Fed Minutes Show Several Officials Nod to Rate-Hike Scenario

23:07Carol Massar:We saw that in 2012. We saw that, you know, when we had a regional banking stress in 2023. So the Fed is obligated to, you know, help financial markets operate. I mean, it's their third mandate. They even call it that. So that to me is where the Fed independence has been challenged for the better part of two decades. And I think that's going to continue. I think the Fed and Treasury are going to work closer together, similar to the World War II period. And that's a good thing because that means they're going to figure it out. All right. Well, we all want you back here. So feel free to stop by our studio anytime.

23:44Carol Massar:Mike Wilson, Chief U.S. Equity Strategist, Chief Investment Officer over at Morgan Stanley, and of course, our Alex Seminova. This is the Bloomberg Business Week Daily Podcast. Listen live each weekday starting at 2 p.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say, Alexa, play Bloomberg 1130. So U.S. Treasury yields, we did see move up today earlier on some strong economic data, including reports on housing. New residential construction in the U.S. rose to a five-month high in the month of December.

24:21Carol Massar:That, as home builders boosted production to take advantage of lower borrowing costs that were out there. The advance, we should point out, was broad-based, both single-family home starts and apartment projects rising at years. And the number of one-family homes started was, Tim, the highest since the month of February. The stronger construction numbers suggest that builders were growing more confident at year's end, even as they continue to sell off a bloated inventory of new houses. For the full year, though, starts notched a fourth straight annual decline. For more on the U.S. housing market, we're joined by Kamini Lane, president and CEO of Coldwell Bank or Realty.

24:54It's got nearly 49 ,000 affiliated real estate agents doing business in more than 55 markets across the United States. She joins us from Los Angeles. It's good to have you on the program. The spring buying season is about to get underway. You have agents all over the country who are giving you real-time feedback about what things are looking. This is not a monolithic market. I hear that location, location, location is everything. What can you tell us about the state of the real estate industry in the U.S.? Yeah, you know, we have seen some really good indicators at the end of last year, both in terms of housing starts and in terms of new construction.

25:30And, you know, inventory really is sort of the issue to tackle in the housing market right now. We know that, you know, more than 85 percent of people believe that home ownership is central to the American dream. So that aspiration has not gone away. However, we need inventory. We need inventory to get people into those homes. So, you know, it is location, location, location, but it really is inventory, inventory, inventory. And we see sort of mixed inventory across the country. And if you look at sort of the Midwest and the Northeast, we still have really tight inventory. whereas in other markets, we do see loosening of inventory, which is causing more price stability.

26:10Is there anything that gets inventory to increase without actually just building more homes? Would lower mortgage rates increase inventory? Absolutely. I think, you know, we've talked a lot about that lock-in effect that started occurring because of the historically low interest rates, you know, around post-COVID era, where we saw sellers that were really locked into their homes because they didn't want to give up that three or four percent interest rates. So with the loosening of that lock in lock in effect, we're going to see sellers who are more willing to put their homes on the market, who are a little bit more realistic about prices.

26:43Right. Because we're not seeing the double digit year over year price increases that we saw kind of four or five years ago. And so when we get more sellers to release that lock in effect, when we get sellers to get realistic about pricing, that's really going to be the other factor in addition, obviously, to new building that gets more inventory on the market.

27:03Carol Massar:Company that lock in effect where people, you know, have a low rate and they don't want to move. Is it is it everybody or is it largely an older population who maybe retired around COVID or made some decisions? And, you know, it's just more to do with demographics than people who locked in lower rates. Or is it a little bit of both? It's you know, it's everybody. I mean, who doesn't love, you know, a three percent interest rate. Right. But I think that what folks are starting to realize is that those were historical lows for a reason and now now we are you know mortgage rates are about six percent hundred basis points lower than last year and very much in line with u.s historical averages so i think this idea of just holding on to an interest rate is starting to loosen across all demographics and people are realizing that there are other reasons to move now you couple that with the increase in home equity and the increase in wage earning over the last couple of years.

28:00And folks are really loosening the fact, loosening to the idea that that low interest rate is the only thing holding them in their home. They're starting to realize that if they do put their home on the market, they can take advantage of some of those equity gains from price increases, you know, and just be more realistic about what rates are in line with historical averages.

28:20Carol Massar:You mentioned earlier that I think there's tighter inventory in the Northeast, other areas are looser. Walk us around the country and what you're seeing and be more specific in terms of markets. Yeah, sure. So, you know, Texas is one market, Austin in particular, where we are seeing year over year price decreases because we've got a lot of inventory there. Florida actually has more inventory this time this year than it did last year, which is sort of an interesting and unexpected dynamic. And, you know, one market that I think is fascinating right now is the city of San Francisco. We saw year over year price declines around the COVID era in the city of San Francisco.

28:57And now because of the AI boom, we're seeing really strong price increases in the city of San Francisco, both in terms of rent and in terms of single family homes. And I think that that's going to continue to increase. So price increases in that city, but not a lot of inventory. I live in Los Angeles and we're actually seeing sort of a steadying of the market in Los Angeles. We had historical highs in terms of year-over-year price increases a few years ago. Now we see prices are really studying out in Los Angeles and supply and demand are starting to even out a little bit. In Los Angeles, did the devastating fires last year affect the way that people think about living in an environment such as that?

29:38Los Angeles is always going to be a really attractive city. Just the combination of the weather, the proximity to the beach, the ocean, you know, mountains, the entertainment industry, the fires certainly had a devastating effect on specific communities. But we actually saw particularly in the high end, that that demand that was in the Palisades and Malibu communities that were devastated by the fires transferred almost one to one into neighboring communities like Beverly Hills, Bel Air, Santa Monica, Brentwood. And so I don't think that the demand to live in Los Angeles has changed at all because of the fires.

30:16We're just seeing a sort of a rebalancing in where folks have moved. You know, I'm curious to what sellers are having to do.

30:27Carol Massar:So is it more of a seller's market or buyer's market? Or again, depends on the market. And I am curious about when it's new versus previously owned homes, what you're seeing. And I bring that up because Toll Brothers reported after the close yesterday, our own in-house intelligence team writing the post-first quarter earnings outlook. First quarter orders were flat, 5 % below consensus. It did keep its full-year guidance when it comes to deliveries. Management saying January's gotten off to a promising start with most customer metrics modestly higher than last year. They'll caution that it's still early in the spring season.

31:04Carol Massar:I mean, the spring season is an important one, and I am curious if sellers, particularly new homes, are having to incent buyers throwing in different things to get sales going? Or is that not the case? You know, so, you know, for new constructions, for new construction, incentives have not actually changed. And so we're not seeing, you know, major shift in the sort of buyer's market or seller's market dynamic with regards to new construction. But to your point, you know, whether it's a buyer's market or seller's market really does differ around the country. And it really is just dictated by inventory, because the macroeconomic factors around the country are steady, right, in terms of wage increases, in terms of mortgage rates.

31:44And so it really is dependent on inventory. So when you look at a market like New England, for example, where we still have very, very tight inventory, you know, that's going to dictate that sellers have a little bit more power than buyers do. However, in a market like Texas, and, you know, Texas is very broad, but I'll talk to Austin in particular, we've got a lot of inventory in Austin. And so prices are down year over year, about 6%. So that indicates that it's more of a buyer's market where buyers have a little bit more power at that negotiating table. So, you know, again, inventory really is the thing that's dictating market dynamics across the country.

32:21And it very much is region specific. You know, I'm wondering about compensation for the agents that you have, that you oversee. And, you know, if we think about the industry, this is one where they're essentially private contractors, right? They're not employed by you. They work for themselves. They eat what they kill. The commissions have been under scrutiny for quite a bit of time. There was the big settlement in recent years. What are commissions looking like in different markets? And is there pressure on commissions as a result of that? Yeah, great question. So at Coldwell Banker Realty, we have about 49 ,000 affiliated agents, all independent contractors.

33:01And what we're actually seeing is that on the list side, commissions have gone up a little bit. And I think that is because after the massive conversation and the news cycle around commissions, our agents got better at talking about the value that they provide. So at that kitchen table, when you're negotiating with an agent to decide who is going to list your home, which, you know, by the way, the vast majority of Americans have the vast majority of their wealth tied up in the equity of their home. So that is an incredibly important decision, who is going to help you with the most important financial transaction of your life, those agents are better able to articulate their value.

33:43And consumers are recognizing that, and they're willing to pay for it. And that is what the commission is. It's compensation for the incredible value that the real estate professional is providing. So contrary to what a lot of people assume, we actually have not seen commissions decline in the last year or so. They're actually going up. And I think it really is because of that value that the real estate professional is providing, particularly at a firm like Coldwell Bank or Realty.

34:09Carol Massar:Kamini, one thing we have to ask you about is AI, the impact. Fortune has a story out from Zillow, citing Zillow's CTO, chief technology officer. And he is saying that AI is reinventing every step of the home buying process, making it easier for shoppers to search for a home and complete a transaction. And we've recently seen the AI scare trade impact some of the residential or not residential, but real estate servicing companies. AI in your world just got about 40 seconds left here. How is it impacting it so far? And how might it? Yeah, I think artificial intelligence is an amazing tool to help our real estate professionals use their time more effectively and efficiently.

34:48At the end of the day, real estate really is about relationships. It's the most personal transaction that most people are ever going to encounter in their lives. And so that really does require a human at the center. However, AI can make that human more powerful, use their time more efficiently, use data more efficiently and be more effective in that transaction.

35:09Carol Massar:So real quickly, it's an aid. It's not going to wipe out what you guys do or your agents do. No, it is an aid. It is an empowerment tool. But real estate is fundamentally human. All right. Going to leave it there. Kamen Elaine, thank you so much. President and CEO of Coldwell Banker Realty joining us. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

35:35Hello, hello. I'm Malcolm Gladwell, host of the podcast Smart Talks with IBM. I recently sat down with IBM's chairman and CEO, Arvind Krishna, and I asked him, how can companies use AI to its fullest potential to create smarter business? My one advice to them, pick areas you can scale. Don't pick the shiny little toys on the side. For example? If anybody has more than 10 % of what they had for customer service 10 years ago, they're already five years behind. If anybody is not using AI to make their developers who write software 30 % more productive today with the goal of being 70 % more productive.

36:23Carol Massar:Yeah. So we are not asking our clients to be the first experiment on it. We say, you can leverage what we did. We are happy to bring out all our learnings, including what needs to change in the process, because the biggest change is not technology. It's getting people to accept that there's a different way to do things. To listen to the full conversation, visit ibm.com slash smarttalks. Thank you. and unlock the best available rates when you book direct with Sinesta Travel Pass. Here today, roam tomorrow. Join now at Sinesta.com. Terms and conditions apply. If you follow markets, you know the value of long-term thinking.

37:32Carol Massar:You plan, you diversify, you prepare for volatility. But even the best strategies can't prevent every bad day. For more than 75 years, Cincinnati Insurance has helped individuals and businesses navigate tough moments with expertise, personal attention, and independent agents who focus on relationships, not transactions. The Cincinnati insurance companies. Let them make your bad day better. Find an agent at CINFIN.com. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube.

38:17Carol Massar:There's another thing we've been keeping track of. It happened out on the West Coast. It involved one of the largest market cap companies out there and a major player in social media. You're talking about Meta. Yeah, Mark Zuckerberg testifying that it's, quote, very difficult to enforce Instagram's age limits. He sought to defend the platform during a landmark trial over social media addiction. He was sharply questioned on the witness stand today about whether he and other leaders are aware of the volume of children under age 13 who use the photo sharing app. Kurt Wagner is senior technology reporter.

38:48He covers social media. He's also the author of Battle for the Bird, Jack Dorsey, Elon Musk and the$44 billion fight for Twitter. So he joins us from Denver. Kurt, there's so many directions we want to go here. I mean, there are some out there who are comparing this to what happened with tobacco company executives on the stand. And, you know, when we were kids and the way that that changed the public health view of cigarettes and the way that that has looked back on historically, what's at stake here? Yeah, I mean, this is, to your point, sort of in the same general vein as those cigarette tobacco industry trials, opioid industry trials.

39:29This is a question of whether these social networks specifically are built with the intention of addicting users, particularly addicting young people, teenagers, to their products. And so this is a real signature moment, I would say, for this industry to kind of be challenged with these allegations and, in Mark Zuckerberg's case, to defend himself and his company against these accusations. And so it's been highly watched, highly anticipated. And this is just really the first of more than a thousand potential trials that we could see. There's thousands of lawsuits in the same vein. And so we're paying particularly close attention to this one because the outcome of this could sort of signal what we might see from from a lot of these other lawsuits that have yet to be tried.

40:18How do you differentiate or how does a judge or how do lawyers differentiate on whether something is addictive, meant to be addictive to kids or just it's addictive in nature? So it doesn't matter if the person who's using it is 12 years old or 25 years old. Yeah, I mean, this is why it's such a challenging question. I don't know is the short answer to the answer to this, but I can tell you that what plaintiff's lawyers were doing this morning with Mark Zuckerberg on the stand was they were trying to show two things. The first was they were challenging him over Meta's enforcement of its age restrictions, basically saying, you know, are you actually enforcing this idea that that those under 13 should not be on the platform?

41:04And if so, are you doing everything possible to to actually do that? And I feel like that's really been maybe the main argument that's been happening is that they haven't really enforced their own policies on that. Mark Zuckerberg has admitted, hey, this is a difficult thing for us to do. And you may recall, this actually ties into a broader tech industry discussion we've had over the last couple of years where Meta has said, hey, this should be the job of the app stores. This should be an Apple and Google thing. And Apple and Google are saying, no, no, no, no, no. This is your responsibility, Meta.

41:34You know, you have to determine how old the users are on your platform. And so this sort of plays into a discussion we've really heard more broadly across the industry for the last couple of years.

41:44Carol Massar:What's so fascinating, Kurt, it's happening on a day when we've talked about CBS and what's happened on Stephen Colbert's show in terms of one specific Texas politician who is running for now a federal state, federal Senate seat. But I mean, just the rules and oversight. And it's just fascinating that when traditional airwaves came out, there was oversight. There was rules about what could be on air. And now most of us are getting information from social media. It's not your linear broadcast and so on. So you do wonder, like, when does the oversight come from all of this? And as you write in your story, I mean, this is one case.

42:30Carol Massar:You have 3 ,000 cases brought by children, adolescents, and young adults through their parents. You've got school districts. You've got, I mean, so much going on. It's not. So how important is this first case? Because it sounds like there's a lot more legal overhang from Metta and others. I think it's really important. I mean, we had some time with Meta's lawyers a few weeks ago, their legal team. And what they told us was, you know, each case is different. Each trial is different. Each jury is different. So getting a verdict in their favor one way or the other on this first case, you know, isn't a huge deal.

43:09But I think for those watching on the outside, I mean, this is going to signal, do these cases have merit? Do these cases have legs? Certainly it's going to be hard for lawyers in the other cases not to look here and say, OK, what worked and what didn't work in terms of arguments and lines of questioning. So I think it's very important. It could also be the kind of thing, you know, if Meta loses a case early on, you know, do they choose to start to settle some of these cases down the line to avoid having to go through the actual jury process every time? And so I think this is important. It certainly will signal or set sort of the expectation for things to come, even though it is true.

43:47I think that each each case will have its own nuances and details to flush out. So this will kind of serve as a bellwether.

43:56Carol Massar:Listen, this is not a U.S. issue, as you well known, Kurt. It's a global issue. And I'm looking at a story that was on the Bloomberg yesterday into discuss India discussing age based social media curbs, according to one of its ministers. You've got countries, right, Tim, around the world that are taking steps to crack down on use. Australia, the first country to implement a legal ban, which included Meta, Meta's Instagram and Facebook, Snap, Elon Musk's ex TikTok and Google's YouTube, Ireland. Like, you know, it is going across Europe. So, like, we are seeing so many different things go on. Yeah.

44:34Kerr, what do public health officials, not just in the US, but in public health observers say about these platforms in general and kids? Well, I mean, there's been research for years that these platforms can be very divisive. You know, it's easy to for misinformation, for example, to run rampant on these platforms. We've all certainly witnessed that. I think it was in the U.S. where they wanted to apply sort of similar warnings that you would get on cigarettes, right? Like smoking labels, essentially, but for social media. And so there's been a lot of talk about this. I think what's interesting about these bans or these restrictions for teens is that they are, you know, everyone's watching Australia.

45:22you mentioned india there's other several other countries in europe that are considering similar restrictions but there's also states in the u.s that are trying to get this done as well to try and sort of limit social media use for teens and it'll be interesting to see if like there's a snowball effect at some point right because right now it's limited it's a lot of chatter but you know a year from now two years from now are we going to look up and say hey this is now the norm right that those under 16 just can't use social media and i think that's that's certainly possible

45:50Carol Massar:I mean, it's wild. I mean, Ireland, right home to kind of the EU tech hub, it's considering plans to introduce age restrictions on social media platforms as as part of a broader AI strategy. And they've talked about this. Do you feel like, Kurt, you follow this world that we are getting to a moment of reckoning when it comes to social media? There's a great story by Max Chafkin about dumb phones, dumb phones, you know, rather than every parent in the newsroom. We were talking about this today. We were all like, yeah, like, what is the solution for our kids? Like, like parents are stepping in because they just don't want this.

46:25Carol Massar:So are we at a at maybe a turning point or I don't know, like, what do you what do you think? We've just got about 30 seconds here. Yeah, I can say I can tell you that it's a massive theme that we're following on our sort of social media pod here at Bloomberg. Yeah, because it's not just this trial in L.A. We mentioned the thousands of others. There's state AGs that are suing, school districts that are suing. Like, this is not a storyline that's going to go away. And I think the ban or the restrictions, excuse me, in Australia and potentially in Europe are just adding to that. So certainly can't remember a time when it's been talked about this much before.

46:58Carol Massar:Great stuff, as always. Kurt Wagner, thank you so much. Senior technology reporter, cover social media. Check out his book, Battle for the Bird. This is the Bloomberg Businessweek Daily Podcast. available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

47:39millions of claims are denied. Not because people did anything wrong, but because their policies quietly excluded what happened. Insurers know every detail. Policyholders rarely do. That's why My Policy Advocate exists. For just 27 cents a day, their platform reads your policies and explains where you are vulnerable. They don't sell insurance, they deliver transparency. Before you trust your policy to protect you, let My Policy Advocate tell you what it really says. Go to MyPolicyAdvocate.com.

48:11With Bali from iShares, you get access to both monthly income and growth potential in one simple ETF. It's the best of both worlds. Discover Bali, iShares large cap premium income active ETF. iShares, the market is yours. Visit www.iShares.com to view perspectives for investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing. Risks include principal loss and the use of derivatives, which could increase risks and volatility. Monthly income is not guaranteed. Prepare by BlackRock Investments, LLC. Deadlines shift, plans change, and sometimes you just need promo products fast.

48:42Turn to 4imprint. 4imprint has hundreds of promotional items available with 24-hour turnaround. From custom apparel and drinkware to trade show gear, writing tools, and more. And their 360-degree guarantee promises your logo will be printed with care. Your order ships fast, and it'll show up right and on time. That's the certainty of 4imprint. Check out the full 24-hour selection at 4imprint.com. For imprint. For certain.