting around for rates to drop to levels that we saw pre-COVID, you know, I just don't know that that's in the cards in the next foreseeable future. And rates have to fall a lot before current homeowners, locked into their low pre-2022 mortgages, will want to move, says Greg McBride at bankrate.com. Homeowners that are carrying 2.5%, 3.5% mortgage rates, they're not real keen on putting their house on the market now, and then they have to go out and finance the next place. As mortgage rates fall, there's no guarantee home prices will. But at least price increases have

slowed in recent months, says Chen Zhao at Redfin. At some point, people just can't afford these homes anymore and home prices cannot continue to increase. Anyone rooting for more home ownership in this economy has got to hope she's right. I'm Mitchell Hartman for Marketplace. On Wall Street today and for much of the rally of the past couple of months, four little letters, N-V-D-A. We'll have the details when we do the numbers. Imagine for a second that you're a small business owner, and in between making payroll and figuring out inventory and working on marketing, in your spare time you've come up with a great new product idea.

And after all the designing and prototyping and manufacturing, you'd do what you gotta do to make sure you're the only one who can sell it and make money from it. Trademarks, copyrights, patents. You're all set, right? Well, not right. Knockoffs are a growing problem thanks to the rise of third-party sellers on sites like Amazon and Temu, and not just for big brands like Nike and Louis Vuitton. According to the Patent and Trademark Office, $2 trillion worth of counterfeits are sold every year.

And as Marketplace's Kristin Schwab reports, taking those copycats off the market takes a lot of time and a lot of money. Debra Hochschlag isn't really a plant lady, but she is married to a plant man. He does not golf, he gardens. Which was a delight until the Dahlia's took over their patio. So Hochschlag designed a solution, a planter that attaches to railing balusters with a tension clip. It makes the

plants look kind of like they're floating. And that's the feature that made her company, Plant Traps, go viral. But soon enough. I saw a knockoff using all of my language, you know, printed all my directions in their box, used my trademark in their metadata. Hochlag sent me some of these listings, and they're such obvious ripoffs. Like some sellers steal photos of her holding her planter full of red mums and just crop out her head. And seeing this, her hard work copied again and again, sent Hochschlag into overdrive, filing reports to Amazon, Temu, and eBay. This involves uploading her

legal documents and screenshots of listings. Each complaint takes about 30 minutes. It became a full-time job, to be honest. At first, I was doing all the reporting myself four hours a day. Temu, eBay, and Amazon, a Marketplace underwriter, sent statements saying counterfeit goods are prohibited on their platforms and that they have measures to both prevent the sale of these items and respond to complaints. And Hulclag says retailers do usually take action within a few days. But new listings kept popping up. So she hired lawyers. This

April alone, they found more than 500 knockoffs selling for as little as 99 cents a planter. The real ones cost $19.99. Hilton Hart is the CEO of Edison IP Enforcement, a law firm that goes after counterfeiters. He says e-commerce platforms, especially ones that feature third-party sellers, have turned tackling fakes into a global game of whack-a-mole. Every country's legal system is different, and you have to take individual actions in each of the different countries. And so it just becomes a logistical nightmare. Hart says the majority of counterfeits come from China, where manufacturing is lightning fast and can be super secretive. He's actually sent investigators there for cases that require

serving paperwork in person. And the address said floor five, but there were only three floors in the building. Or the investigator would show up to an empty field and there's just no office building in sight. This shady business is tough for companies, but it's also a problem for consumers. Anonymous sellers abroad might not have high quality standards. Carrie Camel, who directs the Center for Anti-Counterfeiting and Product Protection at Michigan State, says some products can even be dangerous. And it's sort of a game of roulette. We're talking potentially very high risk, right,

for injury, for in some cases death, depending on what it is. Think counterfeit vitamins or car seats. And Camel says even seemingly innocent items like clothing can contain ingredients like lead. Recently proposed legislation would require companies to vet sellers before listing. In the meantime, it's on consumers. Camel encourages shoppers to buy directly from brands and reputable retailers. She's well aware, though, that people purposely scour the internet for fake Gucci belts and Apple headphone lookalikes.

She says, think twice about where knockoffs come from. They can have seedy connections. A lot of counterfeiting, not all, but a lot of it is connected to organized crime. It's connected to illicit drug networks. It might be going to support child labor. There's a reason why this product is so cheap. Suddenly, a good deal might not feel so good. I'm Kristen Schwab for Marketplace.

There is nothing illicit knockoff or copycat about our podcast. It is the genuine article. If you missed something on the air, you can get it at our website, marketplace.org, or of course the platform of your choice. Just follow us there. The Federal Reserve Bank of Boston is out with some research about how buy-now-pay-later programs and platforms, layaway used to be called back in the day, free loans essentially to buy anything from a new pair of shoes to a plane ticket. The Boston Fed says its data shows that it's disproportionately women, black and Latino consumers and those with rocky financial histories, who are the most consistent users. Here though is the question, is BNPL, as it's called, filling a credit gap or is it setting up already vulnerable consumers to get in over their heads?

Marketplace's Vandemar has more. Buy now, pay later loans are a growing but still pretty niche credit product. Economist Joana Stevens with the Boston Fed says less than 10% of consumers use them. But those who do tend to be what we call financially fragile. Stavins found they carry more debt, they have less money in the bank, and a below average credit score is the strongest predictor of buy now, pay later borrowing. It is a convenient alternative for consumers who might not have a credit card. Or more often, consumers who are already burdened with revolving credit card debt or bumping

up against a low credit limit. If you have a low credit score, it's especially valuable to you. Raj Dattay is with the financial services firm Fenway Summer. He says buy now, pay later can be a productive tool, particularly at a time of rising prices and high interest rates. Let's say your wife's birthday is this weekend. And you sort of forgot to buy something for her, not speaking from personal experience, of course. But you're already carrying an expensive credit card balance, your paychecks not due for another

week, services like Klarna and Afterpay offer flexibility. To buy something that you otherwise could not afford without paying interest on your credit card. But most borrowers aren't treating these services like a backstop, says Jennifer Chen with Consumer Reports. A lot of the business model is designed and promoted as very rapid approval. Rapid and frictionless, with little assessment of borrowers' ability to repay, and with

so many different buy now, pay later platforms. It's very easy to lose track, take out too many loans, and then you run into issues with missing payments. Without stricter regulations, Chen says one borrower's loan management tool is another borrower's debt spiral. I'm Savannah Marr for Marketplace. The Commerce Department gave us its latest reading on retail sales for May this morning. Lower than expected was the update. The reading for April was revised down as well.

Perhaps not unexpected consumer responses given still higher than normal inflation and interest rates. But data is one thing, people are another. So to get a little ground truth, we called one of our retail regulars, Kristin Talheimer-Bingham. She's a co-owner of Dean's Suites in Portland, Maine. She gave us a summer dispatch. Well, it's summer and summer in Maine is pretty wonderful. Now really is the time for us to replenish ourselves and our chocolate supplies because we know we know it's gonna get busy again.

We are watching chocolate costs very closely. Right now we're still able to purchase chocolate at a rate that's roughly 25% over what it was last year and we're told to expect the cost to rise another 20 to 25% in early August. So as of right now we've purchased about 75% of what we need for the year, and we're in the process of ordering more so that we don't get caught short. I should also say that the price of sugar has doubled over the past year. We know the costs are increasing. We can see it coming down the line, but we are not going to raise our prices. We don't want to do it before we need to. Hiring has been pretty awful since about Valentine's Day. We've been trying to

hire someone as a store manager. Word of mouth has always been our best avenue for hiring, but that's not coming up with anything at the moment. We've tried job sites and that's just a huge time-consuming proposition. For example, in a two-hour window, we'll get 40 resumes and from that, only a tiny fraction will meet the job requirements. It has definitely left us feeling disoriented and trying to figure out what maybe we're doing wrong or what's going on or how to change the way we're looking for new staff.

Fingers crossed that everything will work out and I have every reason to believe that it will, but I'm not letting my guard down just yet. Overall, I'd say we're feeling optimistic about a good summer ahead. The hiring issues aside, we're looking forward to a little extra time off in the next couple of weeks. I know no one wants to hear about the holidays, especially as we've just barely gotten into the summer. But for us, if we're not planning the fourth quarter now, then we are not doing our jobs. So we had better start thinking about that soon.

No, not the holidays already. Kristin Talheimer-Bingham enjoying the calm before the holiday storm up in Portland, Maine. Coming up. There's this massive, menacing, scary crab in his net. Ew. First though, let's do the numbers. Dow Industrial's up 56 today, two tenths percent, 38,000 to 834. The NASDAQ, five points to the good.

Call that flat percentage wise, 17,862. S&P 500 lifted 13 points, about a quarter percent, 54 and 87. NVIDIA, ticker symbol NVDA, the maker of those 500 lifted 13 points about a quarter percent 54 and 87 Nvidia ticker symbol NVDA the maker of those in-demand artificial intelligence chips designer Actually, they don't make it was now the country's most valuable publicly traded company shares ended at 135 58 today That is a record high up three and a half percent. I should also tell you Nvidia split ten for one ten for one about two weeks ago.

Anyway, Apple down one and a tenth percent, today Microsoft down about a half percent, those are numbers three and two in the corporate value hierarchy. Bond prices went up just a tad, the yield on the ten-year T-note as I said, 4.21 percent. You're listening to Marketplace. This is Marketplace. I'm Kai Rizdal. The still challenging market for electric vehicles has claimed another victim. Fisker has filed for bankruptcy not even a year after it delivered its first car to buyers. It joins the electric truck startup Lordstown Motors and eBus maker Arrival in Chapter 11.

And there are, of course, a lot of different reasons for any given bankruptcy filing. But the heart of the matter is that the EV market just isn't turning out to be quite as robust as a lot of people had assumed. And as Marketplace's Kelly Wells reports, some EV owners seem less than enthusiastic about their purchases. Let's clear two things up at the beginning. First, the number one car sold last year globally was the Tesla Model Y. Second, EV sales are still increasing.

They're just growing slower than they were last year. John Helveston is an engineering professor at George Washington University. He says Tesla is such a big piece of the market that its recent slowdown makes the whole industry look bad. But really when you look at other automakers like Hyundai, Kia, Ford, GM, they're actually experiencing still a lot of growth in EVs. The Fisker bankruptcy comes on the heels of a recent McKinsey report saying more than a quarter of EV owners are considering a gas car for their next purchase. So that doesn't sound good, but you have to also recognize that means that three-fourths

of the people had a good experience and are keeping them. There are still barriers. The majority of US drivers still drive gas cars, and the majority of them cite two main concerns, says UC Davis Professor Giltal, sticker price and range anxiety. Not everyone is buying expensive cars, so we need to have on the entire price range. We need much more infrastructure. It's coming a little bit slower than what I hope that will be here. So the slowdown isn't a lack of interest in EVs, mostly just hesitance. Cox Automotive Director of Industry Insight Stephanie Valdez-Streeti says solutions to those problems

are on the way. So there's going to be standardization, which is going to be key. So no matter what EV you have, you can go to any charging station. Meaning more chargers will be available to more car models. All major automakers will adhere to the same standard by 2025. Valdez-Streeti says cheaper models are on the way too, and to cater to the American preference, bigger models as well. Big family, you want an SUV with three rows, more options. The experts say the goal in several states to zero out gas car sales by 2035 is still within reach. But with the enthusiastic adopters accounted for, getting there will

get more difficult. I'm Kayley Wells for Marketplace. Russian President Vladimir Putin has spent his day in North Korea for talks with Kim Jong-un about, among other things, how to get around U.S.-led sanctions, most particularly the West's sanctions on Russia that have been in place for two years now since Putin's invasion of Ukraine. But the global economy is kind of like a balloon. You squeeze it in one place, it bulges out in another. Andrew S. Lewis wrote about one such bulge for Bloomberg Businessweek.

Andrew, welcome to the program. Thank you, Guy. It's a pleasure. Tell me first of all, just as a scene setter, what happened to this little Norwegian fishing village of Bugones, if I'm pronouncing it right. Yeah, Bugones. Bugones, oh, well. Bugones, pretty close.

It's a pretty classic Norwegian fishing village. It was going through really tough times in the late 80s, early 90s, as were a lot of fishing villages around the world, especially ones that relied on cod like Bougainest did. By 1991, they were in very dire straits and in fact, they all came together and put an ad in the national newspaper asking for anyone to buy them out and relocate them. That's how desperate they were. I think that's my favorite part of this piece.

I might try that myself. Somebody buy me out and move me someplace yummy. And then what happened? I mean, and that's like a classic question of then what happened, because this is sort of a tale. It's a fishing voyage, if you would. It's an absolute fish tale. Things turned around very quickly, actually.

Just one year later, one of the last fishermen in Bougainesse, a guy by the name of Leif N'Gala, his family had been in Bougainesse for generations. And he was kind of sticking with it, even though the fishing was really bad. I think at that time, this is 1992, there were three boats left in the harbor. And he pulls up the net. There aren't any fin fish in there, but there's this massive, menacing, scary crab in his net. I'm no fisherman, but king crab are an invasive species

up in the North of Norway, right? They are. So it took a little bit of time to try to figure out what the heck was going on. And then someone at the Norway's sort of National Fisheries Agency got onto it that Russia was responsible for all of this. They had in the 1930s under Stalin

to essentially create another food source for the Russian people. Stalin's fisheries organization had just a handful of juvenile Red King crab flown on a military transport plane across the continent and dumped into a fjord not that far from the Norwegian border that is not that far from Bougainville. History is amazing. Unbelievable.

It's just amazing. All right. So now that's the 1930s. Here we come to the 2020s, Russia invades Ukraine, and then what happens? Because this is the turn in the story. Yeah. So I mean, Norway and Bougainvillea in particular had been building their Red King crab fishery since the 90s, since Angola found that first crab, but it was always a niche fishery.

And then Putin invades Ukraine, and here come the sanctions. All of a sudden, this country that controlled 94% of the global market is shut out of the United States. And Norway was one of the few places in the world that had Red King crab to sell to the states. And Leif Engelheim and the gang in Bougainess are happy campers, right? Very happy campers. Leif, I believe, takes annual vacations to the

Mediterranean, as you should. So yeah, I mean, money is good now for them. And we hear a lot of stories about tough times for fishermen, but up there in the northern part of Norway, things are all right right now. So as I was reading this piece, I was trying to figure out whether it's a story of serendipity or kind of unintended consequences. What do you think? I guess a little bit of both, but definitely I think unintended consequences are the key figure here. And it's a classic story of an invasive species, isn't it? Red king crab for a long time did kick the marine ecosystems of Northern Norway out of balance.

These days, it's a little more imbalanced. So it's actually kind of one of these instances where the crab has now been around long enough to where it's kind of becoming a native species. Right. It's a piece called The King Crab Kings in Bloomberg Business Week. Andrew S. Lewis wrote it. It's a great read. Andrew, thanks a lot. I appreciate your time. Thank you, Kai. My pleasure. This final note on the way out today, which may or honestly might not serve to concentrate some minds in Congress and the White House, the Nonpartisan Congressional Budget Office

was out with its latest update on the federal debt and deficit today. The deficit this year, and remember, deficits are the amount we are spending beyond our revenues annually, the deficit is set to hit $1.9 trillion this fiscal year. By 2034, the CBO says in this 10-year projection, the national debt, since the beginning of the republic will top $50 trillion. Our digital and on-demand team includes Kerry Barber, Jordan Mangy, Dylan Mientenon, Janet Nguyen, Olga Oxman, Ellen Rolfus, Virginia Kaye Smith, and Tony Wagner. Francesca Levy is the executive director. I'm Kai Rizdal.

We will see you tomorrow everybody. This is APM.