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Fri December 27, 2013
2013 A Good Year For Housing And Auto Industries
Originally published on Fri December 27, 2013 9:33 am
CELESTE HEADLEE, HOST:
This is TELL ME MORE from NPR news. I'm Celeste Headlee. Michel Martin is away. The year is wrapping up and it was, once again, dominated by talk about the economy, and while the economy is in recovery, it hasn't entirely recovered. Unemployment is still high, some indicators still lagging behind, but other segments are definitely on an upswing. In just a minute, we'll talk about the bullish housing market. But first, we're joined by NPR's Sonari Glinton, who says it was a rosy year for the automobile industry. Welcome back to the program, Sonari.
SONARI GLINTON, BYLINE: It's good to be here.
HEADLEE: When we say it was a good year for the automobile industry, do you mean the American auto industry or the industry as a whole?
GLINTON: The industry as a whole. I mean, I - one of the things I've learned reporting on cars is that making those distinctions is sort of weird when you have these global behemoths moving, you know, across continents. It wasn't as good for the Europeans, but the American automakers were definitely solidly good and - as well as the Japanese.
HEADLEE: You know, it hasn't been that like ago since we were talking about Chrysler going into bankruptcy, right? And GM being split up for parts, pardon the pun. And when the government bailed out the auto industry and the auto - American auto industry began to recover, there was a lot of questions about whether or not the recovery for the auto industry was sustainable. Is this your, kind of, proof that, in fact, this is a - has marked a real change in practices for the auto industry?
GLINTON: GM, especially, of the trade auto makers had, sort of, like a real gut check and a turn around. Just a few weeks ago, the government sold off its share in GM. GM got a new CEO. It is, sort of, restructured and rethought about itself, and it is definitely the leading American auto company. GM has had a resurrection in a way that we wouldn't have thought possible at the depths of the recession.
HEADLEE: Many people are pointing to this new CEO who happens to be a female - the first female CEO of a major American auto company - as a sign of that. Or is that all hype? Is this a true indication of change of attitude?
GLINTON: This is an industry where more than 50 percent of its consumers are women. More than 75 percent of the purchase decisions are women. It makes little sense that none of the top three CEOs were female or even in the running until now, and that's a real - this is a real important thing, not necessarily to what kind of cars you drive, but who goes into the industry, who stays in the industry and what they think about their possibilities for advancement.
What's interesting about Mary Barra, who's the new CEO of GM, is that of the three Detroit companies, she's the only real car person. She started out when she was 18 years old in an auto plant, and she has stayed with GM for more than 30 years. I mean, that is - she's really, really an auto executive to her core and that is going to make a difference in the products, in how the company is run. A lot hinges on her knowledge of the auto industry, which is not paralleled with any of her rivals.
HEADLEE: Well, let's talk about knowledge of the auto industry, and specifically, knowledge of auto consumers because one of the big criticisms back when the auto companies - well, Chrysler and GM, at least - were looking for a bailout was that they were simply making cars that Americans didn't want to buy. Remember that? Has that changed?
GLINTON: This year, the industry is going to pump out about 15.6 million automobiles. They used to do a lot more than that, but the real desire has only been about 15 or so. Demand and production are more level with each other, and that's a real important thing for the industry to sort of - to get in control of. The cars are more profitable. The companies themselves are more profitable, all because they woke up and found this ridiculous thing - hey, give the consumers what they want and they will buy it.
HEADLEE: That's not the only way that they become more profitable, though. I mean, one of the ways - the auto industry was a major builder of the American middle class, right? And now those jobs are not as well-paying as they used to be in the past. So has the worker come out as a bit of a loser in this?
GLINTON: Some of the workers make less because of a two-tiered system in which, you know, you can make almost twice as much if you are, sort of, senior employee than an entry level employee. And the auto makers demanded that from the union and the union conceded with the idea that at least these jobs stay in the U.S. I mean, each country is competing with each other, not just on selling cars, but where they get made. Right now, all the automakers in the U.S. are working at full capacity. They win, in part, by getting profit-sharing, and so these profitable cars translate into more dollars in the pockets of the average assembly line worker.
And that sort of makes up for the difference between those two. So, I mean, a healthy auto industry is good for the workers as well as the communities that they're in. We're going to see how these wages, sort of, play out in the next contracts, which are, you know, four years down the road.
HEADLEE: It sounds like what you're saying is these are real substantial changes that the auto companies have made in terms of their culture and their business practices. So does that mean the forecast for 2014 is as good as what we've seen in 2013?
GLINTON: Yeah, it's going to get better. Also, interest rates are low and so people can get a car. Lease rates are low so you can, you know - almost all of the major cars you can get, you know, in the $200 range for a lease. So there is, you know, right now all the estimates say that we're going to get 16 million or so cars next year, and it's going to increase. At some point, there's going to be a plateau, but we don't know exactly when that is.
HEADLEE: It looks like it will be a happy new year for the auto industry, at least. Sonari Glinton covers the auto industry for NPR and he joined us from our bureau in Culver City, California. Sonari, thanks so much.
GLINTON: You're welcome.
HEADLEE: Housing is another area that had some strong numbers in 2013 after years of bad news. NPR senior business editor Marilyn Geewax is with us now to talk about it. Welcome back, Marilyn.
MARILYN GEEWAX, BYLINE: Hi. Good to be with you again.
HEADLEE: So let's talk about some of these strong, happy numbers, right? How about sales of new homes that went way up in 2013?
GEEWAX: Yeah, this was really a bright spot. They're up nearly 17 percent from the same time a year ago. It just seems like people got tired of renting or maybe just living in a house that was too small for their families. So a lot of people decided that 2013 was the year to move into a new home. They stopped procrastinating, worried a little bit that interest rates might go up later and they found that inventories were pretty lean.
Builders had been restrained, really, by their bankers earlier in the year. People weren't so sure the housing market was going to be that strong. So there was a tight inventory supply towards the end of the year, and that helped send prices higher. So the median price for a new home in November was $270,000 or so. That's pretty high. Really, that's getting back to - after you adjust for inflation, that's back to where it was in about 2007. So really, we're starting to see in the new home market, it was really a strong year for builders.
HEADLEE: Does that mean also that existing home sales went up?
GEEWAX: Yes. There were also - you know, most people do buy existing homes.
GEEWAX: They're not looking for new homes. So in that market, more than 5 million existing homes were sold and that was the best year in seven years. So that's pretty good. And with those higher prices, it also helped the people who are underwater, as they say. That's when you have a mortgage that's worth more than your home.
HEADLEE: You owe more than your home is worth.
GEEWAX: Right. So that business of being underwater kept a lot of people from being able to move. Well, if prices go up, and now you can sell your house, pay off your mortgage, it starts to make the market more normal. You can start to move around again. And that's the kind of thing that economists really look for in the market.
HEADLEE: Well, since we're talking about economists and looking at years back, I mean, I'm sure you're aware of these big arguments over what caused the recession. And there was a pretty good case to be made that it was the housing bubble, the inflation of housing prices, followed by a collapse of that bubble. Is there enough space now for us to be able to look back and definitively answer whether that was the cause of the recession?
GEEWAX: This housing bubble clearly was a big problem for the whole world. I mean, these mortgage securities that fell apart - there's people couldn't pay their mortgages, and it's taking a long time to heal. So finally, you're getting into a situation where the market is not back to gangbusters. It's not great. It's not fantastic, but it's more normal. It's starting to seem like a more normal housing market again - and after going through the trauma that we've been through, really starting in as early as 2006. You know, we're going into 2014. That is a long haul.
GEEWAX: That's a big, long stretch of a bad housing market. So these signs of returning to a more normal situation, they're very encouraging, really.
HEADLEE: And when you say normal, you don't mean back to the bubble prices.
GEEWAX: Right. Just more back to the days when a house is something that you could kind of buy and keep the rain off of you. And it's a place to raise your family and to - you can just sort of live somewhat comfortably in a home.
HEADLEE: You buy a house to live in it.
GEEWAX: Yeah, right. And then, you know, over time it slowly appreciates along with inflation. And just to get back to that kind of a housing market has been a tough, long battle.
HEADLEE: So looking forward to 2014, does it look like 2013 has been a kind of steady rise, or are we going to have more up and downs next year?
GEEWAX: It's always hard to predict these things but, generally speaking, housing is tied to the job market. If jobs continue to be good, then people will want to buy homes because they'll want to move to take a better job or whatever. But, you know, interest rates are an issue here. We've seen them go up now. They're still at about four and a half percent. By historical levels, that's very low. A few years ago, we would've thought that was fantastic.
But they're up from where they were. A year ago, interest rates for 30-year conventional fixed mortgages - it was more like three and a half percent. So some people are worried that as it keeps going, it's likely to get more like 5 percent in 2014. And that could affect affordability along with these rising prices. So some people may find that they're starting to get to a situation where they won't be able to afford a home, but that could also just cause a rush of buying in the spring. Maybe everybody will hurry up and make a decision and, you know, so maybe it will really make it a very strong year for housing.
HEADLEE: So if we broaden it out a little further to the wider economy, if the housing - the collapse of the housing bubble helped lead to the recession, are we now really pulling out of the recession? Is this one indicator that the economy is truly recovering?
GEEWAX: It is very hard to have a good economy without a reasonably normal housing market because housing spins off so many jobs, especially in construction. We've been running, in 2013, about 15,000 new construction jobs every month. In November, that was up to 17,000. And construction jobs tend to pay pretty well, better than, you know, a retail job for most people. So it's good to see those jobs coming back. It sort of builds on itself. The more people who get hired, the more the economy strengthens. That means even more people can buy homes. It creates a virtuous cycle that starts to rebuild the economy in a more sound way. So you can never accurately, 100 percent, predict the future but in general, it's looking like 2014 ought to be a fairly good year.
HEADLEE: Marilyn Geewax. That's about as rose-colored glasses as you're going to get from Marilyn. She's a senior business editor for NPR. She joined me here in our D.C. studios. Thanks a lot, Marilyn.
GEEWAX: Oh, you're welcome. Transcript provided by NPR, Copyright NPR.