FARAI CHIDEYA, host:
From NPR News, this is NEWS & NOTES. I'm Farai Chideya.
If you take a hard look at America's mortgage crisis, there seems to be some good news. Last week, mortgage rates dipped to a sixth-month low, but will that help Americans at risk of losing their homes? Will it even help the economy at large?
For more, we've got Keith Reed, economics reporter for the Cincinnati Enquirer.
Keith, welcome.
Mr. KEITH REED (Economics Reporter, Cincinnati Enquirer): How's it going?
CHIDEYA: It's going great. So the numbers, 30-year fixed-rate mortgages dropped a little bit. They were 6.24 percent last month. Now, to a six-month low of 6.20 percent. That doesn't sound like very much, so why is it making economists happy?
Mr. REED: Oh, it's making economists happy because it does reflect a little bit of what they've said that we need to see to try to bring some of the housing market back. I mean, one of the things that - one of the major factors that conspired to due to the housing market what it's been doing, is the fact that the rates have gone up.
If you remember, much of what happened in the housing market over the last several years was due to the fact that we have rates that would have historical lows. And people began to buy homes and take out interest only or adjustable rate mortgages that were based on these very low rates. When those rates reset at higher levels, people - that's when you started to see people defaulting on their homes, and you started to see from the credit crunch some people in the mortgage market drying up. People weren't able to go out and borrow as much as they had been or they weren't able to borrow at all.
So when you start to see some loosening in that in terms of the rates readjusting downward, then economists are going to be a little bit happy about that.
CHIDEYA: But, if you're at risk of losing your home, if you're trying to get refinancing, for example, will this save you?
Mr. REED: No, it won't, it likely won't. I mean - the problem with someone who's in a mortgage right now who wants to refi out of it is that in many instances, they are trying to refi out of a mortgage on a house that's basically worth more than they can - than the house can be sold for - excuse me, worth less that house can be sold for.
For example, say you bought a house three years ago, and your interest - your adjustable rate mortgage had an initial rate that was set at, say, 4 percent for three years. Well, today, that mortgage would obviously - the rate would be much higher than that initial 4 percent. But then the other piece of it is, if the house was worth $150,000 three years ago, today it may only be worth, say, $120,000, or $110,000.
So when you got to refinance that house, you really have no equity in it at all, and that's the problem that people are facing when they want to refi out of these mortgages. So it's not something that's really helping people that already own their homes or are already in a mortgage and want to get out of one, just because it was a bad mortgage and they can no longer afford it. What it may do is help loosen up credit for some people who want to buy - who hadn't been able to in the last four to six months.
CHIDEYA: So it should help you if you're a new homeowner or seeking to be a new homeowner?
Mr. REED: It could help you. I mean, provided you qualify, provided you meet all the qualifications to get a mortgage. And it's much more difficult to do that now than it was, say, a year ago. But if you do qualify, it makes a little bit easier for you, at least in terms of what you would pay on a monthly basis because the rates are lower than it had been in several months. And that's good news for people who were trying to buy now.
CHIDEYA: Of course, the mortgage crisis is having a huge impact on the economy at large. Another thing that always does is shopping, because we do live in a consumer society.
Mr. REED: Uh-huh.
CHIDEYA: And so, the day after Thanksgiving is called Black Friday, not as in Afro-pick power to the people Black Friday, but it's the day that supposedly retailers go in the black or start turning a profit. With things being a little shaky economically nowadays, some retailers started holiday promotions after Halloween. So…
Mr. REED: Mm-hmm.
CHIDEYA: …how did they do this Friday?
Mr. REED: They did better than expected, but there are still some worries out there. You saw sales, particularly online sales go up this year compared with last year, according to the initial data that came in. Still we're up 8.3 percent on Black Friday compared with last year, but that is with fewer customers coming into the stores.
The only thing that you have to worry about is not just what happens on Black Friday because people have this idea that Black Friday is the day that it all happens. Black Friday is really the day that it kicks off. So the holiday shopping season traditionally starts on Black Friday, but it doesn't necessarily mean that that's when retailers make all their money. That is the day that it kicks off the holiday shopping season, and it needs sales to continue to be strong, at least for the next several weeks leading into Christmas shopping season.
What happened this year, as you saw, pretty strong sales, stronger than expected sales on Black Friday because you had so many door-buster sales. Retailers were so worried about how dismal they thought it was going to be that they put everything on sale, and a lot of people came out, and they bought a lot of stuff, and they got better deals than they expected to get.
But Saturday, it trailed off. And, you know, so they're worried about whether or not it's going to continue to be strong, given they started so early, right after Halloween, and they had so many sales on Black Friday, whether or not they can maintain the pace that they need to see a truly good holiday shopping season at this point.
CHIDEYA: New economics experts talked about something called shopper's trading down. What does that mean?
Mr. REED: That means essentially that what's happening this year is that many shoppers are going to buy things that are essentially cheaper. They're looking for the low price point; they're looking for items that aren't necessarily as expensive. This is different from another phenomenon that involved shoppers, sort of mixing and matching what they do.
For example, you may go to Target and buy house wares at a relatively inexpensive price, but then you and buy coats and bags that cost $300 or $400 at a Macy's or some other department store. Well, this year, the $400 handbag seems to be - is out, and people are looking for that mid-price point. A video game as opposed to a video game system; a DVD player as opposed to the big screen TV that everybody was buying last year. So with shoppers buying the less expensive items and everything being at a discounted rate, you can see some of the position that the retailers are finding themselves in.
CHIDEYA: Are retailers and shoppers essentially in opposition to each other, if not at war with each other? What I mean by that is, so many people are carrying big credit-card debt, and so you might think, okay, don't spend too much money. But then, retail helps drive the American economy. What are the different things that are - or what are the forces that are at play here?
Mr. REED: I don't think the retailers are at war with the consumer. It's not as if consumers are out there, you know, protesting or demanding that retailers lower their prices, you've just got some external forces out there. People in the United States, American consumers are just that, they are consumers. They want to buy things that makes us feel good. It's a reflection to a certain extent of your wealth or at least how wealthy you feel.
But right now, people just don't feel as wealthy as they have over the last several years. You've got a situation where, you know, oil is very expensive, newer record, around $97 a barrel, which is just about a dollar or so off from a record for crude oil. That affects, obviously, what you pay to heat your home, and we are entering winter, although it doesn't feel like that in many parts of the country yet.
It's going to affect the - your travel plans' going to affect how much you pay for an airline ticket to go home and see your family, or how much it takes to fill up your car to go to and from work. The housing economy, obviously, as we just discussed, is often has been for the better part of the year, people's houses are worth less, people can't go in and refinance their houses or can't borrow because the value of the house or due to Christmas that they have been over the last several years. You got…
CHIDEYA: So people…
Mr. REED: …you got the confluence or factors that are putting pressure on the retail environment. It's not that people don't want to buy or that they're ignoring what the retailers are doing. It's just that people are in a position that they haven't been in for the last several years.
CHIDEYA: Keith, let's take a quick look at something else affecting retail. It's a question of affinity buying. Do you, basically, vote your social conscience with your dollar? So there's a specific case every year since'96, the NAACP has put out a report on corporate retailers in black communities. Target, for the past three years, has not participated in the survey. The NAACP is bringing this up pointedly. Now, there's so much focus on stores that market themselves as good for the environment or green. Do people even look at what's good for diversity when they buy?
Mr. REED: I think some people do. Although I don't really know that there's any evidence that that it's enough to move the needle, and I have to admit that I haven't seen data on this. But I do think that, you know, there's always going to be some segment of the population that will be influenced in their buying decisions by - based on certain social or political concerns and that will cut across the gamut you will always have, X percentage of the population whose going to be very concerned with the environment? X percent of the population who is going to be very concerned with animal rights. X percent of the population is going to be - excuse me - very concerned with racial or community factors. And that percentage in the population, I think is relatively small. What the challenge is for the NAACP in the report that you talked about in their effort to galvanize something that will boycott will be to agitate beyond that base of consumers that's already buying with those concerns in mind and…
CHIDEYA: Keith, let me just…
Mr. REED: …well, it remainsto be seen. Go ahead.
CHIDEYA: Bring up one thing. There's a blog called "Black is Back," and the blogger who runs that made a point of saying online that when he was running a teen, parent and adult education program, Target with the only business that donated things consistently. If Target does have that kind of a track record - at least according to one person - very briefly, why would they avoid participating in this kind of a survey?
Mr. REED: It's hard to tell. That could be an indicator of any number of things. Target may have some issue with the criteria that the NAACP uses to come to its report card in which case it would - it might refuse to participate in the survey. Target - it's not necessarily something that smacks as something sinister or it doesn't necessarily indicate that they're not doing some of the things like giving back to communities based on race or based on any other concern. It could simply be that they disagree with whatever the criteria is that the NAACP uses. We don't know because target hasn't said why they don't participate in. So until they do open up and say we're not participating because of X or because of Y, it would be very difficult to make a determination about whether, you know, what the NAACP reports is really accurate and reflective…
CHIDEYA: Well, Keith…
Mr. REED: …(unintelligible)…
CHIDEYA: …Keith, thank you so much.
Mr. REED: Thank you.
CHIDEYA: Keith Reed is an economics reporter for the Cincinnati Enquirer.
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