8:30 THIS MORNING WHEN THEY ARE
RELEASED.
JOINING US RIGHT NOW IS MARK
FLEMMING.
IT'S GREAT TO HAVE YOU THIS
MORNING.
>> THANK YOU.
MARIA: WE'RE TALKING ABOUT THE
ECONOMY BROADLY SPEAKING.
YOU SAID A LOT OF METRICS LOOK
GOOD.
HERE WE ARE LOOKING AT RETAIL
SALES UNDER PRESSURE, KOHL'S
STOCK DOWN 10%, A NUMBER OF
OTHERS CLOSING STORES, LIKE
DRESS BARN.
IS THERE A BUY PURCHASE CASE BIF
IS THERE A BUY PURCHASE CASE BIR
IS THERE A BUY PURCHASE CASE BIA
IS THERE A BUY PURCHASE CASE BII
IS THERE A BUY PURCHASE CASE BIN
IS THERE A BUY PURCHASE CASE BIG
IS THERE A BUY PURCHASE CASE BII
IS THERE A BUY PURCHASE CASE BIG
IS THERE A BUY PURCHASE CASE BIO
IS THERE A BUY PURCHASE CASE BIN
IN THE ECONOMY, IS THE CONSUMER
A WEAK SPOT?
>> I DON'T THINK SO, BROADLY
SPEAKING THE CONSUMER IS
CONSUMING AS MUCH AS THEY HAVE
BEFORE.
THE QUESTION IS HOW THEY CONSUME
IT.
I THINK THERE IS DEFINITELY IN
THE RETAIL SECTOR A SHIFT OF
WINNERS AND LOSERS IN TERMS OF
OUR CONSUMPTION PATTERNS.
THE AMAZONS OF THE WORLD ARE
TAKING MORE AND MORE CONSUMPTION
AWAY FROM THE TRADITIONAL BIG
BOX RETAILERS IN PARTICULAR.
MARIA: HOUSING, WE'RE WAITING
ON EXISTING HOME SALES, HOUSING,
WHAT DOES IT LOOK LIKE TO YOU
AND GIVE US YOUR ASSESSMENT OF
THE ECONOMY RIGHT NOW?
>> HOME SALES ARE UP.
PART OF THAT IS BECAUSE THE
ECONOMY'S STRONG AND MOST
SPECIFICALLY WITHIN THE ECONOMY,
GROWING WAGES WHICH MEANS MORE
HOUSEHOLD INCOME.
YOU GET THE RATE BENEFIT WHICH
IS AMAZING IN TERMS OF
PURCHASING POWER FOR HOUSING.
SO WE SEE A LOT OF DEMAND OUT
THERE BECAUSE RATES ARE LOW AND
INCOMES ARE UP.
>> TALK MORE ABOUT THAT.
MORTGAGE RATES HAVE COME DOWN,S
ESPECIALLY IN THE LAST COUPLE
MONTHS.
WE SAW EXISTING HOME SALES AND
NEW HOME SALES REALLY GET HIT
HARD IN THE FOURTH QUARTER AFTER
THE FED RAISED RATES FOR THE
FOURTH TIME THIS YEAR AND SINCE
THEN THEY'VE BEEN ON PAUSE.
WE'VE HAD A HICCUP IN THE MARKET
HERE AND RATES HAVE COME DOWN
WITH THIS TRADE TENSION.
ARE WE OUT OF THE WOODS IN THE
HOUSING MARKET, THE CONSUMER'S
FEELING GOOD?
>> MAYBE NOT OUT OF THE WOODS.
IN THE HOUSING MARKET, EXISTING
HOME SALES IS THE VAST MAJORITY
OF HOMES THAT COME TO MARKET FOR
SALES, THAT MEANS THERE'S A
CONSUMER ALREADY IN THE HOME
WITH A LOW MORTGAGE RATE.
WHEN RATES ROSE, THERE'S A RATE
LOCK-IN EFFECT.
IT WOULD COST ME MORE TO MOVE
AND SO WE SEE 10 YEAR RISING,
SAW PEOPLE STAYING PUT.
WHAT'S HAPPENING NOW THIS SPRING
IS BECAUSE RATES HAVE COME BACK
DOWN, ALMOST TO THOSE HISTORIC
LOWS, THAT RATE LOCK-IN EFFECT
IS NOT THERE.
SO PEOPLE ARE JUMPING IN AND
MOVING.
>> HOW IS NEW HOME CONSTRUCTION
COMING ALONG?
MY FAMILY'S IN THE REAL ESTATE
BUSINESS.
MY DAD USED TO SAY, IF YOU WANT
TO KNOW HOW THE ECONOMY'S DOING,
LOOK AT HOW MANY ROOF TOPS ARE
GOING UP.
>> WE ARE DEFINITELY
UNDER-BUILDING.
THE BIGGER, BROADER PROBLEM IN
THE HOUSING MARKET ISN'T WHAT'S
HAPPENING IN TERMS OF SALES
TODAY OR TOMORROW.
IT'S THAT RELATIVE TO THE NUMBER
OF HOUSEHOLDS OUT THERE, THAT'S
A SHORTAGE OF HOUSING IN THE
UNITED STATES.
WHICH MEANS FOR HOME BUILDERS
IT'S ULTIMATELY A GOOD THING.
HOW DO YOU INCREASE THE HOUSING
STOCK?
BY BUILDING MORE HOMES.
>> IN CALIFORNIA, POLLING HAS
SHOWN THE NUMBER ONE ISSUE IN
THE STATE IS COST OF HOUSING FOR
YOUNG FAMILIES.
EXISTING FAMILIES THAT HAVE BEEN
LONG-TIME CALIFORNIA RESIDENTS,
BOUGHT IN A LONG TIME AGO, KNOW
THEIR KIDS CANNOT BUY A HOME IN
CALIFORNIA AND SO THEY'RE
SEPARATING TO GO TO PLACES LIKE
ARIZONA, TEXAS, WHERE THE SAME
HOMES COST HALF THE PRICE.
>> AND WHERE IS THE BUILDING
HAPPENING, IN ARIZONA, TEXAS,
ATLANTA.
MARIA: ARE YOU EXPECTING
PRICING TO -- YOU THINK HOME
PRICES WILL GO UP?
>> ALL OF THIS DEMAND THAT'S
COMING INTO THE MARKET TODAY, A
RELATIVE HOUSING STOCK SHORTAGE,
I EXPECT IN THE NEXT COUPLE
MONTHS -- HOUSE PRICE INDICES
LAG SIGNIFICANTLY.
WHEN WE SEE THE MARCH AND APRIL
HOME PRICE INDICES, THEY MIGHT
SHOW AN INCREASE OR A
ACCELERATION IN GROWTH AGAIN.
DAGEN: ONE OF THE PROBLEMS IS
THAT PEOPLE ARE ASKING TOO MUCH
FOR THEIR HOMES.
BECAUSE OF WHERE INTEREST RATES
ARE AND INCOMES IN THIS COUNTRY,
HOME PRICES IN YOUR MAJOR
METROPOLITAN AREAS ARE
OVER-PRICED AND PEOPLE WHO HAVE
INVENTORY ON THE MARKET, ARE
TRYING TO SELL THEIR HOMES, ARE
LIVING IN, I DON'T KNOW, 2005
AND THEY THINK THAT -- THE
PRICES THEY'RE ASKING ARE
ABSURD.
IS THAT PART OF PROBLEM?
>> THE PRICE IS A FUNCTION OF
THE INTEREST RATE.
PRICES GO UP BECAUSE INTEREST
RATES GO DOWN.
MY MONTHLY COST OF BUYING THAT
MILLION DOLLAR HOME IS RELATIVE
RELATIVELY LOW.
WHEN WE LOOK AT REAL HOUSE
PRICES, HOUSING IS LESS
EXPENSIVE TODAY THAN IT WAS IN
THE YEAR 2000, 18 YEARS AGO.
NOT BECAUSE THE NOMINAL LEVEL
ISN'T HIGHER.
IT IS HIGHER.
BUT AN INTEREST RATE OF 4% MEANS
MY MONTHLY PAYMENT TO BE ABLE TO
BUY THAT HOME IS RELATIVELY LOW.
MARIA: I LOVE YOUR BULLISH
OUTLOOK ON THE ECONOMY.
WHAT ABOUT TRADE AND TARIFFS?
DO YOU THINK CUTS INTO GROWTH?
>> 75 YEARS OF ECONOMIC RESEARCH
SHOWS THAT HIGHER TARIFFS ARE
BAD FOR THE GLOBAL ECONOMY.
AND SO I THINK THAT DEFINITELY
IS SOMETHING THAT -- THE GLOBAL
GROWTH ESTIMATE HAS BEEN
REDUCED.
MARIA: I FEEL LIKE THERE'S A
"BUT" COMING.
>> IS THE HOUSING MARKET
RESILIENT ENOUGH TO HANDLE IT?
POSSIBLY.
DAGEN: THE GOVERNMENT TOOK AWAY
A HUGE TAX INCENTIVE FOR BUYING
A HARKS THAT'S ONE OF THE THINGS
-- WHETHER IT'S A REDUCTION, THE
LOWERING OF THE MORTGAGE
INTEREST RATE DEDUCTION AND THE
CAP ON SALT DEDUCTIONS.
>> WE HAVE A HARD TIME FINDING
EVIDENCE IN THE DAY A TAKE DATAM
EVIDENCE IN THE DAY A TAKE DATAA
EVIDENCE IN THE DAY A TAKE DATAI
EVIDENCE IN THE DAY A TAKE DATAG
EVIDENCE IN THE DAY A TAKE DATAD
EVIDENCE IN THE DAY A TAKE DATAT
EVIDENCE IN THE DAY A TAKE DATAA
EVIDENCE IN THE DAY A TAKE DATAM
EVIDENCE IN THE DAY A TAKE DATAA
EVIDENCE IN THE DAY A TAKE DATAI
EVIDENCE IN THE DAY A TAKE DATAG
EVIDENCE IN THE DAY A TAKE DATAU
EVIDENCE IN THE DAY A TAKE DATAL
IMPACT ON.
>>
THAT.>> THE NEW HOUSING GROWTH I
THAT.>> THE NEW HOUSING GROWTH S
THAT.>> THE NEW HOUSING GROWTH N
THAT.>> THE NEW HOUSING GROWTH T
ON THE COAST.
>> WE'RE TALKING ABOUT
6 MILLION-DOLLAR HOMES IN
GREENWICH OR NEWPORT BEACH.
MARIA: YOU THINK -- COULD WE
HAVE A 3% YEAR?
>> 3% FOR?
MARIA: 3% ECONOMIC GROWTH.
>> MAYBE.
[ LAUGHTER ]
>> MAYBE.
ECONOMISTS SAY ON ONE HAND AND