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Who should we blame for price increases? · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada,
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Speaker 1: and Mike Armstrong.
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Speaker 2: Chuck, Mike and Tucker with you. We got markets in
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Speaker 2: recovery mode as we kick off the week here. The
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Speaker 2: Dow Jones Industrial Average up four hundred and twenty nine points,
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Speaker 2: the S and P five hundreds up sixty five, and
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Speaker 2: the Nasdaq is up two hundred and ninety seven, so
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Speaker 2: about a one to one and a half percent bump
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Speaker 2: in stocks taking place, pretty much reversing the losses that
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Speaker 2: we saw on Friday. So yay markets, I guess is
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Speaker 2: the news there. We've got the tenure US Treasury pretty
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Speaker 2: much flat at four point four to two percent right now.
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Speaker 2: Oil West Texts Intermediate now down four percent or two
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Speaker 2: ninety three a barrel to seventy dollars and five cents.
1:51
Speaker 2: This on the back of a Wall Street Journal report
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Speaker 2: that Iran has quietly been asking for negotiations to resume
1:58
Speaker 2: and a ceasefire, despite public proclamations to the contrary. So
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Speaker 2: we'll have to see where that goes. But it does
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Speaker 2: feel like we're kind of coming to a head where
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Speaker 2: the next few days are going to be kind of
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Speaker 2: important to see where this evolves to as far as
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Speaker 2: the next phase of this conflict. Here We've got gold
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Speaker 2: today down thirty six dollars and thirty cents and ounce
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Speaker 2: to thirty four, sixteen and fifty cents, and that is
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Speaker 2: the big stuff moving markets today. Reminder, pretty busy week
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Speaker 2: for economic data. We get retail sales data coming out tomorrow. Wednesday,
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Speaker 2: we've got building permits and housing starts along with a
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Speaker 2: FED rate decision, and then on Friday. There's not too
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Speaker 2: much on Friday, but tomorrow, I'm sorry, Yeah, Tomorrow and
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Speaker 2: Wednesday gonna be pretty busy with some stuff that is
2:46
Speaker 2: going to give us some information about what's going on
2:48
Speaker 2: in the US economy. From the Wall Street Journal, the
2:51
Speaker 2: fog of trade war is causing confusion about price increases.
2:55
Speaker 2: The subhetter gives you a little bit more information about
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Speaker 2: what they're talking about. Americans are trying to size up
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Speaker 2: whether the tariffs are really behind certain price hikes. And
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Speaker 2: I gotta tell you, I had one reaction when I
3:07
Speaker 2: was reading this piece, which is, who cares why the
3:10
Speaker 2: prices are increasing? Does anyone ever look, you know, do
3:15
Speaker 2: you ever walk through the grocery store and you're like,
3:20
Speaker 2: the avocados are high, but there was, you know, a
3:24
Speaker 2: locust infestation. So I'm gonna pay for the avocado. No,
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Speaker 2: it's just like, man, the egg's too expensive. We're not
3:31
Speaker 2: doing that this.
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Speaker 3: Week, I suppose, if you want to take an unlikely
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Speaker 3: view in my point, but possible. I think mainly it's
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Speaker 3: because they want to assign blame, So I'll start there.
3:43
Speaker 3: Is people are looking for a place to assign blame.
3:46
Speaker 3: Journalists especially looking for places to assign blame. And if
3:49
Speaker 3: prices go up, you can blame it on tariffs. I
3:53
Speaker 3: think if you're gonna take the logical approach, you might say,
3:55
Speaker 3: oh yeah, if tariffs are going to actually increase costs,
4:00
Speaker 3: then they might go up further in the future. And
4:02
Speaker 3: so do I want to time this purchase in some way?
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Speaker 3: Am I better off delaying it because I think tariffs
4:07
Speaker 3: will go back down? Do I think I need to
4:09
Speaker 3: pull it ahead? Because once they start paying the tariffs
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Speaker 3: on these imported remote control cars that I'm getting from China,
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Speaker 3: then eventually the prices are going to go up because
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Speaker 3: the buyer is actually paying those tariffs, but.
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Speaker 2: No one understands it.
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Speaker 4: Actually, that's the thing that's my point as to why we've.
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Speaker 2: Got these cartoons in our head of how they work
4:27
Speaker 2: and it's not how they actually work.
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Speaker 3: That's in my mind, why none of this that's the
4:32
Speaker 3: least likely scenario. I think largely it's people are looking
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Speaker 3: for evidence that tariffs are hurting the economy so that
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Speaker 3: they can.
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Speaker 2: Say that they're hurting the economy, tweet about it, and
4:44
Speaker 2: so we're gonna see over the next few months what
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Speaker 2: the impact is. We've noted that look based on the
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Speaker 2: imposition dates in early April. The April data was not
4:54
Speaker 2: going to show anything from a tariff perspective. The May
4:59
Speaker 2: data started in some areas, but it's really gonna be June, July,
5:03
Speaker 2: and August where you start to see it actually coming
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Speaker 2: through in the data. And I'm gonna actually be completely
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Speaker 2: honest here, I don't know exactly what to expect in
5:15
Speaker 2: terms of you know, exactly where the timing is gonna
5:18
Speaker 2: be and what how the price changes move from the system. Yeah, like,
5:22
Speaker 2: I'm keeping it open mind to how this could go.
5:26
Speaker 2: And the big reason for that is there are some
5:30
Speaker 2: signs of weakness in the labor market and if that
5:32
Speaker 2: is born out, Hey, if companies try to push through
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Speaker 2: price hikes and they can't because demand is weakening, then
5:40
Speaker 2: you've got this this tug of war that goes on.
5:43
Speaker 2: If the labor market cracks resolve themselves as just some
5:47
Speaker 2: you know, residual seasonal weakness and those go away, and
5:51
Speaker 2: you still have wage growth, you know, clipping along, you know,
5:53
Speaker 2: close to four percent annually, then you kind of look
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Speaker 2: at it. You go, well, these tariffs have to be
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Speaker 2: felt somewhere here. Here's the one thing I know for certain.
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Speaker 2: We're not gonna get to the end of the year
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Speaker 2: and just go well, corporate margins are still fine, prices
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Speaker 2: didn't go up, and unemployment didn't change. Like, we're not
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Speaker 2: gonna see no impact anywhere. It has to show up
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Speaker 2: somewhere in the data.
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Speaker 4: You can though, I could show up in foreign data either.
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Speaker 2: Way, it's still gonna It's like we're going, okay, fine,
6:27
Speaker 2: Like it shows up and you know, corporate profits overseas
6:29
Speaker 2: go down, and there's you know, a bunch of layoffs
6:31
Speaker 2: in uh. You know, it's going to show up some
6:35
Speaker 2: even there. It's gonna spill over to the US in
6:38
Speaker 2: some way, shape or form. So we're gonna get to
6:41
Speaker 2: the end of the year and it's gonna show up somewhere.
6:44
Speaker 2: There are a bunch of different ways that it can
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Speaker 2: show up, and I think we have to.
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Speaker 3: And again this is all with all else equal, right,
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Speaker 3: I mean, the how does this weigh on corporate profits
6:56
Speaker 3: when combined with the tax changes that are likely to
6:59
Speaker 3: go through through later this summer, which we still don't
7:02
Speaker 3: even have final versions of, plus maybe an interest rate cut. Like,
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Speaker 3: there's so many competing factors here that it's very difficult
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Speaker 3: to know, yeah, what what the ultimate effect is. And
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Speaker 3: there's not even certainty around whether or not the tariffs
7:14
Speaker 3: will stay in place.
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Speaker 2: It's not even certainly around whether or not the tariffs
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Speaker 2: are legal, right. I mean, it's.
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Speaker 4: Again an economy where.
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Speaker 3: Tariffs are in place and there is not yet a
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Speaker 3: finalized tax bill and interest rates are at where are
7:31
Speaker 3: we in the Fed funds rate four and a.
7:32
Speaker 2: Quarter to four to four to four and a quarter.
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Speaker 3: I think that economy looks dramatically different from an economy
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Speaker 3: that gets tax cuts and has to is forced to
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Speaker 3: reimburse a bunch of companies billions of dollars in tariff revenue.
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Speaker 4: Right. I mean, those two things look very very different
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Speaker 4: to me. Yeah, it's not saying that, but they are
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Speaker 4: very different.
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Speaker 2: There's a plausible path to at the end of this
7:59
Speaker 2: year the United States teriff rates being not meaningfully different
8:04
Speaker 2: from where they were at the end of last year. Yep.
8:06
Speaker 2: There's a path at the end of this year where
8:09
Speaker 2: they are still higher than what they are now. Yep,
8:12
Speaker 2: this is a path where they're the exact same as
8:14
Speaker 2: they are now. I have no idea which one we're
8:17
Speaker 2: gonna end up with and for what reasons. Right Like,
8:19
Speaker 2: it's the next six months. The two things I can
8:23
Speaker 2: say conclusively about the US economy. The tariff impact is
8:27
Speaker 2: going to show up somewhere. I don't know where, but
8:30
Speaker 2: it's going to show up somewhere. And the US economy
8:33
Speaker 2: is going too slow in the second half of the year.
8:35
Speaker 2: But I don't know if it's going to slow enough
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Speaker 2: to have, you know, even an uptick and unemployment or
8:39
Speaker 2: a recession or anything meaningful. It might just be, Yeah,
8:41
Speaker 2: we went from you know, two and a half percent
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Speaker 2: growth in you know, the first half of the year
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Speaker 2: down to one and a half And does the average
8:48
Speaker 2: American feel that? Probably in some areas, but not everywhere.
8:52
Speaker 2: So I think let's let's not try to be first
8:59
Speaker 2: all the time and say like, oh, it's gonna be
9:01
Speaker 2: the like that's what gets printed, Chuck, I don't want
9:04
Speaker 2: to be printed. We don't chase views here. We don't,
9:07
Speaker 2: you know, chase like the TikTok TikTok hype cycle. We're
9:12
Speaker 2: gonna just kind of go with it. Let's take a
9:14
Speaker 2: quick break. When we come back, we're gonna be joined
9:17
Speaker 2: by Joanna Stevens. She is an economist and policy advisor
9:22
Speaker 2: to the Federal Reserve Bank of Boston's Research department, and
9:25
Speaker 2: she joins us right after this.
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10:09
Speaker 2: As promised. Joining us now on the line is Johanna
10:13
Speaker 2: Stevens from the Federal Reserve Bank of Boston. She is
10:19
Speaker 2: an economist and policy advisor in their research department. You
10:23
Speaker 2: want to thank you so much for joining us today.
10:25
Speaker 2: We appreciate it.
10:26
Speaker 5: Thank you for inviting me.
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Speaker 2: You've got a study out talking about credit card accounts
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Speaker 2: that are recently opened and the relative risks of them
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Speaker 2: becoming delinquent and going into default. Can you talk a
10:40
Speaker 2: little bit about that study and what we've seen in
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Speaker 2: the last several years in that area.
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Speaker 5: Sure. So, I looked at several years of credit card delinquentsy,
10:53
Speaker 5: which is those are credit card accounts. So credit card accounts,
10:56
Speaker 5: you know, as we all know, are extremely common. Almost
10:59
Speaker 5: everyone in the US has at least one and about
11:03
Speaker 5: half of the consumers paid their credit card balances regularly
11:07
Speaker 5: on time, and roughly half slightly fewer than half of
11:12
Speaker 5: US consumers revolve. It's called revolve, which means they don't
11:15
Speaker 5: pay their balances in full, but still they at least
11:18
Speaker 5: keep up with their minimum balances or more. The problem is,
11:22
Speaker 5: or of the focus of my study is delinquency. So
11:25
Speaker 5: those are consumers who don't even pay the minimum. So
11:29
Speaker 5: luckily it's a relatively small fraction of credit card holders
11:33
Speaker 5: in the US, and that fraction has been fairly steady
11:37
Speaker 5: for several years prior to the COVID pandemic and then
11:41
Speaker 5: early during the pandemic, two things sort of coincided. One
11:45
Speaker 5: is that there are fewer opportunities to spend we're all
11:48
Speaker 5: stuck at home without any travel. And the second thing
11:52
Speaker 5: is that there were pandemic transfers which helped consumers, especially
11:56
Speaker 5: lower income consumers, pay off their existing credit card dead
12:01
Speaker 5: So the silver lining of sort of this early COVID
12:04
Speaker 5: period was the credit card situation improved in the US
12:08
Speaker 5: and many people paid off their balances. Credit card delinquencies
12:11
Speaker 5: went down. But you know, all good things must come
12:15
Speaker 5: to an end, and so did that drop in credit
12:18
Speaker 5: card delinquencies and started roughly in mid twenty twenty one,
12:22
Speaker 5: credit card delinquency started climbing again. And looking at the
12:26
Speaker 5: sort of long term pattern, they basically increased too more
12:30
Speaker 5: or less their pre pandemic level and have been leveling off.
12:34
Speaker 5: So the good news is that they did not rise
12:36
Speaker 5: beyond their pre pandemic level. They're basically where they used
12:39
Speaker 5: to be.
12:40
Speaker 2: Johanna, when you look at kind of what this tells
12:43
Speaker 2: us about the overall health of credit card bar wers,
12:47
Speaker 2: or is it something where you say, hey, they're basically,
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Speaker 2: you know, in that same place that they were at
12:52
Speaker 2: before the pandemic, or are there signs that despite that
12:55
Speaker 2: delinquency rate, are things still different Under the surface there.
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Speaker 5: Things are different. So I think on surface things are similar.
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Speaker 5: Like I said, the overall delinquencies rates are similar. The
13:07
Speaker 5: problem with credit card delinquencies and consumers who can become delinquent,
13:12
Speaker 5: it's really the lower credit score consumers. So it's not
13:16
Speaker 5: necessarily the bottom income consumers as well. It is somewhat
13:19
Speaker 5: correlated with income, but consumers who have low credit scores
13:23
Speaker 5: are the ones who are most likely to get in trouble. Obviously,
13:26
Speaker 5: it works both ways. Credit scores are affected by their
13:30
Speaker 5: debt and delinquencies, but the issue is that once your
13:34
Speaker 5: credit score drops, it's very hard to sort of dig
13:37
Speaker 5: yourself up, and it's very hard to get any further credit.
13:42
Speaker 5: And unfortunately, what I found in my research is that
13:44
Speaker 5: consumers with the low credit scores are also so they're
13:49
Speaker 5: most likely to default on their credit card accounts. They're
13:53
Speaker 5: also more likely to borrow and buy now pay later,
13:57
Speaker 5: for example, which is sort of an alternative to credit cards.
14:00
Speaker 5: So they're searching for other types of credit and they're
14:04
Speaker 5: also likely to default on other debts. So it's really
14:08
Speaker 5: the issue of credit scores. And one of particular focus
14:12
Speaker 5: of this recent study was that I was looking at
14:15
Speaker 5: whether banks lower their lending standards, So in other words,
14:19
Speaker 5: I was looking at the threshold of credit score that
14:23
Speaker 5: was required to get credit card and it seemed like
14:28
Speaker 5: banks did loosen their standards, so they were lending or
14:33
Speaker 5: give it credit card loans to consumers with lower credit scores,
14:36
Speaker 5: and that was potentially troubling because, like I said, the
14:39
Speaker 5: bottom credit score consumers are the ones who are most
14:41
Speaker 5: likely to default on their credit card debt. But what
14:44
Speaker 5: I found more recently in twenty twenty four, so my
14:47
Speaker 5: data goes in this study goes through the end of
14:49
Speaker 5: twenty four and I have been tracking it since then
14:53
Speaker 5: as well, is that banks basically went back to their
14:57
Speaker 5: practices that they apply before the COVID pandemic, So they
15:02
Speaker 5: did loosen their lending standards temporarily, but it seems that
15:05
Speaker 5: they're back to where they were. So the good news
15:08
Speaker 5: is that banks lending standards are have become slightly more
15:14
Speaker 5: stringent again, so they are a little more cautious, and
15:17
Speaker 5: so as a result of that, the delinquency rates are,
15:20
Speaker 5: you know, again back where they used to be before COVID.
15:23
Speaker 2: Yah want to you mentioned that. You know, once someone
15:26
Speaker 2: gets into that stage of you know, delinquency, it becomes
15:29
Speaker 2: very hard for them to dig themselves out of the
15:32
Speaker 2: problem they've they've gotten into. How does this typically resolve
15:36
Speaker 2: itself in past economic cycles? Is it something where we see,
15:40
Speaker 2: you know, a wave of bankruptcies to discharge that debt eventually?
15:45
Speaker 2: What what kind of is the next step as far
15:48
Speaker 2: as what we usually see?
15:50
Speaker 5: Well, so it varies. It varies across many different factors.
15:55
Speaker 5: In particular, it varies across credit card issuers, but in general,
15:59
Speaker 5: what banks do the banks that issue credit cards, at
16:02
Speaker 5: some point they'll charge those loans off. So for those
16:05
Speaker 5: consumers and again as I said, it's a luckily very
16:08
Speaker 5: small fraction of card holders that don't pay even their
16:11
Speaker 5: minimum balances. At some point those accounts are going to
16:16
Speaker 5: be closed and that that is going to be charged
16:18
Speaker 5: off and banks essentially write it off as losses. You know,
16:23
Speaker 5: for those individuals, some of them will declare bankruptcy, but
16:27
Speaker 5: not necessarily. They might you know, have savings, they might
16:30
Speaker 5: have other sources of income. So it really varies across individuals,
16:35
Speaker 5: but from bank's perspective, it's sometimes ends up being a loss.
16:40
Speaker 2: So this is obviously something that can be really challenging
16:42
Speaker 2: for an individual to deal with. When we talk about
16:46
Speaker 2: the impact on the broader economy, is this something that
16:50
Speaker 2: historically has an impact on the US economy or is
16:54
Speaker 2: it does it not for any particular reason?
16:57
Speaker 5: Sure of course it does. So, you know, economy is
17:00
Speaker 5: all kinds of consumer debt. Credit card that is a
17:05
Speaker 5: chunk of it. But if you look at the sort
17:07
Speaker 5: of cross section of you know, what type of consumer
17:12
Speaker 5: that there are mortgages and housing that really swallows everything else.
17:16
Speaker 5: So on a sort of global scale, mortgage that is
17:20
Speaker 5: more more substantial than I'm not saying credit cards are
17:23
Speaker 5: not important, And in fact, consumers lower income and lower
17:28
Speaker 5: credit cards consumers are less likely to have mortgages obviously,
17:31
Speaker 5: so they're more likely to be renters. And so for
17:34
Speaker 5: those consumers, for sure, credit cards tends to be, you know,
17:37
Speaker 5: sort of a lifeline and often the only source of
17:40
Speaker 5: potential credit. But on a global scale, if you look
17:43
Speaker 5: at the economy at large, credit card is substantial, but
17:47
Speaker 5: still just a fraction of overall consumer debt, we have
17:50
Speaker 5: auto loans, we have educational loans, so there are other
17:52
Speaker 5: factors that come into play.
17:54
Speaker 2: Joanna, we really appreciate you joining us today and thank
17:57
Speaker 2: you so much for sharing the results of your study
17:59
Speaker 2: with us. We look forward to talking with you again soon.
18:03
Speaker 5: Thank you for inviinding me again.
18:05
Speaker 2: That is Joanna Stevens. She's an economist and policy advisor
18:08
Speaker 2: in the Federal Reserve Bank of Boston's Research department, and
18:13
Speaker 2: talking about her study looking at the rise in delinquencies
18:17
Speaker 2: that we've seen in credit card loans in the last
18:22
Speaker 2: couple of years. Taking a look at markets as we
18:25
Speaker 2: head towards the bottom of the hour, we still remain
18:28
Speaker 2: broadly positive throughout US equity markets, with the Dow now
18:31
Speaker 2: up three hundred and ninety four points, yes, and P's
18:33
Speaker 2: up sixty three and the NASDAC up two ninety nine.
18:35
Speaker 2: So again in US equity markets, pretty much retracing most,
18:40
Speaker 2: if not all, of the losses from Friday's market session.
18:45
Speaker 2: In the bond market right now, ten Yere Treasury still
18:49
Speaker 2: not really doing much of anything. It's holden steady at
18:51
Speaker 2: four point four to two percent, and we've got oil
18:54
Speaker 2: now off about three point seven percent down two dollars
18:58
Speaker 2: and sixty nine cents a bare to seventy dollars and
19:01
Speaker 2: twenty nine cents on West Texas Intermediate, with gold also
19:05
Speaker 2: down about thirty one dollars per ounce to thirty four
19:10
Speaker 2: to twenty one and eighty cents. This on a report
19:12
Speaker 2: from the Wall Street Journal that the Iranian government is
19:17
Speaker 2: quietly asking for a ceasefire and for negotiations regarding their
19:21
Speaker 2: nuclear program to resume, despite public statements to the contrary.
19:26
Speaker 2: Just take a quick break. When we come back, We've
19:28
Speaker 2: got trivia and then we're talking real estate after this.
19:41
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20:00
Speaker 6: It's beginning the week in positive territory as traders continue
20:03
Speaker 6: to monitor the attacks between Israel and Iran, leading to
20:07
Speaker 6: volatility and the energy sector. However, the Wall Street journalers
20:10
Speaker 6: reporting that Iran has been urgently signaling that it seeks
20:13
Speaker 6: an end to hostilities and resumption of talks over its
20:17
Speaker 6: nuclear programs. Right now, the Dow up by nine tenths
20:21
Speaker 6: of one percent, or three hundred and eighty five points.
20:24
Speaker 6: SMP five hundred is up just over one percent higher,
20:27
Speaker 6: and the Nasdaq is up one and a half percent.
20:30
Speaker 6: Russell two thousands up one point three percent. Ten year
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Speaker 6: Treasure reeled mostly flat today at four point four to
20:35
Speaker 6: two percent in crude oil, pulling back over three and
20:39
Speaker 6: a half percent, trading its seventy dollars in thirty six
20:41
Speaker 6: cents a barrel. US Steel jumping by five percent following
20:45
Speaker 6: President Trump's executive order issued on Friday approving its merger
20:49
Speaker 6: with Japan's Nippon Steel. Furthermore, both companies sign an agreement
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Speaker 6: an activist investor has built a stake in Launch. There's
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Speaker 6: a retailer of Victoria's Secret with plans to push the
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Speaker 6: the streaming platform announced an exclusive partnership with Amazon that
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21:27
Speaker 6: that is Wall Street Watch time for trivia here on
21:30
Speaker 6: the Financial Exchange And on this date in nineteen eighty
21:33
Speaker 6: the Blues Brothers movie was released in theaters. The movie
21:36
Speaker 6: would become the second biggest movie that was adapted from
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21:43
Speaker 6: at the global box office. Trivia question today, which movie
21:47
Speaker 6: is the highest grossing film based on an SNL sketch?
21:51
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21:54
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22:16
Speaker 2: New real estate math half a million more sellers than buyers.
22:21
Speaker 2: That's the headline from the Wall Street Journal. I was
22:23
Speaker 2: told there would be no math, but this is another
22:28
Speaker 2: one that the kind I look at the headline and
22:30
Speaker 2: I'm like you not to ancestory, just you're not telling
22:34
Speaker 2: the full story, because ultimately I'm sure, there are plenty
22:39
Speaker 2: of buyers for homes. They're like, talk to people in
22:43
Speaker 2: the United States. I'm willing to bet most of them
22:46
Speaker 2: are not like, Man, I got too many homes I'm
22:50
Speaker 2: looking to sell. Most of them are like, no, I
22:54
Speaker 2: can't get into this housing market because it's too expensive,
22:57
Speaker 2: which means the full headline should be more half million
23:00
Speaker 2: more sellers than buyers at current prices. And even that
23:04
Speaker 2: I'm not entirely sure if it's accurate.
23:06
Speaker 3: Yeah, so US home prices in May we're up another
23:10
Speaker 3: one point four percent from a year earlier.
23:13
Speaker 4: So you can't you can't sit here.
23:15
Speaker 2: Yes, the month over month numbers were falling.
23:18
Speaker 3: I got it, but we are still in a position
23:22
Speaker 3: of housing market strength at this point. When I look
23:25
Speaker 3: at the nation, when I look at the nation as
23:27
Speaker 3: a whole, this would be fun. Yeah, okay, I mean,
23:30
Speaker 3: I just don't think you can call it weakness when
23:33
Speaker 3: you are still seeing your your price gains.
23:35
Speaker 2: So here's the case that I will make to you.
23:38
Speaker 2: And again, this is for an audience of one, so
23:41
Speaker 2: I'm gonna tailored specifically to you. Know what I know,
23:44
Speaker 2: Mike Lakes two. Here, when you look at the largest
23:48
Speaker 2: housing markets, in the country. Yep, Florida, Texas, California. Those
23:53
Speaker 2: are your three biggest ones in the country. Inventory in
23:57
Speaker 2: Texas is now up thirty five percent year over your
24:00
Speaker 2: inventory in Florida up twenty eight California is actually I'm sorry, no,
24:04
Speaker 2: this is relative to twenty eighteen and nineteen, So this
24:06
Speaker 2: is over six years.
24:07
Speaker 4: Okay.
24:08
Speaker 2: Inventory in Texas is thirty three percent above pre pandemic peaks.
24:11
Speaker 2: Inventory in Florida twenty eight percent above pre pandemic peaks.
24:14
Speaker 2: California down five percent. So California is the only one
24:17
Speaker 2: where you can look at there and say, Okay, there's
24:19
Speaker 2: less inventory the one year inventory change, and this is
24:23
Speaker 2: what matters for the market today. Really, California inventory is
24:28
Speaker 2: a fifty one percent year over year. It is the
24:30
Speaker 2: second fastest growing state for inventory in the last year
24:34
Speaker 2: and showing signs of accelerating. And so what I get
24:37
Speaker 2: to is, look, there's three states which are the three
24:39
Speaker 2: most populous states in the country. Their inventory levels are growing,
24:43
Speaker 2: and in the case of California is still growing very rapidly.
24:46
Speaker 2: Even Florida and Texas still up over thirty percent year
24:49
Speaker 2: over year and continuing basically to increase at the same clip,
24:53
Speaker 2: And so I think the point that I'll make is
24:56
Speaker 2: a lot of that, a lot of that pricing growth
25:01
Speaker 2: is from like the second half of last year, and
25:04
Speaker 2: if you look more recently at what the spring market
25:06
Speaker 2: is telling us, it's flashing all kinds of warning signs
25:10
Speaker 2: on housing right now, except in the northeast, where.
25:14
Speaker 3: Our show is based out of. Yeah, there's a few
25:16
Speaker 3: other states too, but mainly it's northeast. Illinois has a
25:20
Speaker 3: very low inventory market. That's a big state as well.
25:24
Speaker 3: Pennsylvan Pennsylvania's northeast too. Yeah, Wisconsin, I guess, is the
25:27
Speaker 3: only other one that I can look at that's even
25:29
Speaker 3: a reasonably sized.
25:30
Speaker 4: State that is still struggling with inventory levels.
25:33
Speaker 3: The rest of it, Yeah, it's It's It's northeast is
25:38
Speaker 3: a very very tight market.
25:40
Speaker 4: Everywhere else is weakening quickly.
25:42
Speaker 2: So this is another reason why I am.
25:45
Speaker 4: Kind to buy a home in Florida in twenty twenty five.
25:48
Speaker 2: No, No, this is one reason why I am sympathetic
25:51
Speaker 2: to the idea of hey, like the FED needs to,
25:54
Speaker 2: you know, move sooner rather than later. But here's the
25:56
Speaker 2: other question that I have on this. It's unclear, you know,
26:01
Speaker 2: when we talk about the FED cutting interest rates. Federal
26:04
Speaker 2: Reserve does not cut mortgage rates. They do not control
26:07
Speaker 2: mortgage rates. The Federal Reserve cuts a short overnight rate,
26:11
Speaker 2: and basically what can happen from there is people extrapolate
26:14
Speaker 2: FED policy and other things, and that can affect the
26:16
Speaker 2: long end where you know, mortgage rates are priced. There
26:22
Speaker 2: is no one to one or you know, two to
26:24
Speaker 2: one ratio of Hey, if the FED cuts X, here's
26:27
Speaker 2: how much the ten year moves down. It varies based
26:31
Speaker 2: on the specific circumstances that are going on in the
26:35
Speaker 2: world at the time. We've seen instances where the FED
26:38
Speaker 2: has gone through big cutting cycles and the tenure Treasury
26:41
Speaker 2: falls two or three percent, which would mean it, you know,
26:44
Speaker 2: current rates, okay, mortgages go down into the fours. We've
26:48
Speaker 2: also seen cycles where the FED cuts you know, a
26:50
Speaker 2: few percent and the tenure Treasury moves down three quarters
26:54
Speaker 2: of a percent, which would mean, okay, you get to
26:56
Speaker 2: like six and a quarter and that helps, but you're
26:59
Speaker 2: not getting rates in the fives fours, let alone you know,
27:02
Speaker 2: threes and two. So I think, from my perspective on this,
27:08
Speaker 2: it's something where housing's got problems. I'm not sure even
27:14
Speaker 2: the FED cutting fixes them, but it probably doesn't hurt them.
27:18
Speaker 4: Yeah. Fair.
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28:31
Speaker 2: For the last full year that we have data for,
28:33
Speaker 2: which is twenty twenty three, US median household income cocked
28:38
Speaker 2: in at just over eighty thousand dollars a year. But
28:42
Speaker 2: according to a study that was conducted by smart Asset
28:47
Speaker 2: that was released a couple weeks ago, in order for
28:49
Speaker 2: a family of four to live comfortably in Mississippi, which
28:55
Speaker 2: is the nation's most affordable state, you would have to
28:57
Speaker 2: make one hundred and eighty six thousand, six hundre eighteen
29:01
Speaker 2: dollars per year in order.
29:04
Speaker 1: To do so.
29:04
Speaker 2: So a couple things on this. The first is that
29:09
Speaker 2: this talks about the cost of housing as if you
29:12
Speaker 2: are buying a house today. So if you bought a
29:15
Speaker 2: home ten years ago, obviously that has drastic implications for
29:18
Speaker 2: what this would mean because your cost of housing has
29:20
Speaker 2: not necessarily changed. If you have a you know, thirty
29:22
Speaker 2: year mortgage and it's still at three and a half
29:24
Speaker 2: or four percent, that cost is consistent. You know, obviously
29:28
Speaker 2: your taxes and insurance cost change.
29:30
Speaker 4: But it's an interesting study and how much it would
29:33
Speaker 4: cost to move to anyone state.
29:35
Speaker 2: Yes, this, I think is where it is. The most
29:37
Speaker 2: expensive state in the country by this metric is Massachusetts,
29:41
Speaker 2: where a family of four needs more than three hundred
29:43
Speaker 2: thousand dollars a year to meet the threshold of living comfortably. Now,
29:46
Speaker 2: when we talk about living comfortably, let's define what this is.
29:50
Speaker 2: Fifty percent of income goes to necessary costs, thirty percent
29:54
Speaker 2: to discretionary wants, and twenty percent to either debt payments
29:58
Speaker 2: and or saving day at not being you know, mortgage
30:01
Speaker 2: that would be a necessary payment. But this is talking
30:04
Speaker 2: about saving twenty percent of income. So obviously that bumps
30:09
Speaker 2: this number up as well. But when you talk about,
30:11
Speaker 2: you know, the goals that most people talk about from
30:14
Speaker 2: a savings perspective, savings rates between ten and twenty percent
30:17
Speaker 2: or typically that long term goal.
30:19
Speaker 4: Yep.
30:19
Speaker 2: And so I don't think these numbers are crazy from
30:22
Speaker 2: that perspective, but it does get at Hey, if half
30:25
Speaker 2: the population is making, you know, less than half of
30:29
Speaker 2: what this study says you need to make in order
30:31
Speaker 2: to live comfortably, are we really surprised that people are
30:34
Speaker 2: saying they're really unhappy with how the economy is today.
30:37
Speaker 3: No, it's also why people are saying, dear God, it
30:41
Speaker 3: costs so much to live here in Massachusetts. I just
30:44
Speaker 3: look at this study comparing you know, I've hinted to
30:47
Speaker 3: some family of mine that lives in Indiana, like, hey,
30:50
Speaker 3: maybe you're moving and you know east to mass just
30:52
Speaker 3: at some point and the differential there, you need two
30:55
Speaker 3: hundred twenty thousand dollars as a family afford to live
30:58
Speaker 3: there three hundred thousand to move. Nass, Most people, when
31:01
Speaker 3: they are you know, changing jobs and moving, forty percent
31:04
Speaker 3: increase in their cost of living. No, and don't look
31:07
Speaker 3: and can't expect a forty percent increase in their wages either.
31:10
Speaker 3: I don't think most people working in Indiana, if they said,
31:13
Speaker 3: oh yeah, I'm gonna take the same job in Massachusetts, are.
31:15
Speaker 4: Going to see a forty percent wage increase.
31:18
Speaker 2: So again, just some interesting data to chew on here.
31:21
Speaker 2: And with that, let's take a quick break and when
31:23
Speaker 2: we come back, we'll do some stack roulette.
31:26
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32:58
Speaker 2: Mike, what do you got for stack roulette?
33:00
Speaker 4: Hard hitting news from the state of Maine.
33:02
Speaker 3: They're out with new license plates and you have the
33:05
Speaker 3: option of selecting either the standard old main license plate
33:09
Speaker 3: or a new license plate with a tree and a
33:14
Speaker 3: star on them. And apparently a bunch of people are
33:18
Speaker 3: saying that the tree, the top of the tree bears
33:20
Speaker 3: resemblance to a middle finger. That new tree, the new
33:27
Speaker 3: license plate is out selling the old one by a
33:29
Speaker 3: ratio of ten to one. So I'll point it out
33:31
Speaker 3: to eachuck because I did not see it at first.
33:33
Speaker 3: But this little tip of the tree right here is
33:35
Speaker 3: alleged to be a middle finger. And the artist, of course,
33:39
Speaker 3: is denying this fact, saying it's just you know, people
33:42
Speaker 3: seeing things that they're not intended in any way, shape
33:46
Speaker 3: or form. But it is kind of a manor type
33:48
Speaker 3: of attitude thing that I do like to see. So
33:51
Speaker 3: go get your new main license plate if you're eligible.
33:53
Speaker 2: I guess mainers have an attitude of giving people the finger.
33:57
Speaker 4: I don't think so, no, I don't.
34:02
Speaker 3: From the last few years of you know, New Yorkers
34:06
Speaker 3: and Massachusets, folks invading their space I think there's a
34:09
Speaker 3: bit of a middle finger to be given to.
34:12
Speaker 4: Those other states.
34:13
Speaker 2: I think I think you're projecting. Okay, maybe, I think
34:16
Speaker 2: do you have something you'd like to tell us, Mike.
34:18
Speaker 3: It's all coming from a conversation I had with our
34:20
Speaker 3: local main expert Scott in the office the other day.
34:22
Speaker 4: So here's what I don't think when he gave me
34:26
Speaker 4: the middle finger.
34:26
Speaker 2: Longtime maners like you know, the the invasion of massachusettss
34:33
Speaker 2: and New Yorkians, you know coming into the state New Yorkians,
34:37
Speaker 2: New Yorkians, Ye, that.
34:39
Speaker 4: Makes them seem a lot less harmful.
34:42
Speaker 2: They're from New York, Mic, So I think that ultimately
34:46
Speaker 2: they don't particularly like it because it's kind of like, hey,
34:48
Speaker 2: we've been here forever. You guys are driving up prices
34:50
Speaker 2: all over the place. Stop knocking down the old homes
34:53
Speaker 2: and building the new ones.
34:53
Speaker 4: Like I get that, yep.
34:56
Speaker 2: But I think that there's just a very kind of
34:59
Speaker 2: Stowe culture in Maine that's just kind of like, Okay,
35:04
Speaker 2: don't like this, don't like this one bit, but I'm
35:07
Speaker 2: gonna be okay about it. Where's in Massachusetts. It's yeah,
35:12
Speaker 2: I'm gonna give him the finger.
35:14
Speaker 3: Well, That's the point here is you don't give somebody
35:16
Speaker 3: the finger. You get yourself a license plate where the
35:19
Speaker 3: tree does it for you.
35:20
Speaker 4: It's kind of stoic.
35:22
Speaker 2: I'm looking at it right now.
35:23
Speaker 4: I don't see it either.
35:25
Speaker 2: It looks more like an upside down BlackBerry to me.
35:27
Speaker 4: Fair enough.
35:30
Speaker 2: Something like that. I want to talk about this piece
35:32
Speaker 2: from the Economists. It's titled China's Crazy reverse credit Cards,
35:37
Speaker 2: where the premise is you pay now and buy later.
35:39
Speaker 2: And I gotta be honest, I didn't find this that crazy.
35:42
Speaker 2: So here's the premise of this. I'll quote from the
35:44
Speaker 2: piece just to make it easy. So customers putting down
35:48
Speaker 2: ten thousand yu wan can receive an extra two thousand
35:50
Speaker 2: yu want to spend in the store, and if they
35:53
Speaker 2: use the money within the year, it amounts to an
35:54
Speaker 2: annual quote interest rate of twenty percent paid in kind.
35:57
Speaker 2: So basically, it's hey, give us your money up front
36:00
Speaker 2: and we will give you a discount on purchases over
36:02
Speaker 2: the year, which is exactly what I do with my
36:07
Speaker 2: alcohol purchases. The place that I buy from on Cyber Monday,
36:12
Speaker 2: they do a ten percent off unlimited gift cards and
36:15
Speaker 2: I dutifully save my money over the course of the year,
36:18
Speaker 2: so that on Cyber Monday I can effectively buy all
36:21
Speaker 2: of my alcohol for the rest of the year at
36:23
Speaker 2: a ten percent discount. So I don't find this that crazy.
36:27
Speaker 2: What they are talking about is, hey, the Chinese economy
36:30
Speaker 2: is kinda not great right now, and so if your
36:33
Speaker 2: business goes out of business, obviously you've lost that money.
36:37
Speaker 2: There's no small Claims court in China to deal with this,
36:41
Speaker 2: but and regulators.
36:42
Speaker 3: Are having to pop out of the woodwork to say, hey, look,
36:44
Speaker 3: if you go and reorganize your company over us under
36:48
Speaker 3: a separate name, this doesn't really work. I can see
36:51
Speaker 3: how this permeating society could become problematic in the same
36:55
Speaker 3: way of like bank failures.
36:57
Speaker 2: I guess here's the other thing. I'll say, how many
37:01
Speaker 2: raise your hand, not if you're driving, but if you're driving,
37:04
Speaker 2: raise a mental hand. How many of you have ever
37:06
Speaker 2: received a gift card?
37:09
Speaker 4: Everyone?
37:09
Speaker 2: Everyone, What do you think you're doing When you buy
37:12
Speaker 2: a gift card for someone? You're giving a company money
37:15
Speaker 2: up front and saying I'll buy something later. And half
37:18
Speaker 2: the time the person you give the card to is like,
37:21
Speaker 2: oh thanks, and it goes in a drawer in five
37:22
Speaker 2: years later they pulled out. They're like, oh, I should
37:24
Speaker 2: spend this, and then they read the fine print and
37:25
Speaker 2: they can't do anymore.
37:26
Speaker 3: The point they are making, though, is, I think the
37:29
Speaker 3: percentage of purchases that are done under this arrangement compared
37:33
Speaker 3: to the United States system, where much more of it
37:36
Speaker 3: is done via the traditional credit card, and that is
37:40
Speaker 3: just a difference in society, and also why some of
37:44
Speaker 3: the things that the Chinese government is trying to push
37:46
Speaker 3: right now, such as extending credit limits.
37:48
Speaker 4: To borrowers, isn't really working in the way that it
37:53
Speaker 4: would in the United States.
37:54
Speaker 2: Perhaps, Yeah, I guess, I don't know.
37:59
Speaker 4: It's an interesting difference to me. Yeah it is, but
38:01
Speaker 4: I don't know.
38:03
Speaker 2: I see us doing a lot of this in the
38:04
Speaker 2: US too. Or Okay, great, I bought this on my
38:07
Speaker 2: credit card. Now I can't pay my credit card. Which
38:09
Speaker 2: system is better, I don't know.
38:12
Speaker 4: Depends what your goal is.
38:13
Speaker 2: Let's take a quick break for the entire rest of
38:15
Speaker 2: the day. Tomorrow is Tuesday, and we'll do a show
38:18
Speaker 2: then