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More than happy Friday, and welcome back to the Financial Exchange. We’ve got an exciting next hour for you. The chief economist of Compass real Estate, Mike Simonson, is gonna be joining us at the next segment, and then Paul Amonica from Baron’s gonna be joining us later on in the program. This morning at eight thirty am, we got our release from the Bureau of Economic Analysis, Yes BA, on the state of inflation and did not surprise.
This is our second reading on inflation. CPI usually comes or always comes earlier in the month, and this reading showed a similar story, which is inflation, while it has been heating up a bit in the last three months, remains in a I would say, relatively uncomfortable level, but not worrisome enough to drive the Fed to change their path, which is towards cutting interest rates. The reading on inflation that you did get this morning, the headline inflation number up two point seven percent year over year, when you strip out food and energy up two point nine percent, and those same figures up point three and point two for the month, and that’s about where they’ve been since June. We’ve seen these upticks since June whereas the months beforehand we’re pretty muted on the inflation front of things.
We have a new teriff announcement from the White House when it comes to branded and pharmaceuticals that are manufactured outside the United States. This headline, I think is going to be probably misinterpreted by a lot of folks. So important to keep in mind that this is just branded pharmaceuticals. It does not apply to generics.
But some of those branded pharmaceuticals are looking at one hundred percent teriffreriate if the parent companies are not investing in manufacturing inside the United States. And I think might be a shot across the bow in terms of what could be to come for generics, but probably not a whole lot of willingness to do that at this point. Near Caasser from Bloomberg writes, millions of Americans becoming economically invisible. Paul, this is a story that we have highlighted many times in kind of a different light over the course of the last few months and years, which is increasingly the spending in this nation is coming from the top ten percent of income earners, and I’m certain that when you look at the top half, it’s got to account for a whole lot of the spending, but half of the total spending in this country is coming from the top ten percent of income earners.
And so when we hear stories about this, I think this fits right into that same narrative, which is quite literally when you look at broad statistics about the economy, when you look at consumer spending, when you look at inflation, when you look at wages, there is a wide swath of the American public, probably that bottom third or so, that really do not move the needle at this point for the state of the overall economy, and likewise probably helps explain why the data on the numbers who’s spending what where does not seemingly match up with the data on sentiment that we get on a regular basis. The bottom sixty percent of wage earners account for less than a fifth of consumption in this country. That’s down from more than twenty six percent three decades ago. So we were at twenty six percent for the bottom sixty percent of wage earners three decades ago.
That number is now lower than twenty percent today. So you have sixty percent numerically of the workforce, you know, eighty million plus workers that are contributing less than twenty percent of overall consumer spend. It’s this weird phenomenon where numerically there are more people statistically numbers wise, that are in a rougher economic place, but you’re in this uncomfortable economists spot where you say it doesn’t really matter as much for the dollars and cents that are being spent around this. I hesitate to say it doesn’t matter because I said that too, and you just said it, and it’s an accurate description.
Here’s what it doesn’t matter for. It does not matter for the corporate profits of major US companies, right. And those major US companies drive things like the stock market, they drive major spending in the AI trade. And so when we say it doesn’t matter, I think that can sound a little bit cold, and I don’t think we’re intending for it to be cold.
It is just the literal reality of what moves the needle for this big picture of the economy, for inflation, for GDP, for major companies, and the answer is decreasingly sixty percent of Americans are what moves the needle, right, And that’s a pretty terrifying number. And it’s on top of I think a theme that I keep hearing from folks, which is, what does the job market look like ten years from now? With aim? Are my skills going to be valued in the same way because unlike well, I guess, similar to other technologies in the past, but this technology especially is designed with one real thing in mind, which is to emulate human beings. And look, there’s other automation systems that have done the same in the past. That you know, every technology in some way is made to make people more efficient, but this one does seem a little bit different on that front.
I think people are rightly afraid of it for that circumstance. And what a lot of the writing has been around is how are we going to ensure that this technology does not make the wealth and income situation that we’re dealing with more diversions now even worse down the road. Sure, and so we’re seeing that there, and I think it is a little bit tough to evaluate. We’ve got to take quick break when we come back.
Mike Simonson, chief economist at Compass, joining us next on the show to talk a bit about the state of the housing market, what he’s expecting for the end of the year here and then obviously all eyes will be on that spring market as well. Mike’s with us next. Miss any of the show. Catch up and your unions by visiting Financial Exchange Show dot com and clicking the on demand icon, where you’ll find all of our interviews in full shows.
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That’s the Financial Exchange weekdays from eleven to noon on Series XM’s Business Radio Channel one thirty two. This is the Financial Exchange Radio Network. Join us now. Is the chief economist at Compass real Estate, Mike Simonson.
Mike, thanks as always for joining us, and congratulations are an order. I don’t think we’ve spoken since the new role, so congratulations on the new role at one of from my perspective, one of the fastest growing real estate firms out there. Thank you very much. It’s all great to be here.
So in your new role as chief economists there. I’m sure you spend a lot of time addressing the staff of realtors at Compass and what are you telling them here as we head into what I would assume is usually a pretty slow period of time for real estate transactions. The closer we get to Thanksgiving, I’ve got to imagine that’s when things really dry up. But what are you seeing out there and what are you telling the realtors a Compass? Yeah, so yeah, my job is really to help everyone understand the US housing market, and that’s buyers and sellers as well as the professionals in the organization.
So yeah, so it is, it’s a fall, it’s in September. We actually have a little bit of a last gasp of the housing market in the US. Is actually there’s really two markets happening right now. There’s a Midwest and Northeast and then there’s the sun Is there are two different things going on, and so in the Midwest and Northeast inventory is still actually very tight.
There’s not a lot of people selling homes moving you know, like the over the years, we’ve been moving north to south, and as it got expensive to move, we’re moving a lot less right now. And then that’s not just mortgage rates, it’s also insurance and all the other things. So we’re moving a lot less commonly right now. It’s also the job market because because companies aren’t hiring very quickly, we’re not quitting our job in Boston to buying one in Orlando, and so we’re not selling our house in Boston to buy in Orlando.
Or Inventories at very high levels in Orlando and still very tight in the Northeast. So that’s a really a really notable split in the US right now. I hate to get overly specific here, but I have been just just amazed by what’s been going Onnnecticut has been reliably the worst inventory situation in the country. I know this applies to most of the Northeast, but you know, if there’s something unique about Connecticut and its proximity to New York, perhaps that’s making it such a difficult market to buy a home right now.
You know, you’re right that Connecticut has been like just barely maybe one or two percent more homes unsold on the market than a year ago. For much of the year, it was fewer homes, and so, you know, I think that it is the in this phenomenon. It’s more commonly the suburban areas than the urban areas. So for example, I was in Chicago this week, and the same thing’s happening in Chicago.
There’s inventory in downtown condos in Chicago, but in suburban Chicago it’s very tight. And it’s like, those are the folks who were you know, selling and move and south, and those are the folks who are holding on still. And there may be you know, the city of New York has actually had you know, like a reasonable demand for home so like and growth in the economy, so that could spill over into Connecticut and be part of the factor that like there’s less supply and demand isn’t as lighted as it is in much of the country. Mike, I’m aware of this story that you’ve told of two housing markets in this nation, the sun Belt versus Midwest and Northeast, and just how different those markets look.
And the question that comes to mind for me is why. And I’ve been you know, putting together some answers. You know, it’s a reversal of COVID trends. That’s where a lot of the homes were built over the last several years.
Insurance costs go up. Is there a but honestly, like, none of those to me explain all of it. Is there a really concise story as to why the Sun Belt is seeing such an uptick in inventory right now? And is there something that reverses that trend or at least equalizes that market, because it does not seem as though that that increased volume is leading to way more transactions and way more price cuts. Yeah, so it is in fact all those things.
I called it the great stay where we are staying in our towns, We’re staying our homes longer, we’re staying in our jobs longer. So you know, because companies aren’t aren’t hiring very quickly, we’re not quitting our jobs were and so we’re doing so all of these things were like it’s related to COVID and the you know, I have a great mortgage from the pandemic, and you know, the companies have the right staff size from the pandemic, so all of those things, and they don’t need to hire more. So all of those things are conspiring to keep us in place longer. The and and so you’re right, like in the places where we’ve been building a lot of houses because we’ve been moving.
Very quickly there. Now we when we slow When we slow down that move, we those that inventory builds up in a place like western Florida, like Tampa, we have right now we have outbound migration, so Tampa is actually shrinking. We have also things like dramatically higher insurance costs. So you know, if you had a house in Tampa that you used for a couple of weeks a year, it used to be very cheap to hold that.
Now it’s suddenly got more expensive to hold that. So even if we’re not moving, those also come back on the market. So you have all of these factors that are going together right now. My guess is when does this change? When does it end? And when we get into a business cycle where companies are hiring again and we are more confident about our ability to quit our jobs, you know, those kinds of elements in this in the business cycle, when those kick in again, then we can move.
Then we will say, you know what, Okay, I put off my move to Florida or to Arizona or. For three years. Now now it’s time to move. So we’re in a in a you know, a restricted to now and at some point those like that, the governors get lifted and allow us to start moving again.
So, Mike, I won’t try and nail you down on where you think interest rates are going, because I don’t know about you. I find that to be a loser’s game of trying to predict where that’s going to be. But can you instead try and give me a sense of where you think interest rates might need to be for people to stop feeling so locked into their current situation. Yeah, there have been in the last three years, there have been two moments when interest rates mortgage the thirty year mortgage rate got close to six percent, and in both of those types, so it was the beginning of twenty three and it was September last year, and both of those moments turned into an uptick in buyer demand, more transactions, and actually pushed home crisis higher surprisingly quickly.
Surprisingly to me, I was surprised by the reaction both of those times. So I look at six percent as a as a sort of threshold where we start to move the needle. We start to see, oh, there’s more transactions happening, there’s you know, people are are you know, feeling like a move is affordable, and so there’s been only two moments in the last three years. When when that happened? The six and a half percent is not enough, and so when the when when when rates are roughly around six that means some people are getting rates in the fives and those people are starting to feel affordable.
So that’s that’s really a level I am interested in. What’s interesting right now is that the jobs market is arguably deteriorating. The the unemployment rate is ticking up, the hiring rates are very low, that job creation rates are very low. And so does that mean in twenty twenty six, if the job market is worse, the economy is slower, does that mean that number needs to be even lower before we move the needle.
Maybe that threshold moves lower in the coming year. But as of right now, the two times that we’ve gotten close to six percent, we could see the neil move on housing demand. Yeah, that all else equal statement is all threatened right now. Mike Simonson, chief economist at Compass, joining us today talk about the state of the national housing market.
I really appreciate you coming on, Mike, and we’ll talk to you again soon. You right, we’ll touch on all right. Time for trivia here on the Financial Exchange and it’s the final day of TV sitcom trivia here that we’ve been doing the entire week, So here we go. Everybody Loves Raymond ran from ninety six to two thousand and five on CBS.
The show was nominated for sixty nine Emmy Awards, and one fifteen most of the cast members won an Emmy Award for their perform Lawrence is on the show. Of the main five actors on the show, only one failed to win an Emmy Award. So our triview question today, who is the only actor on Everybody Loves Raymond to not win an Emmy Award during their time on the show? Once again, who is the only actor on Everybody Loves Raymond to not win an Emmy Award during their time on the show? Be the third person today to text us at six one seven three six two thirteen eighty five with the correct answer you know, win a Financial Exchange Show T shirt. Once again.
The third correct response to text us to the number six one seven three six two thirteen eighty five will win that T shirt. See complete contest rules at Financial Exchange Show dot com. I’m gonna give this one to Tucker. Tucker, you want us to talk about costco or Zillo Zillo Zillo.
All right, uh, Zillo just hit their first profitable year in the last thirteen Uh. The last time they did this was twenty two twelve, and they have gone through a few rough tracks here. They tried buying houses unsuccessfully. They tried a few different things that didn’t work well.
But they seem to be getting the point that, hey, we are one of the most popular forget about real estate websites, like we are one of the most popular websites out there that Americans like to browse, and let’s maximize the utility of that. And finally finding a way to make a profit here. Well, it’s funny the context of the article in the Wilsted Journal here largely a lot of the improvements on the profitability have been from cutting expenses. It’s like, uh aha, suddenly we realize that if we cut overhead and trim down some of the stock based compensation, that we would generate a profit.
Who knew by cutting our expenses that we would go to profitability. They all are also diversifying their services a little bit, trying to make money from mortgage origination, rental listings, and software for real estate professionals. So those have been helpful. Here’s what I think they need to go further, Like this company has so many eyeballs on their listings every single day, they need to be adveraged to us, like, hey, you really like the look of that house.
I keep seeing you look at it, because that’s how people are using this site now. It’s not to actually buy real estate. It’s just as a hobby. You like the look of that kitchen, here’s the same one from Ikia.
You know, advertise that type of thing. I think that they have so many eyeballs, it’s becoming more of a social media platform than it is a true real estate platform, and I think they underappreciate how much more they could advertise. Quick break, we’ll have the trivia winner and then talk some costco Next. Bringing the latest financial news straight to your radio.
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