Inflation Comes for the Housing Market

Housing gloom

The higher-for-longer inflation predicament has hit the U.S. housing market like a thunderbolt. Home prices and mortgage rates are climbing again, dashing hopes that financing costs would fall this year and adding another economic question that could hang over the presidential election campaign.

More economists are paring their bets that the Fed will cut rates after the latest Consumer Price Index report. On Thursday, Goldman Sachs forecast two rate cuts (instead of three) this year; Bank of America and Deutsche Bank shifted from two cuts to one. They all argue that sticky inflation will force the Fed to keep borrowing costs higher for longer.

That would leave open the possibility that the Fed’s prime lending rates stays at, or close to, 5.5 percent, the highest in decades, through the spring and summer house-buying season. “March inflation figures were very bad, which also means bad news for interest rates,” Lawrence Yun, an economist at the National Association of Realtors, said after the C.P.I. report.

Housing volatility typifies the paradoxical U.S. economy. The country is growing faster than many peers, but voters are zeroing in on inflation to explain their disapproval of President Biden’s handling of the economy. (Some DealBook readers in recent days have emailed to say that they’re strongly feeling the pain of housing inflation.)

Biden is aware of the affordability problem. In the State of the Union address last month, he proposed $10,000 tax credits for first-time buyers and for homeowners who sell their “starter homes.” Also, a 6 percent agent’s commission fee — one of the world’s highest — is likely to go away after a landmark legal settlement.

Still, house prices are chugging higher. A dearth of new homes and a surge in demand for a more spacious dwelling that fits a work-from-home lifestyle have pushed the average price of a new home to $485,000 — up from $357,000 in 2021.

Mortgage rates are climbing too. The average 30-year mortgage rate rose to roughly 6.9 percent this week, according to Freddie Mac. That’s down slightly from highs reached last fall. But the rate on one of the most popular mortgages has nearly doubled in the past two years, a jump that coincides with the Fed’s aggressive effort to tamp down inflation.

Watch the yield on 10-year Treasury notes. They have spiked again in recent weeks as Wall Street figures the Fed will keep rates elevated. Mortgage rates — plus rates on many types of consumer loans — tend to tick higher as yields climb.

HERE’S WHAT’S HAPPENING

China is reportedly phasing American chips out of its telecoms system. The move is expected to focus on core chips embedded in infrastructure, according to The Wall Street Journal, and would hit Intel and Advanced Micro Devices hard. Beijing is also said to be weighing phasing out U.S. chips from government computers and servers, as part of a tit-for-tat trade war.

Regulators are reportedly investigating Morgan Stanley’s wealth management unit. Shares in the bank fell more than 5 percent on Thursday following a report in The Wall Street Journal that said multiple agencies, including the S.E.C. and the Treasury Department, were examining how it vetted clients who were potential money-laundering risks. The Fed is said to be investigating the bank over a similar matter.

Apple reportedly plans to overhaul its Mac computers with speedy A.I. chips. The tech giant is working on new M4 processors designed to make the devices more adept at handling artificial intelligence, Bloomberg reports. The stock jumped on the news as investors hoped the update would boost Apple’s flagging personal computer business.

Taylor Swift songs return to TikTok. The megastar’s songs have reappeared on the short-video app in recent days, ahead of the release of her new album next week. Swift is the only Universal Music artist whose tracks are on TikTok after the company pulled its content off the platform because of a fight over royalties.

Europe signals a new target in A.I.

As billions pour into artificial intelligence, Big Tech has been the primary beneficiary, measured in booming stock prices and partnerships with the start-ups leading the sector. But a fight is brewing over who controls the most transformative technology since the internet, and regulators are signaling they’re watching closely.

Europe’s top tech regulator reiterated that stance. Margrethe Vestager, the European Commission’s executive vice president, told Bloomberg on Thursday that antitrust officials were examining Big Tech’s A.I. investments. This new frontier, she said, needed to be “competitive.”

The relationships are as much about money as they are about giving the start-ups access to Big Tech’s computing power and to data to train their large language models.

The E.U.’s preliminary investigation into Microsoft’s $13 billion backing of OpenAI would wrap up soon, Vestager said. The tech giant has also invested in Mistral, a French A.I. start-up, and hired most of the team behind Inflection AI, including its founder Mustafa Suleyman to run Microsoft’s consumer A.I. business.

Other American tech giants are spending big, too. Alphabet has invested $2 billion in the start-up Anthropic; its in-house A.I. unit DeepMind is also an industry leader. Amazon also has backed Anthropic, to the tune of $4 billion, and the chipmaker Nvidia has invested in dozens of start-ups, including Cohere.

U.S. regulators are looking at the overlapping interests and directors. The Justice Department is monitoring whether A.I. companies that share executives or directors are violating antitrust laws.

European officials and companies are worried about American dominance. Mistral was founded by a trio of former Google and Meta staffers, and is heavily backed by the French government, which views it as a European champion. Arthur Mensch, Mistral’s C.E.O., calls it an imminent threat that tech giants like Microsoft and Google could decide global standards. “These models are producing content and shaping our cultural understanding of the world,” he told The Times. “And as it turns out, the values of France and the values of the United States differ in subtle but important ways.”

Are A.I. chips the next area to come under scrutiny? The Amazon C.E.O. Andy Jassy noted in his annual letter to shareholders on Thursday that customers were looking for alternatives to Nvidia, which dominates the sector.

Vestager refused to say whether the E.U. would investigate Nvidia next. But when asked if she worried about its chip dominance and whether it was a case of watch-this-space, Vestager responded: “Exactly.”

“Technically I did steal from him. It’s all over for me.”

— Ippei Mizuhara. The interpreter for Shohei Ohtani has been charged with stealing $16 million from the baseball star to fuel a gambling addiction. Prosecutors say they have obtained texts that implicate Mizuhara in the “massive” fraud. One reads: “I’m terrible at this sport betting thing huh? Lol.”

The F.T.C. is set to move on noncompetes

The F.T.C. is expected to finalize new rules on noncompete agreements this month, in a move that’s set to to spur a wave of litigation from companies worried the changes will drive up costs and reveal their trade secrets.

The agency says noncompetes drive down wages and harm innovation. “You’re not really free if you don’t have the right to switch jobs or choose what to do with your labor,” the F.T.C. chair Lina Khan wrote in The Times last year. The agency says that such clauses apply to about a fifth of all workers and banning them could add nearly $300 billion to wages. California, Minnesota, Nebraska, North Dakota and Oklahoma have already banned the practice.

Use of noncompetes has exploded in recent decades. Advocates say they help businesses safeguard customer data and intellectual property, particularly for senior executives who join rival firms. Critics counter that they are also being applied to low-wage workers with little or no access to sensitive information and compromise their ability to change employers.

The F.T.C. is under pressure to act quickly. It’s not clear whether the final law will be the total ban that was proposed last year. An F.T.C. spokesman declined to comment on the timing or substance of a final rule.

But any changes could be killed if Republicans win control of the Senate, House and White House under the Congressional Review Act. A rule reversal under the C.R.A. is rare but definitive and would bar the agency from trying to enact it again.

The Chamber of Commerce plans to sue regardless. The group says the proposal is too sweeping and the F.T.C. isn’t authorized to act on noncompetes. It plans to go to court even if the final version is narrower, to prevent a perceived regulatory power grab. “It doesn’t really matter what they finalize the rule to say,” Sean Heather, the chamber’s regulatory affairs expert, told an American Bar Association conference this week.

Businesses have already helped kill a proposed state ban in New York. Gov. Kathy Hochul, a Democrat, vetoed a bill in December after banks and big businesses that rely on the agreements pushed back. Hochul said the ban went too far.

THE SPEED READ

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