50-year mortgages, falling real wages, and doing your rideshare due diligence

0:01NPR.

0:11This is The Indicator from Planet Money. I'm Waylon Wong, here with Darian Woods. Hey, hey. Joining us today, the ramblin' Keith Romer. Ramblin' Keith Romer. I accept. I take it. You've ambled into our happy little studio today because, do you know what time it is, Keith? I believe that this is Indicator of the Week time, Waylon. It's Indicators of the Week. On today's show, we have some not-so-great news for people on low or middle incomes, which is most of us. We dig into a new proposal for 50-year mortgages. And how the Rideshare app in your pocket may be taking more money from you than you know.

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1:35When you do Apple card is ready when you need it. Subject to credit approval. Apple Card issued by Goldman Sachs Bank USA, Salt Lake City Branch. Terms and more at AppleCard.com. This message comes from Capital One with the Capital One Saver Card. Earn unlimited 3 % cash back on dining and entertainment. Capital One. What's in your wallet? Terms apply. Details at CapitalOne.com. It is Indicators of the Week. Darian Woods, you're a first. My Indicator of the Week is negative 2%. That's how much wages have fallen over the last year for low-income households once you account for inflation. This was shown in a Bank of America report this week.

2:17Yeah, not great news, right? No, we want our wages to be increasing. So when people talk about struggles with the cost of living, that's absolutely true for a lot of Americans. Even though inflation is at a relatively moderate 3%, if your bills and groceries are going up 3%, but your pay only goes up 1%, that is a problem. Uh-oh. Is this smelling a little like stagflation? It is not nearly as bad as stagflation in the past, but you could say it's a mini stagflation episode for these households. Stagnant wages, but inflation still elevated. And by the way, middle-income households were still falling behind, too.

2:55Their wages shrunk 1 % once you account for inflation. So we've got low-income earners down 2%, middle-income down 1%, both falling. But Darian, lots of other signs in the economy still look strong, right? The stock market's booming. Unemployment is relatively low. Consumer spending has been going up all year. This puzzle makes a little more sense when you look at the high-income earners. Their wages have been growing close to 1 % after inflation. That's not amazing growth, but it's still growth. And given that high-income earners account for so much of consumer spending, they're really masking the economic statistics right now.

3:33And given that high-income earners tend to own more stocks and you've got share prices scaling height after height this year, it's no wonder they're feeling pretty good about the economy and are happy to spend. And this whole phenomenon is known as a K-shaped economy. The letter K here, right? The lines for the wealthy are going up and up and up and the lines for the poor are going down and down and down. It's a reversal from the years around the pandemic when lower earners' incomes were actually growing the fastest. And so this probably explains why many surveys of how people feel about the economy are a little gloomy right now.

4:11A recent Harris poll showed that two-thirds of lower-income Americans were at least somewhat concerned about losing their job. All right. Thank you, Darian. Waylon, what do you have for us today? My indicator is 50, as in the 50-year mortgage, something that does not exist in the U.S. right now, but was a big topic of conversation this week. The source of the hubbub was social media posts from President Trump and the director of the Federal Housing Finance Agency, Bill Pulte. They basically floated the idea of a 50-year mortgage for homebuyers in the U.S. I guess this means it's time to pour one out for our uniquely American 30-year mortgage.

4:53Well, don't write the obit yet, Keith. The 30-year is probably sticking around because, honestly, this 50-year mortgage idea not exactly taking off. Economists and people from the housing industry did some quick math, and the numbers don't look good. Bottom line is a 50-year mortgage would have lower monthly payments than a 30-year one, but a borrower would end up paying a ton more interest during the life of a loan. Dare I ask how much more? Okay, so for this, we're going to turn to the AP, which did an analysis. And let's say you, Darian, buy a house for around$415 ,000. You put 10 % down, you borrow the rest.

5:32The average monthly rate for your mortgage, let's say it's 6.17%. Okay, I've accomplished the American dream. White picket fence and everything. The works. Okay. Now, the AP says that with a 30-year mortgage, you'll end up paying around$820 ,000 during that period. Now, with a 50-year mortgage, you are looking at total house payments of$1.2 million. All right. That's like$400 ,000 more. That's a whole extra house. I know. That is a whole extra house. And there are other issues with a 50-year mortgage. A homeowner would build equity much slower than with a 30-year mortgage. And also, the typical age of the first-time homebuyer in the U.S.

6:17is 40. So imagine paying off your loan when you're 90. Like, who wants that? We should say, right, the administration is already walking this back a little bit, right? Yeah, I looked at Bill Pulte's X account and it now has a pinned post that says we are actively evaluating portable mortgages. Portable mortgages. Sounds like material for another indicator of the week for a different time. We got to get to Keith's segment. All right, Darian, for this one, I need a little participation from the listeners. You here, can you please take your phone out? Yeah, I got it. I want you to open up your favorite rideshare app.

6:53You right now are at our bureau in Manhattan. Yep. Look to see how much it would cost you to get home to your apartment. A normal UberX, here we go,$72. Okay, so that's... $72? It's expensive, but it was really easy, right? And what I had you do, that is what most people who use one of these apps do. They open one app, they get a price, they wait for their car. But Darian, according to a new National Bureau of Economic Research working paper, that is a big mistake. Because, of course, there is more than one ride-sharing app, and those apps often have different prices for the exact same route. According to estimates in this paper by Jeffrey Fawcett, Michael Luca, and Yeji Ashu, New York City's Uber and Lyft users are spending$300 million a year more than they need to.

7:43Wow. If they just compared prices, took Lyft when it was cheaper, took Uber when it was cheaper,$300 million in total savings. You could take out so many 50-year mortgages with$300 million. And we're using New York as an example, but I'm assuming it's happening all over, right, that people are not comparison shopping? According to the paper, no, they do not. The authors found that of the people who opened one of Uber or Lyft on any given day, only about one in six even bothered to open the other app. I actually only use Lyft. I don't have the Uber app downloaded on my phone, so I am one of these people who would never comparison shop.

8:20Well, and in some instances, right, it makes sense not to comparison shop. Like, forget Uber and Lyft for a second. Like, if you're talking ice cream stands in your town and there's two of them, but they're 10 miles apart, right, you're not going to drive back and forth to make sure you're getting the best price on ice cream. And this is an example of what economists call a search friction, you know, time or lack of information or distance, anything that keeps you from making the best, most economic purchase. But this friction is incredibly minimal. They're literally right next to each other on my phone.

8:52Yeah, these apps are not 10 millimeters apart. Yeah, they're not 10 miles apart. They're 10 millimeters apart. So the search friction here is, I guess, laziness. Also, apparently people do less searching around on mobile devices compared to computers because the screens are smaller, so it's harder. You know this whole thing about how millennials and older folks don't like to do big purchases on their phones? Or they don't like to shop on their phones? I have a really hard time buying airline tickets on phones. I always want to be on a laptop. It just doesn't seem like a serious place to be doing serious purchases.

9:26Well, yeah. And also, the screens are smaller. So if you're comparing fares and stuff, I do find it very cumbersome to be on the phone to do that kind of stuff. You kind of have multiple tabs. We're just saying millennials and older people now? Is that insulting? Come on. As a member of the older people, I'm not sure how I feel. Gen X erasure yet again. You're the greatest generation to me, Keith. I need a bath. Okay, I'm going back to the paper. The paper, importantly, says this. For all members of all ages, if users would just comparison shop between Uber and Lyft, they would probably save themselves about 14 % a ride on average.

10:09So I'm going to open up Lyft. All right, that is$79.99. So Waylon, you would have been paying an$8 roughly Lyft premium if you were to just open up Lyft. Check both apps, folks. Check both apps. Keith, you've been a delightful addition, and you might have saved us all money. Thanks for having me. This episode was produced by Angel Carreiros with engineering by Jimmy Keely. It was fact-checked by Cooper Katz-McKim and Sierra Juarez. Kicking Cannon is our show's editor and The Indicator is a production of NPR. This message comes from the Council for Interior Design Qualification. Interior Designer and CIDQ President Siavash Madani discusses why certified professionals know that good design is more than just how something looks.

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