Tension grows in the housing market

bonds that's it that's the whole open bonds from american public media this is marketplace in los angeles i'm kyle risdell it is wednesday today this one is the 23rd of september good as it always is to have you along everybody we're going to spend i don't know the first 10 or 11 minutes of the program today directly or indirectly on bonds and what i want you to do every time you hear that word today is think of it as the cost of money bonds get sold and bonds get bought with an eye toward their yield the interest rate whoever issues the bond has to pay and the yield on the 10-year treasury bond today hit 5.13 five percent apologies for going to the third decimal place there but when a government is borrowing the way this government is borrowing thousands of a percentage point really matter so our indirect approach to bonds today comes via the mortgage market where the 30-year fixed rate mortgage now sits at almost 7.2 a two-year high meanwhile and to absolutely nobody's surprise the mortgage bankers association says mortgage applications have dropped for the third week in a row and as marketplaces have been assured reports now to get us going those two data points mean some things are happening in the housing market so demand for homes is down which makes sense buyers aren't thrilled about buying when mortgages are this high but something else a little weirder is happening too we're also seeing more home owners deciding to list their homes daryl fairweather is chief economist at redfin either these sellers are just tired of waiting because it's been so long that mortgage rates have been high and if they're waiting for a better market maybe they realize that that better market isn't coming or they are getting nervous that prices might fall more sellers equals more supply and you add in slowing demand and home prices have slowed down rising just two percent yearly which is slower than overall inflation and slower than wage growth and that would be great except for the high mortgage rates ally wolf is chief economist for zonda since the start of the year consumers have lost roughly 10 percent in purchasing power just from higher interest rates when demand is like this and prices aren't rising much builders aren't interested in building new homes danushka naniakara does forecasting for the national association of home builders their permits numbers are down the starts numbers are down year to date and building a home is kind of a long-term thing so home builders usually look past short-term home builders and they're not interested in building new homes they're not short-term bumps in the road like a flare-up of mortgage rates but they are not looking past it because it isn't a short-term thing in our forecast we don't have the mortgage rates coming close to six or below six in the next two-year window there are some silver linings if you're a seller prices are at least still generally rising if you are lucky enough to be able to buy two out of three home builders are offering discounts to offset higher mortgages and there are fewer bidding wars in new york i'm sabree benishore for marketplace wall street today bonds were selling off stocks were selling off oil was being bought we will have the details when we do the numbers so our and direct approach to bonds today is the new book from robin wigglesworth at the financial times it's called a fabulous debt the epic story of how bonds built the modern world it's all about the historical and also the very current context in which the bond market operates robin it's good to have you on no thanks guy thanks for having me here everybody listening to this program because they've heard me say it a million times knows what a bond is right it is uh people loaning governments companies take your pick uh money and then the expectation is they get paid back for it you though have spent 350 something pages saying it is oh so much more than that um discuss would you yeah i mean the bond market is often seen as the boring sibling to the stock market i think that's completely wrong it is the bedrock to the entire financial system it's actually where most lending happens we think of banks as kind of the central engine of of capitalism but really it's the bond market there's more lending happening through the bond market and through the banking system and i just think that the consequences of that shift uh are going to be very, very, very, uh huge well keep on going why is it such a big deal well if you think of how we've ordered the financial system how we regulate banks it's all order around the banks being the alpha and omega uh central banks were set up to backstop other normal commercial banks uh regulation we we regulate banks make sure they're safe but we don't really have the same guardrails around the bond market and you know it's fairly transparent it's incredibly dynamic but it you know it is just as prone to hissy fit as banks and the stock markets are well to that point you're right here uh the bond market uh it takes money as its raw input spits out factories railways hospitals casinos smartphones and semiconductors wars and vaccines all of which yes fine but every now and then as you say it it spasms and then we we have to deal with it yeah and you know when the bond market breaks bad that's a global problem think back in in sort of 2000s and the dot-com bubble that was like a big issue for the stock market the stock market dropped nearly 50 from the peak to the trough but economically it was a bit of a nothing burger it was like a very short shallow recession when the bond market broke in 2008 that was a global cataclysm because the bond market kind of represents the cost of money even if you and i don't invest in bonds directly you know the cost of borrowing in the bond market it flows into absolutely everything else and that's why you know the bond market is steadier than the stock market it's designed to be steadier it's supposed to be more boring but when it is not boring uh it's usually very very bad news for everybody what do you make that of what's happening in the bond market now and i'll preface the rest of this question by saying it is it is not a crisis everything has been orderly so far but as we sit here you know the u.s 30 years at like 5.3 percent the 10 years bumping up against five it's been over it a couple of times in the last couple of weeks and and with 40 trillion dollars in debt now is paying a whole lot more uh for borrowing and that of course trickles down what do you make of the current situation well i think the two quite interesting facets to this that might seem contradictory but they're actually almost complementary and one thing is you know inflation is higher than we'd like and it's it's been heading high because of the war in iran and clearly that means that central banks have to raise interest rates and higher interest rates and higher inflation that's the nemesis of the bond market so that means that you know to lend to the u.s government certainly for 30 years it's going to be a lot of money and it's going to be a lot of people want to get paid a bit more but i do also think that you know some of this is just returning to a more normal world like low bond yields that we had after the financial crisis and after covid was actually a sign of economic malaise and i think maybe now we're just heading back to a slightly more normal environment that is actually good for everybody except very indebted governments and that is of course painful for the u.s government uh more than anybody else and given where we see that the budget deficit heading interest rates heading i think it's not unfair to worry a little bit about the u.s that trajectory really at the moment do you wish american fiscal policymakers would worry a little more perhaps i don't know i always return to saint augustine's prayer lord make me chase but not yet uh i mean i i think about that way when i'm dieting as well you know the best time to start a diet is always tomorrow right not today and i think for instance it's very naturally the same way i'm not as worried about the u.s debt situation as many people are just because i think the u.s does not tax that much it could actually relatively easily make its situation look a lot better i mean don't forget back in the late 90s people were genuinely worried about the u.s paying down all its debts and now obviously the war is completely different but servicing its debts costs the u.s around three and a half percent of gdp and that's not great not apocalyptic but but it is a trillion dollars a year man well the u.s economy is you know what 35 trillion dollars a year so so you know by taxing that a little bit more or spending a little bit less things would look quite different but i do think that it's worrisome that there seems to be zero inclination uh on either side of the political aisle to do anything whatsoever about this and so i'm not worried about where the u.s might be today or not i'm just worried about the u.s next year or even in five years but given the current trend lines uh it just look you know in 10 years time suddenly the u.s is going to be spending around five percent of its gross annual economic output on just servicing its government debts the trend lines are bad unambiguously i'm not going to sugarcoat that the uh the secretary of the treasury scott besant is doing what he can to try to um one might say control he would probably say uh in fact he has said you know bring it back to neutral or whatever it was equilibrium um And yet the bond market seems to be ignoring him. Yes. Well, the bond market. is not great at taking direction from finance ministers. And it's quite a change seeing Scott Besant, the Treasury Secretary, doing things that Scott Besant, the hedge fund manager, would find, I dare say, laughable. Increasing the buybacks, intervening in the Japanese yen. It's like trying to put out a raging inferno with a little water pistol. The buybacks, you could double it, quintuple. You could 10x the buybacks. And it wouldn't really matter to the Treasury market, where over a trillion dollars worth of securities trades every single day. And Besant is really only fiddling around at the edges. And by doing so, he actually draws attention to these issues, and I think actually makes them worse, not better. Let me take you, as we wrap this up, I want to take you to the end of the book and the story of, I think you call it, and it is the oldest performing buyback. in the world. Tell us that story, and more importantly, why it matters and why you decided to end this book with it. Well, I mean, I'm going to sound incredibly sad, but I actually attended the 400th birthday party of the world's oldest bond. It's written on goat skin. It used to be issued by Dutch Waterworks to build, to repair some dikes 400 years ago. The dike is still there in a bend of a river in the Netherlands. And the bond still pays interest, around 13 euros a year. So, you know, it's not much. It was gifted to the New York Stock Exchange as a symbol of friendship between Amsterdam and New York, because, you know, New York and New Amsterdam were founded in 1624 when this bond was born. Look, I know this is going to make me sound super geeky, but I thought it was exhilarating. I think it's a great story. Don't say it's that short. I think it's a cool story. Go ahead. Yeah, no, exactly. And look, for me, museum archivists talk about this world reified. Something that makes very old history seem relevant and real in a tangible sense. And this bond, for me, sums up how these bond instruments have shaped the world that we live in today in a million different ways throughout history, in ways that we don't always see. It's like the hidden wiring that connects the global economy then and now. For me, that was just very exciting being part of that birthday party. Although I have to admit, it wasn't nearly as well attended as I thought it would be. So, yeah, I think it's a great story. I would have liked it to be. And my wife thought I was a little bit weird for going there. Yeah, it's a good story. It's a good story. Robin Wigglesworth is at the Financial Times. He is also, more to the point, an author. His most recent book is called A Fabulous Debt, The Epic Story of How Bonds Built the Modern World. Robin, thanks a lot. I appreciate your time. Thanks for having me on, Kai. I really loved it. Thank you. Marketplaces, Caitlin Tan. How's that one? Noah Schutz's most recent run was in the mountains of western Wyoming. Which was about a 20-mile round trip. Schutz has been getting more serious about running in the past three years. He even started a running club this summer in his rural town of 2000. We just don't have a huge population center. And it's such a fun way to gather. Clubs like his are popping up all over the U.S. Gen Zers are all over that. John Seeley organizes a marathon in Champaign-Urbana, Illinois. These social running clubs are kind of an alternative to dating apps. Running clubs and runners in general are traveling to more 10Ks and half marathons. All races, including ours, are selling out sooner and with higher numbers. This year, 1.1 million runners entered a lottery to run the London Marathon. Only 59,000 got in. This is what you would call the third running. The first was in the 80s, then around the financial crisis, and now post-pandemic. Running does boom in periods of instability. Leigh Glandorf writes a sports fashion substack. She says this generation of runners dresses different. Instead of bright nylon track shorts, companies are making sleek streetwear. All black with a bandana and bug-eye Oakley sunglasses and then very chunky footwear. Like the legend. Legendary Olympic runner Florence Griffith-Joyner said, Dress good to look good, look good to feel good, and feel good to run fast. I'm Caitlin Tan for Marketplace. Coming up. I don't think we're at the limits yet of what hot chicken can do or be. Honestly, sky's the limit, I'd say. First, though, let's do the numbers. Down Industrials down 352 on the day. 7 tenths percent closed at 51,511. The NASDAQ down 308 points. 1 and 1 tenth percent, 26,936. The S&P 500 dropped 58 points, 3 quarters of 1 percent, 7706. McDonald's says it's planning to invest $8.5 billion to modernize its restaurants over the next decade. Investors were like, yeah. And shares of the company down 4 and 8 tenths. 1 percent on the day. Elsewhere in fast food, Jack in the Box shares added more than 4 tenths percent. Restaurant Brands International, that's parent company of Burger King and Popeyes, in case you didn't know, saw shares decline more than a third of 1 percent. Bonds down, yield on the 10-year T-note. The close was 5.11 percent. You're listening to Marketplace. This is Marketplace. I'm Kai Risdahl. Here's a question for the concert goers among you. How far is too far to travel to see your favorite artist? Because more and more, live music is about fans that are traveling to the artist instead of the other way around. Ben Cesario wrote about the rise of long-term music residencies in the New York Times. Ben, good to have you on. Welcome to the program. Thanks very much. I remember when, and I guess I'm going to date myself here, but I remember when Celine Dion did that big residency in Vegas. And since then, things have kind of exploded. What's going on? It's become kind of. It's kind of the new trend in the music industry of putting on sort of more shows in fewer places. Sometimes just, you know, staying in one place and having the fans come to you rather than touring all over the place. Well, so let's break it down to its component parts. What's in it for the artists? Obviously, they don't have to travel as much, right? They get to hang out and do big elaborate things and be in one place. Yeah, for the artists, I think it's easier. They're in one place. Sometimes it's more comfortable for them. For the tour production, it can be cheaper. They're saving money on the trucking and gas and some of the crew that they might use. But a lot of times, this money that they might have saved from doing that stuff, they sometimes put into the production to make it bigger and flashier and sort of, I guess, justify some of the higher prices that they're charging. Yeah. Speaking as a guy who has friends, actually, who went from L.A. to Vegas, not all that far. But it's still a schlep. To see BTS, fans will travel to see these shows. They will. That is something that the music industry has certainly noticed, is that I think basically starting with Coachella was really, even though that's not a residency, that's a festival. But they started noticing that people would travel significant distances, even when they didn't know necessarily who was going to be on the bill. And then, as you mentioned, Celine Dion. Also, Elton John. They started residencies in Vegas in the 2000s. And we saw people come from all over the world to be there for that. Are they paying more? The fans, they must be, right? I mean, you know, tickets are expensive. But I imagine these residencies make them more expensive? I mean, prices are high all over the place on the sort of more in-demand concerts. But I think for the residencies to be able to call the kind of special show. So, yes, you can charge a little bit more. Is this just an American thing or people setting up residencies in like Paris and, you know, Rio and stuff like that? There's a lot in London and in Paris. I'm not sure about Rio, to be honest. Well, fair enough. I mean, you know, I kind of picked that one out of nowhere. But, you know, European capitals are places people go, right? There's a lot in London. There's some in Paris. When Adele did her residency a few years ago, she did some in Vegas. And then she went to Munich. And then she went to Germany, where they built a venue just for her show and then tore it down when it was over. Wow. So one imagines this just continues, right? Because the face of music is changing. The way they make their money, these artists, and obviously the touring companies make their money, is now live performances, right? It certainly is. And I think right now it still has kind of the gimmick factor. It comes across as something new and it gets attention. And so I do think it's here to stay. Although when prices get higher. and higher, there's always kind of the worry, when will they get too high that fans will rebel and reject the prices. But so far, we have not really seen that. Believe me when I tell you in broader business and economic journalism, we're thinking about that too. When will consumers rebel? That's just a thing that's on our minds. Ben Cesario with the New York Times. Ben, thanks a lot. Thank you. We did a story 16 years ago about chicken. A chicken sandwich, more accurately, a Nashville spicy hot chicken sandwich specifically. And in the decade and a half since, said sandwich has gone global. From WPLN, Blake Farmer, who did that original story for us way back in the day, he's got the update. After high school, Chin Chin, who was the first person in the United States to have a chicken sandwich, moved off to Toronto. He patronized the one place serving his hometown specialty. They put a little bit of spicy seasoning on it and called it Nashville hot chicken. I was a little bit offended. I was like, this is not Nashville hot chicken. At the time, he was looking for business opportunities and didn't want to reinvent the wheel. So he started Chin Chin's Nashville hot chicken in Toronto, and it took off. This summer, he opened one here in Nashville, a city so saturated in hot chicken that people are putting their own spins on it. For Chin, it's Chin Chin. In his restaurant kitchen, he blends up a bit of the oil his chickens dipped in after frying. So this is a medium Szechuan spice, but it's infused with Asian and Nashville flavors. All right, here we go. I'm into that. Yeah, it has a lot of flavor, right? Sweet in the front, zing in the back. As many do, Chin pays his respects to the place credited with starting it all. Prince's Hot Chicken. Chicken Shack, which has been around since 1945. He went on his first pilgrimage as a teen. My buddy took me to Prince's. I ate the hottest chicken there. I was a spice fanatic at the time, so it definitely hurt me, but I loved it. Pain and pleasure. Connoisseurs will travel long distances for the experience. The chicken is so hot that people describe the feeling as almost a drug-induced high. Well, my mother has always said when I was growing up, if you have what the world wants, be the path to your door. And that has proven to be right. Andre Prince still helps run the family business, and customers now come from all over. Just Saturday, we had people there from Iceland, and I couldn't believe it. What's more incredible is how many have tried to take the dish back home. Bill Purcell is the former mayor of Nashville who launched the city's Hot Chicken Festival to promote and stake a municipal claim to the dish 20 years ago. I have been. I have been to Bangkok, Thailand, and I have eaten Nashville Hot Chicken at Foul Mouth, and it is very close. He also can vouch for a spot called Rock-A-Doodle in South Korea, with good reports from Australia, Singapore, and South Africa. He says it's embraced around the world because the dish is so unique and yet familiar to other cultures known for their spicy fare. The number of Nashville Hot Chicken restaurants worldwide is close to 2,400 by his count, though even the largest chain has fewer than 20 locations. The reality is that this decades-old flame has been fanned by a strong tailwind in the poultry business. Chicken chains of all kinds have been growing as appetites prioritize protein. Wingstop alone added nearly 400 locations last year. Compared to beef and pork, chicken's still a bargain. The value proposition is there. I also think it's a very versatile protein. Professor Jada Thompson said, At the University of Arkansas, which sits at the heart of the country's chicken farming business, the growth in fast-food chicken has made poultry one of the few agricultural sectors where farms are being added every year. As for Nashville Hot, Thompson says, it's got staying power. It's so hot, like I'm crying, there's tears, you know, there's snot, but then I also continue to eat it and I still talk about it. You can always order it mild, says Chen Chen. We just want to bring flavor. I mean, we'll just still kill you. If you want. That's something that every hot chicken entrepreneur takes pride in. If you're looking for an unforgettable experience, go for spice level five, poultry geist. In Nashville, I'm Blake Farmer for Marketplace. Marketplace.com This final note on the way out. Today, part of why what happened in the markets today happened. We got something called the S&P Global Flash U.S. Composite Purchasing Managers Index. Basically, it's a snap reading on business activity in this economy. And the upshot is that businesses are doing pretty well and feeling pretty good. New orders are up and employment is up. There are some hiccups, yes, supply chain snags and input prices, which is another way to say inflation. But traders looked at that data today, both stocks and bonds, and they said, well, I don't know. And figured the Fed is going to have to raise interest rates more than people had been thinking they would. Hence, the sell-off. Our media production team includes Brian Allison, John Fochie, Montana Johnson, Drew Johnstead, Gary O'Keefe and Charlton Thorpe. Alex Simpson is the manager of media production. And I'm Kai Risdahl. We will see you tomorrow, everybody. This is APM.