A housing reality check

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Speaker 2 One word, three syllables, something you are probably sick and tired of hearing about.

Speaker 2 From American Public Media, this is Marketplace.

Speaker 2 In Los Angeles, I'm Kai Risdahl. It is Tuesday, today, the 25th of February.
Good as always to have you along, everybody.

Speaker 2 Had you been thinking somehow that as we sit here five years after the onset of the pandemic, with supply chains mostly back to normal, consumer demand in line with what it was in the before times, and the Federal Reserve having cranked up interest rates, if you had been thinking that maybe you could be done with hearing stories about inflation,

Speaker 2 well, then this program today maybe isn't for you because,

Speaker 2 man, let me explain. We got the February Consumer Confidence Index from the conference board today, and it wasn't great.

Speaker 2 The Consumer Expectations Index, what we all think about income and business conditions and the job market, dropped significantly.

Speaker 2 Also, and to the point of what I was saying, consumers also believe inflation is going to get worse in the next 12 months. And those inflation expectations can be a dangerous thing.

Speaker 2 This marketplace's Sabri Benishore reports to get us going.

Speaker 4 Consumers are starting to get a little freaked out by all the talk about tariffs.

Speaker 5 Tariffs on Mexico, tariffs on Canada, reciprocal tariffs across the board.

Speaker 4 Alan Dettmeister is an economist at UBS.

Speaker 5 There were even tariffs floated on, you know, Panama and Denmark and Greenland. And all this is a concern because it could get into the inflation psychology.

Speaker 5 And people are hearing this and are like, oh, tariffs are coming. They're going to push up inflation a lot.

Speaker 4 In surveys, Republicans are less or not concerned about inflation. Democrats much more concerned.
But the numbers aren't totally partisan.

Speaker 2 Independents are also worried.

Speaker 7 You can see it in the market as well.

Speaker 4 Omer Sharif is president of Inflation Insights. He says certain treasury bonds have started to price in higher inflation.

Speaker 4 And expectations can be dangerous, at least in theory, because they can become a self-fulfilling prophecy.

Speaker 7 If you think prices are going to rise, it might drive you to sort of make those purchases today instead of waiting for those higher prices, which causes a jump in demand, which itself can lead to higher prices.

Speaker 4 That does not appear to be happening, Sharif says. And it's debatable whether this theory is reality right now.

Speaker 8 I would be a a lot more worried about inflation expectations rising on the back of high actual inflation.

Speaker 4 David Miracle is chief U.S. economist at Goldman Sachs.
He says the most dangerous kinds of inflation expectations are the ones created by living with actual inflation.

Speaker 9 If inflation is high enough for long enough and it becomes part of your daily experience that you get used to it and it becomes self-perpetuating.

Speaker 4 The tariffs haven't hit prices for most goods yet, so America is less worried about psychology for now, but our brains may be soaking in tariff inflation talk for a while. Again, Omer Sharif.

Speaker 7 Quite honestly, this could very much linger into the fall because you will get these constant updates on what's happening with these investigations and individual nations.

Speaker 4 And of course, psychology aside, the potential for tariffs to raise actual prices is very real. In New York, I'm Sabri Benishore for Marketplace.

Speaker 2 Real indeed. Wall Street Street today, the math kind of goes like this.
A lot of money moved out of stocks, so equity indexes generally went down.

Speaker 2 A lot of that money went into bonds, which means bond prices went up, and that means bond yields went which way now? Anyone? Anyone?

Speaker 2 Down. We'll have the details when we do the numbers.

Speaker 2 We're going to do a little homes segment here, a little real estate.

Speaker 2 First, the all-important update that we got from the benchmark Case Schiller Home Price Index, which was out this morning, nationally up 3.9%

Speaker 2 in December. A lot, yes, but if I might paraphrase Alan Greenspan, there is some regional froth in the American real estate market.
Marketplace Smith the Fields has that one.

Speaker 10 This time, three years ago, home prices had risen almost 19% year over year. Compared to that, Sam Chandon at NYU Stern School of Business says 3.9% is more manageable.

Speaker 2 But even these relatively small increases are on the top of generationally high levels of prices.

Speaker 10 In some Sunbelt markets that saw big spikes early in the pandemic, there's been a lot of new construction. And Chandon says that has helped balance supply and demand and slow price growth.

Speaker 2 In addition, there's anecdotal evidence that some home buyers in Florida and elsewhere may be thinking also about the impact of climate change.

Speaker 10 Not necessarily worrying about the next major hurricane, he says, but about rising insurance costs.

Speaker 2 Part of the competitive advantage for some of these markets historically has been that they're much more affordable than the Northeast, than California.

Speaker 10 But as home prices and insurance costs have gone up in Florida, he says some of that affordability advantage has disappeared.

Speaker 10 Brian Luke at SP Dow Jones says home prices are now rising fastest in the Northeast, a switch from early in the pandemic.

Speaker 2 Less volatility in those markets, more of a slow plodding upward.

Speaker 10 The Northeast has long been expensive with consistently high demand. Allie Wolf at Zonda says one reason prices keep rising there is there's not much new inventory.

Speaker 12 There's not much developable land. It's expensive.
There's a lot of regulation.

Speaker 12 And so you're not finding that homebuilders can come into the market, increase supply, and help with home price appreciation.

Speaker 10 And nationally, Sam Chandon at NYU says there are other structural factors keeping prices high.

Speaker 2 The cost of construction labor, of softwood lumber, the potential for disputes with our trading partners to inflate the cost of some of the materials that we use in home building.

Speaker 10 These are all features of the housing market that he says aren't going away anytime soon. I'm Samantha Fields for Marketplace.

Speaker 2 So let's say you've been able to buy a house and you want to do some work on it. Where are you going to go? One of those big home supply stores, probably.
Home Depot.

Speaker 2 for our purposes today, which last quarter posted gains in same store sales for the first time in two years, so we learned in their earnings report this morning.

Speaker 2 HD, as the stock ticker has it, is a bellwether for the home renovation and construction business, which, like the housing market, has been chilled by inflation and interest rates.

Speaker 2 That upswing in sales I mentioned, well, they did beat expectations. But the outlook is not all positive, as Marketplace's Megan McCarty-Carino reports.

Speaker 10 The renovation market has been on a roller coaster since the pandemic, from stay-at-home spending sprees to high-interest rate retrenchment.

Speaker 10 Home Depot sales grew by about 1% last quarter, which seems to show things are normalizing, says Greg Portell, a retail consultant with Kearney.

Speaker 13 I think it is important not to confuse normalization with all of a sudden an uptick. Normalization just allows consumers to have some certainty.

Speaker 10 Nick Specter, the owner of Alair Homes in Houston, has noticed a change in his customers as the shock of inflation and higher interest rates has receded.

Speaker 8 We're seeing a lot of people interested in moving forward with projects that they've been thinking about for months or even years in a lot of cases.

Speaker 10 Generally, there's been an an uptick in smaller-scale renovations. Specter says many homeowners decided to stay put instead of looking for a new house.

Speaker 10 High prices and mortgage rates have slowed down home sales nationwide, which puts a dent in large-scale remodels.

Speaker 8 When somebody moves into a new home, there's typically something that they want to do, whether it's we need to blow out these walls and do some major changes.

Speaker 10 A slow housing market will likely keep growth in home renovations low, says Michael Baker, managing director at D.A. Davidson.

Speaker 14 I don't think we're out of the woods yet as it relates to the housing market, but it doesn't seem to be getting worse.

Speaker 8 And in fact, bouncing along the bottom and maybe even getting a little bit better.

Speaker 10 He says even if the Fed doesn't cut interest rates as quickly as once hoped, rates are unlikely to go up anytime soon.

Speaker 10 Though the new administration has introduced some uncertainties, says Carney's Greg Portel.

Speaker 13 The challenge for consumers is going to be how do you interpret the headlines on things like tariffs, on things like trade, on things like immigration.

Speaker 10 If costs for construction, labor, and raw materials are unpredictable, normalization gets a whole lot harder. I'm Megan McCarty-Carino for Marketplace.

Speaker 2 You know, when you go to an actual bookstore, this happens on Amazon too, those quotes on the back cover, or if you have scrolled down on a book page on Amazon, those blurbs that say something nice about the pages within, quotes like revelatory, or I couldn't put it down, attributed to various celebrities and big names.

Speaker 2 Well, that whole book blurb business is getting some attention. Constance Grady wrote about it for a Vox the other day.
Constance, welcome to the program.

Speaker 16 Thanks so much for having me.

Speaker 2 For those unfamiliar with the blurb economy, and first of all, there is a blurb economy, right? How does it work? Where do these things come from?

Speaker 16 Yeah, absolutely. So blurbs are those little testimonials that you see on a book's cover, usually from another author saying, you know, luminous, a masterpiece, the best I've read in a while.

Speaker 16 Those little testimonials are at the middle of a big controversy right now.

Speaker 2 Well, discuss. What kind of controversy?

Speaker 16 Yeah.

Speaker 16 So the the way blurbs work is that some combination of an author, an editor, a publicist will reach out while the book is getting copyed, kind of making its way down the production line to try to get some blurbs from famous authors, make it have a big splashy entree when it comes out.

Speaker 16 And what that means is if you're a successful author, you get tons and tons of requests for blurbs every single day. Most authors want to pay it forward.

Speaker 16 They've received good blurbs when they were starting out. They want to help out.
But this is an enormous amount of blurbs that you're being asked to write.

Speaker 16 And on the end of the author who's trying to get their book published, it's a lot of famous people to try to reach out to and most likely hear a no from.

Speaker 16 So there's been a bunch of authors and publishers lately saying, hey, this is hugely time consuming. It's an incredibly emotional process.
What would happen if we stopped doing all this?

Speaker 2 Yeah, well, wait. So, so yes, what would happen? I don't know that there's a single, that's probably not true.
There are probably readers who flip.

Speaker 2 I personally, as a reader, I look at the back cover of a book. I don't read the blurbs.
I look to see who did the blurbing and I go, huh, interesting.

Speaker 2 But it has no effect on whether or not I buy the book. So, do you know whether, sorry, I'm a little agitated about this.
Do you know whether readers actually use these things?

Speaker 16 So, I have never seen any studies showing that readers care about these things or anything like that.

Speaker 16 I know that before I became a book critic and started having to read professionally, I found blurbs a little annoying. I was kind of like, I just want to know what the book's about.

Speaker 16 Why are you using up this real estate? Right.

Speaker 16 I think blurbs are really handy for people like me now who have to read professionally because there are so many books coming out every year that you simply just don't have time to carefully evaluate each book before you decide how much attention you're going to give it.

Speaker 16 We are basically the end audience of these blurbs. They exist for us to figure out what to do.

Speaker 2 So authors are annoyed by it, authors who write the books, authors who are asked to be blurbing are annoyed by it. Publishers are annoyed by it, but you

Speaker 2 need them. Is that where we are?

Speaker 16 I mean, I would make do without them.

Speaker 16 I don't want to, as a reader, I would certainly much rather that authors spend their time writing good books than having to deal with this whole sort of emotional labyrinth of reaching out and making requests and saying no and reading books that you probably aren't that interested in and scraping together a few lines.

Speaker 16 Like, that's not really serving anyone

Speaker 16 except me, but I will live without it.

Speaker 2 Fair enough. Yeah, you'll pay that price.

Speaker 2 There's no requirement that people actually have read the book, right? When they blurb.

Speaker 16 Basically, no. It's kind of an honor system situation.
And a lot of authors will admit, I don't read everything I blurb.

Speaker 16 I maybe read, you know, the first and last chapter and kind of hope for the best from there.

Speaker 2 Totally. So what happens, do you think? Do blurbs eventually go the way of the dodo or what?

Speaker 16 Well, the main thing that blurbs do for the authors who do want them to stick around is blurbs can be kind of an equalizer.

Speaker 16 The way publishing is set up right now, most of the resources in marketing and publicity end up getting saved for just a few books who publishers hope will do really, really well.

Speaker 16 And the rest of the books kind of have to scrounge for what's left.

Speaker 16 And blurbs are one of the things that, if you're an author, it's one of those things that you can kind of use like it's a magic shield and be like, I can't control anything else about my book's debut, but I can control this.

Speaker 16 And so I think for that reason, a lot of authors are going to want to keep trying to get blurbs and hope that they will make a difference.

Speaker 2 Fair enough. Constance Grady at Vox.
Constance, thanks so much for your time. I appreciate it.

Speaker 16 Thank you.

Speaker 2 Coming up.

Speaker 17 Cut down a tree, inoculate it, and then you could grow mushrooms in your backyard.

Speaker 2 Boom, you're in business. But first, let's do the numbers.
Dow Industrial is up 159 today, 4 tenths percent, 43,621. The NASDAQ went the other way, down 260 points, 1.3rd percent, 19,026 there.

Speaker 2 The S ⁇ P 500 off 28 points, 12%,

Speaker 2 59, and 55%. Zoom plunged 8.5% today after projecting slower-than-expected revenue growth.
Microsoft down 1.5%.

Speaker 2 Home Depot surged 2.8% today. Lowe's gained about 2.2 tenths percent.
Fabric and crafts supply chain Joannes says it's going to close all of its 800-odd stores.

Speaker 2 It couldn't find a buyer to keep them open. Company had about 19,000 employees, most of of them part-time workers, when it fought for Chapter 11 Protection back in January.

Speaker 2 Bond prices, as I mentioned, up the yield on the 10-year T-note down 4.30%.

Speaker 2 You're listening to Marketplace.

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Speaker 2 This is Marketplace. I'm Kai Rizdahl.

Speaker 2 With the caveat that actual details of the tariffs that President Trump has been promising are scant, one thing he did roll out and then delayed earlier this month was a 10% tax on energy coming from Canada.

Speaker 2 That is obviously going to make energy more expensive for some, including people throughout New England and New York, because some of their gas, oil, and electricity does come from north of the border.

Speaker 2 And on the electricity front in particular, it's interesting to note that utilities and public officials have spent years working to bring more power down from the north, as Marketplace's Henriette reports.

Speaker 18 In the dimly lit control room of Vermont Electric Co-op in the town of Johnson, six monitors display a diagram of the small utilities system.

Speaker 18 Blue, orange, and white lines crisscross the display's black background. They represent the power lines that deliver electricity to 40,000 customers.

Speaker 18 Manager Isaac Gillen points to one of the monitors. So this has pretty much all the high-level switches and breakers and stuff that we can control.

Speaker 18 You can see at the top, we have a Hydro-Quebec tie there.

Speaker 18 Meaning a power connection to the grid of Hydro-Quebec, the utility on the other side of the Canadian border.

Speaker 18 Gillen's pointing to a connection in the town of Highgate, Vermont, which sends power to the whole New England grid. But there are others on the U.S.
side of the border, in Derby, Norton, and Canaan.

Speaker 18 Back in the day when we actually used to have to go out and read meters physically, if you're up in that Derby area, there's times where if you're not paying attention, you just, you can slip right into Canada.

Speaker 18 Another display shows the total amount of power Vermont Electric Co-op is getting from Canada, says CEO Rebecca Towne.

Speaker 10 Right now, it's almost 19 megawatts coming through, flowing through our ties to Hydro-Quebec right now.

Speaker 18 That was about 40% of the utility's total needs at that moment. Pretty average, Towne says.
According to Hydro-Quebec, it supplied 14% of New England's electricity in a particularly cold January.

Speaker 18 Back in the 1980s, utilities in the region built two major transmission lines to bring that power down from Canada.

Speaker 18 Mark Montalvo is CEO of Daymark Energy Advisors, a consultant group based in Worcester, Massachusetts.

Speaker 6 You know, we were coming out of an energy crisis, right?

Speaker 6 There was a lot of concern about diversification of fuel supply. Quebec had a very rich water resource.

Speaker 18 Meaning lots of hydroelectric dams in the north of the province, which for years have produced surplus cheap power.

Speaker 18 For the last decade or so, New England and New York have been trying to get more of it.

Speaker 18 After many delays, two new connections to the Hydro-Quebec grid are set to be completed by early next year, says the utility's Serge Abergel.

Speaker 21 Each of them will bring enough energy to supply a million homes, one for essentially New England and Massachusetts, and the other one for New York City.

Speaker 18 The lines will also be able to send power north, says Pierre Olivier Pinot, a professor at the business school HEC Montreal.

Speaker 18 So as New England and New York add more solar and wind, which can also produce surplus power at times.

Speaker 14 Quebec can basically import electricity, keep the water in the dams, and then that saved water can be used later on to generate power when solar and wind aren't.

Speaker 18 In other words, Quebec can basically store power behind its dams for whenever New England needs it.

Speaker 14 The Northeast states shouldn't see Quebec as a net exporter of electricity, but as a big battery to help balance their own market. And that big battery is already built.

Speaker 18 Tariffs could make fossil fuels in the region more expensive too. Right now, fuel oil for homes, gasoline and aviation fuel refined in New Brunswick, and some natural gas all cross the border.

Speaker 15 Vermont gas takes nearly all of its physical gas supply

Speaker 15 from a connection at the Canadian border at Phillipsburg, Quebec.

Speaker 18 Neil Lunderville is head of Vermont Gas Systems, which serves 56,000 customers in the northern part of the state, including, full disclosure, me.

Speaker 18 He says there's no doubt about who would foot the bill for natural gas tariffs.

Speaker 15 We pass the cost of gas directly to our customers. A 10% tariff on Canadian energy will mean a direct direct rate impact for our customers.

Speaker 18 In the meantime, he's been looking at ways to mitigate that impact, but he's not particularly hopeful. In Burlington, Vermont, I'm Henriette for Marketplace.

Speaker 2 Tariff policy is so far unclear, as Henry was just telling us. Also not entirely transparent is what's happening with various federal programs, most specifically the funding of those programs.

Speaker 2 Last we heard, which was last week, the Department of Agriculture is still planning to release about $20 million in grants, money that will go to individual farmers.

Speaker 2 That is out of a total, by the way, of nearly $20 billion billion over 10 years that was in the Inflation Reduction Act. And as you might imagine, given all of that, farmers are a bit anxious.

Speaker 2 Here's today's installment of our series, My Economy.

Speaker 17 My name is Howard Burke. I am the president and co-founder of our amazing mushroom company, LA J Mushrooms.

Speaker 17 We're in LA J, Georgia, where we grow shiitake, oyster, golden oysters, lion's mane, and we're growing about 5,000 plus pounds a week.

Speaker 17 It wasn't until college that I really took it seriously in mushrooms.

Speaker 17 I was eating healthy during that time and I started to do mushroom logs and that's where you would cut down a tree, inoculate it, and then you could grow mushrooms in your backyard.

Speaker 17 I would start with about five to ten of them and then over the years I ended up with thousands of them and then I found out that there was actually an audience for these.

Speaker 17 Around 2017-2018, my new business partners found me and we created LOJ Mushrooms. And that's kind of how we just started to grind and do it.

Speaker 17 Pricing, not knowing the business, that has been a challenge. Each place is different in value.
So there's a retail price, there's a wholesale price, and they're all over the place.

Speaker 17 And one of the things that was a challenge was like, oh, you have to add in a delivery fee, or there's a lumper fee, meaning that if you deliver to XYZ warehouse, they're going to to charge you $50 to $100 to unload it.

Speaker 17 So at the beginning on some of our accounts, we were losing money because I didn't know that you had to add into those fees.

Speaker 17 This year, we just hit profitability. We just got it over the line.
But now since we have to build three more greenhouses, it'll go back down to that valley. We're just trying to find funding for it.

Speaker 17 Currently, we are working with a grant writer for the Value Add Producer grant, which just got released. And if that's totally off the table, that means we have to go a whole nother route.

Speaker 17 It means that we have to put up more equity, could be more debt. There are more challenges with, I'd say, overall, more risk if we don't have those USDA funds and loans.

Speaker 17 We're just going to move forward with it and know that we're going to make it happen.

Speaker 17 Up here in Ella J, we're pretty rural, and we wanted to make sure that the employees that lived here we could give them a living healthy wage that they could stay here with their families.

Speaker 2 It's very rewarding.

Speaker 2 Howard Burke, president and co-founder of LA J Mushrooms in LA J, Georgia. No matter where you are, no matter what you do, we cannot do this series without you.

Speaker 2 So let us know what's going on with you. Marketplace.org/slash myeconomy.

Speaker 2 As final note on the way out today, we started with a word all y'all are sick and tired of hearing. Inflation, we are going to end with another one.
I apologize in advance. Tariffs.

Speaker 2 We direct your attention now to Section 232 of the Trade Expansion Act of 1962, which, among other things, gives the President virtually unfettered authority to impose tariffs on the grounds of national security.

Speaker 2 The many times mentioned steel and aluminum tariffs are Section 232 tariffs.

Speaker 2 And the President signed an order today directing the Commerce Department to investigate whether copper tariffs might be warranted. 25% steel, 25% aluminum, supposed to hit in March, as you know.

Speaker 2 No indication of when or how big tariffs might be on copper.

Speaker 2 Our digital and on-demand team includes Carrie Barber, Jordan Manji, Dylan Mietinen, Janet Wynn, Olga Oxman, Ellen Rolfis, Virginia K. Smith, and Tony Wagner.

Speaker 2 Francesca Levy is the executive director of digital and on-demand. And I'm Kai Risdahl.

Speaker 4 We will see you tomorrow, everybody.

Speaker 2 This is APM.

Speaker 2 Now's the time to start your next adventure behind the wheel of an exciting new Toyota hybrid.

Speaker 2 With the largest lineup of hybrid, plug-in, hybrid, and electrified vehicles to choose from, Toyota has the one for you.

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Speaker 2 Visit your local Toyota dealer today, Toyota, let's go places. See your local Toyota dealer for hybrid battery warranty details.