Home Values Are Starting To Erode as Weak Sales Continue. Beef and Coffee Prices Skyrocket.
After months of sluggish summer sales, the housing market is feeling the drag, pushing down underlying home values -- but also opening the door for would-be buyers this fall. Overall, grocery inflation has slowed down significantly since mid-2022, when prices were climbing at more than 13% annually, but beef and coffee prices are items that continue to climb. Broadcast Retirement Network's Jeffrey Snyder discusses these important market conditions with Real Estate expert Deidre Woollard and Texas A&M University's David Anderson, PhD.
Jeffrey H. Snyder, Broadcast Retirement Network
(0:04) This morning, home prices fall and consumer prices rise. (0:09) Joining me now to help break it all down is Deidre Woollard. (0:12) She's a real estate expert and Dr. David Anderson, an economist with Texas A&M University. (0:20) Deidre, David, great to see you. (0:21) Thanks for joining us on the program this morning.
Deidre Woollard, Real Estate Expert
(0:25) Happy to be here.
Jeffrey H. Snyder, Broadcast Retirement Network
(0:25) Well, it's great to be with you. (0:27) It's great. (0:28) And I was telling you in the virtual green room and just for the basis of the audience here, both of the things that you guys are experts in, real estate for Deidre and food and inflation and prices and cattle, beef for David, these are kitchen table issues.
(0:47) And I thought we could have a great discussion about that. (0:49) So that's the context there. (0:51) David, I want to start with you because we had some numbers out last week that U.S. consumer confidence declined in September and Americans feel pessimism about inflation and the job market. (1:04) When I think of inflation, David, I think of you, but most importantly, I think of food prices. (1:08) Why don't you give us your insight there?
David Anderson, PhD., Texas A&M University
(1:11) Sure, you know, food prices are something that we see all the time. (1:15) We're going to the store, we're going to restaurants. (1:17) And so, you know, in terms of consumer confidence, we certainly see higher prices.
(1:23) We've got record high prices for beef and particularly big jumps in the last two CPI reports. (1:32) And that's something we see. (1:34) And so, you know, I think that adds to a little bit of declining confidence, pessimism, whatever we're going to call that, just simply because we see higher prices.
(1:43) And we see it across a broad spectrum of food items. (1:47) I think beef is the one that's had such big jumps that that catches our attention.
Jeffrey H. Snyder, Broadcast Retirement Network
(1:52) Yeah, and Deidre, look, I mean, the price of beef, going out to the restaurant, that has an impact on people's budgets. (2:00) But let's talk a little bit about the housing market because we've seen mortgage rates kind of fixed, I'll call them fixed, but kind of flattened a little bit at 6.3% as of last Wednesday. (2:14) But all this pessimism or lack of confidence or confidence has an impact on the housing market as well.
Deidre Woollard, Real Estate Expert
(2:22) Oh yeah, absolutely. (2:23) So yeah, 6.3. It was a little lower about a year ago in October, but really it's been kind of in this six range for a while now. (2:34) So people are used to that, but it hasn't prompted anybody to feel like they're ready to enter the housing market.
(2:41) And at the same time, with prices going up, with the price of beef, with people deciding not to travel as much or not to go out as much, they're not necessarily putting that money toward saving to buy a house either. (2:53) That money is just going to keep them going in their lives. (2:58) So people feel like they can't save for a house right now.
Jeffrey H. Snyder, Broadcast Retirement Network
(3:02) And Deidre, just to kind of piggyback on your thoughts there, we had the Fed cut by I think a quarter point the federal funds rate. (3:12) That's not necessarily analogous to the mortgage rates, but has it been felt in the mortgage market? (3:19) Has that rate cut found its way into the mortgage market?
Deidre Woollard, Real Estate Expert
(3:23) A little, but not as much as people would like it to be. (3:27) And so the big question is what's the next cut? (3:30) Is it going to be another 25 basis points?
(3:33) Would it be 50 basis points? (3:35) You really need to get firmly below 6% to see some activity. (3:39) And then the next goal is of course 5%.
(3:42) But one thing that some people are looking at is potential for refinancing. (3:47) We know housing prices have gone up. (3:49) We know that there's a lot of home equity that people have that they're sitting on.
(3:54) A lot of companies are preparing for a refi boom as soon as interest rates get to a level where that might be attractive.
Jeffrey H. Snyder, Broadcast Retirement Network
(4:01) And David, let's talk about interest rates. (4:04) How does the federal funds rate or does it factor into food prices? (4:09) I'm thinking about capital expenditures for restaurants, supermarkets, big corporations, but does that cut that we saw last month factor in some way, shape or form to the food prices we're seeing or not?
David Anderson, PhD., Texas A&M University
(4:24) Well, I'd probably say sort of. (4:27) You know, the one rate that the Federal Reserve can do something directly with is that overnight rate, the federal funds rate that we talked about. (4:39) Yet interest rates for longer terms have a lot more to do with expectations of inflation.
(4:46) Because if I'm loaning money, you know, and we have inflation going on, I want a higher rate of interest because I'm going to make up for that. (4:55) And so it's these overall conditions in the overall economy then that really plays into what we get for interest rates for longer terms than that overnight rate. (5:08) So really, you know, I think inflation and inflationary expectations play a huge role in what we see for interest rates, whether it's longer duration mortgages or shorter term, maybe business type lending.
Jeffrey H. Snyder, Broadcast Retirement Network
(5:23) And David, I want to switch gears. (5:25) I'm sorry I'm jumping around, but you guys are too good not to be firing questions at you because there's a lot to ask here and unpack. (5:34) David, when it comes to the food market, let's talk about the impact of tariffs and also things like drought conditions and some of the weather conditions that we're seeing around not only here in the United States, but also abroad.
David Anderson, PhD., Texas A&M University
(5:50) You know, when it comes to food, agriculture, we're at the mercy of the weather. (5:55) Droughts, flooding in major production regions affects supplies, and then that affects prices. (6:01) And, you know, for many of the items that we consume regularly, you know, coffee's a great example.
(6:07) We produce very little. (6:09) We import practically all of our coffee. (6:11) Brazil is a huge producing country in the world, a huge exporter.
(6:16) And we've announced much higher tariffs on products from Brazil. (6:20) And so that translates into higher prices for coffee, kind of a basic necessity for a bunch of us. (6:27) You know, that's it.
(6:28) But the weather plays a role in that as well because we have droughts in Brazil that they have reported affecting production. (6:36) Same in other major exporting countries. (6:39) Think Vietnam, for instance, and other places.
(6:43) You know, think of so many fruits and vegetables that we consume, bananas. (6:46) We don't produce many bananas in the U.S. And so that's coming from other countries. (6:52) And so trade is an integral part of food consumption, of what we buy daily.
(6:59) Tariffs, in fact, on Brazil are important in another way when it comes to beef. (7:04) We do import beef. (7:05) Most of what we import is lean beef that's going into hamburgers and ground beef.
(7:11) And so as we put larger tariffs on, particularly Brazil, that we have imported more beef from in recent years, that works to put upward pressure on prices on one of those basic staples. (7:25) You know, we all like a good hamburger. (7:27) And, you know, that just adds to upward pressure.
Jeffrey H. Snyder, Broadcast Retirement Network
(7:31) Yeah. (7:32) So number one, check me off for coffee. (7:34) And I had a hamburger last week and it was absolutely delicious.
(7:37) I don't know where it was sourced from. (7:38) Could have been Brazil. (7:39) It could have been from the U.S., who knows. (7:42) Deidre, I want to talk to you about tariffs because they have an impact as well on home building and all the goods that go into your home, your faucets, your toilets, cabinetry, right?
Deidre Woollard, Real Estate Expert
(7:58) Well, absolutely. (7:59) I mean, recently we had President Trump talking about tariffs on the furniture business because, you know, a lot of our furniture used to be produced in North Carolina and that's now not as much the case. (8:12) But yeah, when you're talking about tariffs, you're talking about lumber, you're talking about electronics, you're talking about, like you said, faucets, that all connects.
(8:19) And also, you know, you mentioned, you guys were talking about the weather. (8:22) Weather is a factor too for home building because you consider the fact that a lot of insurance companies are leaving certain states, Texas, Florida, California, that's also impacting what home builders are doing. (8:36) We're seeing a lot less home building in Texas and Florida specifically.
(8:40) And some home builders are even laying off workers, which we haven't seen in a long time.
Jeffrey H. Snyder, Broadcast Retirement Network
(8:46) Yeah. (8:46) Deidre, I mean, we're seeing a weakening job market and I think that's part of some of the consumer confidence thoughts. (8:54) Deidre, as we close out this morning's conversation, what are you looking for long-term?
(8:59) And when I say long-term, let's say you and I don't speak for the next month. (9:03) I mean, we'll speak offline, but say we don't have you back. (9:06) What are you looking at in terms of the real estate market, the housing market?
Deidre Woollard, Real Estate Expert
(9:13) I'm looking for a little more activity. (9:16) October is called the best time to buy month because it's considered that there's still inventory on the market. (9:22) Maybe there aren't as many shoppers.
(9:24) So this is often considered the time to buy. (9:26) So I wanna see people out there buying. (9:29) I wanna see the inventory maybe go down a little bit, especially in some of the markets where it's too high, like parts of Florida.
(9:37) And so I really wanna see people feel confident enough to be looking at homes.
Jeffrey H. Snyder, Broadcast Retirement Network
(9:42) Yeah. (9:43) I mean, I think we all want, that's a sign of a, I think a healthy economy is to have a healthy home market. (9:50) David, same question to you.
(9:51) I know as an economist, you're probably gonna look at what the Fed does, but what are you thinking about, you know, this is a big stressor. (9:59) 50% of Americans report feeling a lot of stress about grocery and food prices. (10:04) What are you gonna be looking out in the next month before you and I speak?
David Anderson, PhD., Texas A&M University
(10:08) Well, I think one of the things I wanna look at is as we've talked about is beef prices because of how quickly they've come up over the last couple of months. (10:17) We expect tight beef supplies as well, keeping the pressure on for prices. (10:21) Yet seasonally, beef prices tend to decline overall from kind of mid-year into the fall.
(10:27) And so prices are gonna be higher than they were a year ago, but maybe we get a little relief from kind of the mid-summer type prices as we got past grilling season. (10:36) I think that's one big one I'll be looking for.
Jeffrey H. Snyder, Broadcast Retirement Network
(10:39) Yeah. (10:40) Well, you know, I think like most Americans, I think we're all feeling the strain, the stress, the climate, the volatility in the market, all that kind of plays into our thinking. (10:54) We'll have to pick up the conversation.
(10:57) I guess we'll have more data points as the year continues along the line. (11:01) David, Deidre, great to see you. (11:03) Thanks for joining us in the programming.
(11:05) Look, we look forward to having you back again next month.
Deidre Woollard, Real Estate Expert
(11:08) Great, thank you.
Jeffrey H. Snyder, Broadcast Retirement Network
(11:09) Thanks. (11:10) And this wraps up this morning's episode of BRN. (11:13) We're back again tomorrow for another edition.
(11:14) Until then, I'm Jeff Snyder. (11:16) Stay safe, keep on saving, and don't forget, roll with the changes. (11:21) Bye.