WEBVTT - Rents Play Big Role in US Inflation 0:00:01.800 --> 0:00:04.440 This is Bloomberg Business Week. I'm Carol Masser and I'm 0:00:04.440 --> 0:00:07.280 Bloomberg Quick Takes Tim Stanovk. We're here every day bringing 0:00:07.280 --> 0:00:09.799 you the latest news from the world of business and finance, 0:00:09.840 --> 0:00:13.640 plus technology, politics, economics, all partnising the power of Business 0:00:13.640 --> 0:00:17.119 Week reporters and editors, not to mention our journalists and 0:00:17.160 --> 0:00:19.640 analyst in more than one and twenty countries. You can 0:00:19.640 --> 0:00:23.160 download Bloomberg Business Week at iTunes, SoundCloud, or Bloomberg dot Com. 0:00:23.400 --> 0:00:25.160 You can also listen to our radio show at two 0:00:25.160 --> 0:00:27.840 pm Eastern Time on Bloomberg Radio, or watch us on 0:00:27.880 --> 0:00:31.760 YouTube search Bloomberg Global News. We've got some good news 0:00:31.760 --> 0:00:33.440 and some bad news. We'll start with the good news. 0:00:33.600 --> 0:00:36.800 Rental inflation could be close to topping out this after 0:00:36.840 --> 0:00:39.560 it advanced almost six percent in the twelve months through July. 0:00:39.960 --> 0:00:42.680 There's also some bad news, though. Those high prices are 0:00:42.680 --> 0:00:44.239 going to be around for a while, because it could 0:00:44.280 --> 0:00:46.560 take a while to settle back down to anything resembling 0:00:46.880 --> 0:00:50.960 what we saw before the COVID pandemic. So it, writes 0:00:50.960 --> 0:00:53.760 Matt Bosler, Federal Reserve reporter for Bloomberg News. He joins 0:00:53.840 --> 0:00:56.240 us now on the phone from New York City. Follow 0:00:56.320 --> 0:00:59.760 him on Twitter at bo E s Underscore. Matt, good 0:00:59.800 --> 0:01:02.440 to have you with us. How are you good? Thanks 0:01:02.480 --> 0:01:05.360 for having me, Yeah, it's always great to chat fed 0:01:05.440 --> 0:01:09.200 with you. And of course, um economic data CPI coming 0:01:09.240 --> 0:01:11.160 at us tomorrow. So this is a really important one. 0:01:11.880 --> 0:01:15.440 Why is why is our housing prices so important to watch? Like? 0:01:15.480 --> 0:01:17.440 How does it give us an idea of where inflation 0:01:17.520 --> 0:01:20.920 is going? Yes, so a couple of reasons. Um, you know, 0:01:21.040 --> 0:01:23.280 first of all, the big one is just that rental 0:01:23.319 --> 0:01:26.919 inflation is the biggest component in the overall consumer Price Index, 0:01:27.040 --> 0:01:29.920 so you know, as goes rental inflation, so goes to 0:01:30.040 --> 0:01:33.440 c p I. Another reason is that it tends to 0:01:33.480 --> 0:01:37.520 be the most persistent uh component of the CPI for 0:01:37.640 --> 0:01:40.080 month to month, right, so you don't get these wild 0:01:40.160 --> 0:01:43.360 swings month in and months out where rent is plunging 0:01:43.400 --> 0:01:46.479 one month and then surging. The bactive is pretty persistent 0:01:46.520 --> 0:01:49.160 and so it kind of gives you know, further impetus 0:01:49.200 --> 0:01:53.200 to that underlying trend. Um. And then probably the third reason, 0:01:53.240 --> 0:01:55.680 which is important for a lot of people who work 0:01:55.680 --> 0:01:58.400 in financial markets, is that, um, you know, it's really 0:01:58.440 --> 0:02:01.360 important to the Federal Reserve and you know, both because 0:02:01.480 --> 0:02:04.680 it drives the overall cp I. And also because you know, 0:02:04.720 --> 0:02:07.560 the FED tries to get a sense of underlying inflation 0:02:07.600 --> 0:02:10.480 by slicing the indicing the numbers. You know, people may 0:02:10.480 --> 0:02:13.760 have heard of the median or trim means CPI measures 0:02:13.800 --> 0:02:16.919 by now, because you know, share Jerome Powell and other 0:02:16.919 --> 0:02:20.040 FED officials like to cite them. Those measures all tend 0:02:20.080 --> 0:02:22.920 to be dominated by rent as well, because you know, 0:02:22.960 --> 0:02:25.840 the more you chop out of the CPI, the bigger 0:02:25.840 --> 0:02:29.440 and bigger that biggest component still left over becomes an 0:02:29.440 --> 0:02:32.880 overall importance. And so that's why rental inflation really kind 0:02:32.880 --> 0:02:35.359 of holds the key to the trajectory for for both 0:02:35.400 --> 0:02:38.919 inflation and FED policy going forward. Yeah, man, I wonder 0:02:39.040 --> 0:02:42.440 what do we know much about what the drivers of 0:02:42.520 --> 0:02:45.320 rent inflation are? I mean, I'm assuming this massive run 0:02:45.400 --> 0:02:49.480 up in housing prices, Uh, since the pandemic is a 0:02:49.480 --> 0:02:51.519 big part of it is, is that the main driver 0:02:51.680 --> 0:02:54.360 of of high rent inflation? Do you think? Yeah? So 0:02:54.440 --> 0:02:56.920 it's interesting because you know, I think before the pandemic, 0:02:57.000 --> 0:02:58.800 a lot of people used to look at things like 0:02:58.880 --> 0:03:04.280 house prices. Um. House prices have become definitely more disconnected 0:03:04.360 --> 0:03:07.920 from rent during the pandemic just because you know, house 0:03:07.960 --> 0:03:10.280 prices are up so much and we haven't really seen 0:03:10.320 --> 0:03:13.040 the same kind of reaction in rents. You know, another 0:03:13.080 --> 0:03:16.880 big driver is wage growth. Rental inflation tends to track 0:03:17.000 --> 0:03:20.359 wage growth really closely over time UM, which just kind 0:03:20.360 --> 0:03:22.919 of gives you a sense of you know, landlords uh 0:03:23.040 --> 0:03:25.720 sort of power and being able to um, you know, 0:03:25.840 --> 0:03:30.760 capture that marginal increase in income you know, among the workforce. UM. 0:03:30.880 --> 0:03:35.400 And you know, lately more forecasters have been turning to 0:03:35.960 --> 0:03:38.640 just you know, estimates of market rents, things that are 0:03:38.680 --> 0:03:42.160 put out like by companies like Zillo and apartment list 0:03:42.400 --> 0:03:44.880 on UM, you know, what's happening to the prices of 0:03:44.960 --> 0:03:47.680 new leases. And it turns out the way that the 0:03:47.720 --> 0:03:51.000 rental inflation component in the CPI is constructed, it tends 0:03:51.040 --> 0:03:54.800 to lag those estimates produced by some of those other 0:03:54.880 --> 0:03:57.920 shops like Zoo and apartment lists by six to twelve months. 0:03:57.920 --> 0:04:01.400 And so that's actually an even zier way UM for 0:04:01.400 --> 0:04:04.920 forecasters to kind of get a sense of where, you know, 0:04:04.960 --> 0:04:09.320 the CPI component of rental inflation is going. Okay, So Matt, 0:04:09.360 --> 0:04:10.960 give us an idea of the things to watch for 0:04:11.240 --> 0:04:14.520 to understand if if well, if if rental prices are 0:04:14.520 --> 0:04:16.480 going to start coming down, I mean, what could you 0:04:16.520 --> 0:04:18.280 say to people who are listening right now who just 0:04:18.320 --> 0:04:20.480 got that note from their landlord that rent is going 0:04:20.520 --> 0:04:22.640 to go up? Because I've heard stories about people getting 0:04:22.640 --> 0:04:24.960 their rent raised like, you know, four dollars a month, 0:04:25.400 --> 0:04:28.080 you know, when they renew their lease. Um, what is 0:04:28.120 --> 0:04:31.360 it going to take for those prices to come down? Yeah, So, 0:04:31.440 --> 0:04:33.600 you know, obviously it's been crazy, especially in a lot 0:04:33.640 --> 0:04:35.599 of the big cities, but really across you know, the 0:04:35.720 --> 0:04:38.720 entire country this this year and last year. So you know, 0:04:38.800 --> 0:04:42.720 basically what those private sector measures of rental inflation are 0:04:42.720 --> 0:04:45.960 showing is that, um, you know, rental inflation really peaked 0:04:45.960 --> 0:04:49.080 earlier this year and has started to moderate. Now. The 0:04:49.200 --> 0:04:53.560 problem is that you know, that's looking at new leases, 0:04:53.680 --> 0:04:56.440 right so when you move, you might have been facing 0:04:56.600 --> 0:05:00.160 double digit increases this year and last year. This thing 0:05:00.200 --> 0:05:03.040 about the CPI is that's measuring um, you know, rental 0:05:03.080 --> 0:05:06.440 inflation for everyone and not just people who are moving, um, 0:05:06.480 --> 0:05:09.039 you know, in one given month or year, and so 0:05:10.480 --> 0:05:13.640 people tend to stay put and that's why the measures 0:05:13.680 --> 0:05:16.320 of new lease growth, um, you know, tend to filter 0:05:16.600 --> 0:05:20.400 much more slowly into the CPI, and so that's why 0:05:20.440 --> 0:05:24.440 the CPI component of rental inflation probably unfortunately, is going 0:05:24.520 --> 0:05:27.279 to stay elevated for quite some time, even if it's 0:05:27.279 --> 0:05:30.039 close to topping out here, because um, you know what 0:05:30.160 --> 0:05:33.120 happens is you might stay in your apartment for another 0:05:33.200 --> 0:05:35.640 year or two and you might face you know, some 0:05:36.120 --> 0:05:38.640 rent increase. But you know, then when you move out, 0:05:38.680 --> 0:05:41.400 that's when the landlord really jacks up the price to 0:05:41.400 --> 0:05:43.960 to capture that full increase that we've been seeing in 0:05:44.040 --> 0:05:47.560 new leases, which is unfortunately why this is this is 0:05:47.560 --> 0:05:49.960 probably going to be with us for a while. All right, now, 0:05:49.960 --> 0:05:51.279 we're gonna have to leave it there. It's actually a 0:05:51.279 --> 0:05:53.479 party on Saturday night for people who are moving away 0:05:53.480 --> 0:05:55.240 from the city. They lived in the same apartment for 0:05:55.279 --> 0:05:57.160 seven years and their neighbor came over and was like, 0:05:57.240 --> 0:05:59.599 the landlord is going to check the rent so much 0:05:59.680 --> 0:06:02.279 when you guys leave. Matt Bosler's fet a reserve reporter 0:06:02.320 --> 0:06:04.800 for Bloomberg News, joining us on the phone from New 0:06:04.880 --> 0:06:09.040 York City. You're listening to Bloomberg Business Week with Carol 0:06:09.120 --> 0:06:13.559 Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. 0:06:13.960 --> 0:06:15.800 Well You might remember last year when otto Home was 0:06:15.839 --> 0:06:19.000 approved by the FDA. It's an Alzheimer's treatment. The whole 0:06:19.000 --> 0:06:21.440 approval process was pretty controversial, and we'll get to that 0:06:21.480 --> 0:06:24.760 in just a minute. But it's also a really expensive 0:06:24.920 --> 0:06:29.440 drug and now it's leaving millions in limbo. Writing about 0:06:29.520 --> 0:06:32.640 that in the upcoming issue of Business Week magazine is 0:06:32.640 --> 0:06:35.680 Bob Langreth, his healthcare reporter for Bloomberg News. He's with 0:06:35.760 --> 0:06:38.360 us right now in the Bloomberg Interactive Broker Studio. We're 0:06:38.360 --> 0:06:41.440 also joined by Joel Webber, the editor of Bloomberg business Week, 0:06:41.560 --> 0:06:44.120 in the Bloomberg Interactive Broker Studio. You can follow both 0:06:44.160 --> 0:06:46.560 of these guys on Twitter. Joel is at Joel Webber 0:06:46.640 --> 0:06:51.120 Show and Bob Langreth is at Robert Langrith on Twitter. So, Joel, 0:06:51.120 --> 0:06:53.599 give us an idea of why this whole thing is 0:06:53.680 --> 0:06:55.760 such a mass because I remember when it was approved, 0:06:56.440 --> 0:06:58.599 it was seen as like a really good sign, but 0:06:58.720 --> 0:07:02.320 then all this came back about the approval process. Backlash 0:07:02.400 --> 0:07:04.719 is a good way to describe it. Yeah. Uh, Well, 0:07:04.839 --> 0:07:07.120 Biogen is probably the character at the center of this, 0:07:07.160 --> 0:07:11.480 which is Upstart biotech pharma company, and they have been 0:07:11.520 --> 0:07:15.400 really all over the Alzheimer space, and this was a 0:07:16.080 --> 0:07:19.600 you know, viewed by some quarters as a breakthrough treatment 0:07:19.760 --> 0:07:23.000 and and to that end, what was interesting about it 0:07:23.040 --> 0:07:26.440 was that backlash, right because at first everyone was very 0:07:26.440 --> 0:07:27.920 hopeful about it, and then all of a sudden it 0:07:27.920 --> 0:07:29.920 was like wait a second, and then it got really 0:07:29.960 --> 0:07:33.640 confusing for us normal people. Um, and that's why we 0:07:33.640 --> 0:07:36.400 were like, Bob, Bob, can you help us make sense 0:07:36.440 --> 0:07:39.440 of this? And and you know that I think the 0:07:39.800 --> 0:07:41.880 main thing to know is that this is there are 0:07:42.320 --> 0:07:46.520 you know, so many people affected by this, and there's 0:07:46.560 --> 0:07:50.240 just been a dearth of anything right, and so a 0:07:50.320 --> 0:07:55.720 semblance of hope, uh matters And and therefore it also 0:07:55.760 --> 0:07:58.160 plays with a lot of emotions and and where's the 0:07:58.160 --> 0:08:01.440 science out again, Bob? So that's been the whole problem 0:08:01.480 --> 0:08:03.520 with this whole saga of aging helm. It was supposed 0:08:03.560 --> 0:08:05.640 to be kind of the drug. There's this leading theory. 0:08:05.640 --> 0:08:08.040 The disease is called amiloid. I won't go into the details, 0:08:08.080 --> 0:08:11.240 but anyway, it's been really controversial for years, and amage 0:08:11.320 --> 0:08:13.000 helm was supposed to be the drug was going to 0:08:13.120 --> 0:08:16.360 finally answer the question whether these drugs targeting this amiloid, 0:08:16.440 --> 0:08:18.200 this protein that builds up in the brain, whether it 0:08:18.240 --> 0:08:20.400 actually does something, whether it works, and they were doing 0:08:20.400 --> 0:08:23.840 the giant definitive trials there and they're supposed to get 0:08:23.840 --> 0:08:26.040 a definitive answer and then they cut them short, said 0:08:26.080 --> 0:08:28.480 it failed. Then they said, wait a second, we think 0:08:28.480 --> 0:08:30.720 it works. We're gonna apply for approval. That it was 0:08:30.720 --> 0:08:32.920 approved and everyone thought was going to be a big seller, 0:08:32.960 --> 0:08:36.319 and then then there's this big backlash, massive backlash and 0:08:36.400 --> 0:08:37.960 what what are you doing approving and a lot of 0:08:37.960 --> 0:08:40.080 a lot of doctors were quite upset about that. And 0:08:40.120 --> 0:08:43.200 then Medicare, which has covers almost everyone with Alzheimer's, basically 0:08:43.640 --> 0:08:45.440 one of one of the first times in history, said hey, 0:08:45.480 --> 0:08:48.080 you know, you know, we're not gonna, you know, cover 0:08:48.120 --> 0:08:50.280 this outside of the clinical trial because it's just not 0:08:50.400 --> 0:08:53.360 any real proof that it works. And so like everyone's 0:08:53.400 --> 0:08:55.280 now kind of like in limbo, no one knows quite 0:08:55.320 --> 0:08:57.280 what to do or you know, no one really even 0:08:57.360 --> 0:08:59.679 knows whether this thing works or not. And so we 0:08:59.760 --> 0:09:02.440 now to wait for like yet more studies from other 0:09:02.520 --> 0:09:05.360 drug companies that are working on similar things to try 0:09:05.400 --> 0:09:07.360 to finally get some answers. But it's like the whole 0:09:07.360 --> 0:09:09.480 fields kind of at a stand so still while we 0:09:09.600 --> 0:09:11.200 kind of like work this out. It's just a very 0:09:11.280 --> 0:09:14.240 sad situation. So, Bob, I'm just curious, how does a 0:09:14.360 --> 0:09:18.480 drug get through the clinical trial process and get approved 0:09:18.720 --> 0:09:22.240 if it doesn't seem like it works necessarily well? And 0:09:22.480 --> 0:09:25.880 uh yeah, the whole situation with Adella, it's just like 0:09:26.480 --> 0:09:29.640 bizarre and hard to understand and just very confusing. Uh. 0:09:30.120 --> 0:09:33.440 But they basically, I mean appears like the FDA essentially 0:09:33.520 --> 0:09:36.160 kind of wanting tired of not approving Alzheimer's drugs. And 0:09:36.200 --> 0:09:39.320 you know, this is my perception. I don't direct prove 0:09:39.400 --> 0:09:42.120 of this, but you know, yeah, they kind of wanted 0:09:42.120 --> 0:09:44.320 to approve something, and then this came along, and then 0:09:44.640 --> 0:09:47.280 it became apparent. They originally tried to get approved through 0:09:47.280 --> 0:09:49.800 the regular mechanisms that became apparent. Then they went through 0:09:49.800 --> 0:09:53.040 a public advisory panel like doctors. It was roundly rejected. 0:09:53.520 --> 0:09:55.800 So then the FDA kind of found a backup way 0:09:55.800 --> 0:09:59.040 to approve it. There's mechanisms called accelerated approval where you 0:09:59.120 --> 0:10:01.600 don't actually have to show that it slows the disease 0:10:01.640 --> 0:10:05.200 or improved symptoms. It just improves a biomarker in this case, 0:10:05.240 --> 0:10:07.200 so that they could show it like improve your brain 0:10:07.240 --> 0:10:10.320 scam look better, look prettier. But there was no evidence that, 0:10:10.640 --> 0:10:13.600 no proof that you actually over your content decline with 0:10:13.600 --> 0:10:15.280 slowing down. But your brain scam did look better, and 0:10:15.320 --> 0:10:18.000 that's how it got approved. Okay, So if you weren't 0:10:18.000 --> 0:10:21.040 confused to begin with, we might be even more confused 0:10:21.080 --> 0:10:25.720 because there's a whole another wave of Alzheimer's drugs coming 0:10:25.720 --> 0:10:28.720 from other drug manufacturers. So so what are you looking 0:10:28.760 --> 0:10:32.280 for as we start to see results from these other candidas. Yeah, 0:10:32.320 --> 0:10:34.400 so it's going to be a very interesting fall because 0:10:34.520 --> 0:10:37.840 there's two more a big drug trials coming of similar 0:10:37.920 --> 0:10:40.760 drugs to add a helm. One is from Bob's partner, 0:10:40.800 --> 0:10:43.560 a size Japanese drug company. It invented like one of 0:10:43.559 --> 0:10:46.080 the first Alzheimer's pills ever, this drugg called air Accept 0:10:46.360 --> 0:10:48.000 three years ago and it's been trying to come up 0:10:48.040 --> 0:10:50.720 with a better successor ever since then. So they have 0:10:50.760 --> 0:10:53.760 a giant trial that's supposed to report results potentially as 0:10:53.760 --> 0:10:55.760 soon as the end of this month and maybe early October. 0:10:56.000 --> 0:10:59.040 And then Roche, they big got Swiss drug company also 0:10:59.080 --> 0:11:01.200 is another giant trial. They have taken a drug that 0:11:01.240 --> 0:11:05.079 previously failed uh and then up to dose five times 0:11:05.559 --> 0:11:08.080 five times higher dose, saying they think that dose finally 0:11:08.160 --> 0:11:10.480 might work and you know, we'll see. But if you know, 0:11:10.679 --> 0:11:13.160 both these things don't work, there's really going to have 0:11:13.240 --> 0:11:15.439 to be a big, big reassessment in the drug industry. 0:11:15.440 --> 0:11:18.640 Why they've put like so much attention on like one theory, 0:11:18.720 --> 0:11:21.400 one on one mechanism instead of spreading the bets and 0:11:21.400 --> 0:11:23.960 diversifying because you know, no one knows for sure, like 0:11:24.000 --> 0:11:26.120 what's going to finally work, and why, you know, why 0:11:26.160 --> 0:11:28.080 not spread your bets and tried a lot of different 0:11:28.400 --> 0:11:31.120 ideas because you never know what's finally gonna work. Bob, 0:11:31.160 --> 0:11:34.080 you put a real human element in the lead of 0:11:34.080 --> 0:11:38.720 the story, a woman named Jerry Taylor who's actually Alzheimer's patient. Uh, 0:11:38.840 --> 0:11:41.640 she had a lot of hope for this drug. Um, 0:11:42.360 --> 0:11:45.080 how's she doing? Is it helping her at all? Well, 0:11:45.120 --> 0:11:47.800 you know, and anyone patient, it's really you know, impossible 0:11:47.840 --> 0:11:49.880 to tell whether particularly drug, you know, it's helping you 0:11:49.920 --> 0:11:52.320 at all, because if these drugs work, you know, they're 0:11:52.320 --> 0:11:54.360 gonna slow that the slow the progression a little bit. 0:11:54.360 --> 0:11:56.200 They're not gonna halt it. It's very very clear if 0:11:56.200 --> 0:11:58.240 they work at all, it's gonna be a very modest effect, 0:11:58.360 --> 0:12:00.360 so it's really hard to tell. She thinks and her 0:12:00.440 --> 0:12:01.800 husband thinks, you know, if she was on it for 0:12:01.880 --> 0:12:04.320 years through a clinical trial, they think, you know, it helped, 0:12:04.559 --> 0:12:07.600 but she's clearly you know, progress. But there you know, 0:12:07.640 --> 0:12:10.520 they're kind of her and her husband, they're like activists 0:12:10.520 --> 0:12:14.600 and they're really pushing for approval and coverage and they 0:12:14.640 --> 0:12:17.000 also like are trying to encourage the drug companies remaining 0:12:17.080 --> 0:12:19.960 drug companies that keep going to you know, get some trials. 0:12:20.000 --> 0:12:21.800 But it's just a very hurd story. Is just a 0:12:21.920 --> 0:12:24.440 very poignant story because there's so little out there for 0:12:24.440 --> 0:12:26.000 this time. I wonder, is that the type of thing 0:12:26.000 --> 0:12:28.640 if you got it early enough that maybe the the 0:12:28.720 --> 0:12:31.040 benefits would be be greater. Yeah, So that's what they're 0:12:31.040 --> 0:12:33.640 looking into. Now. They're looking into like pure prevention, like 0:12:33.679 --> 0:12:37.559 they're they're finding people with abnormal brain scans uh and 0:12:38.000 --> 0:12:39.800 seeing if any of these drugs can actually prevent the 0:12:39.880 --> 0:12:42.439 disease from progressing into cognitive decline like before you actually 0:12:42.480 --> 0:12:45.120 have any obvious symptoms. But the problem that's going to 0:12:45.160 --> 0:12:47.800 take another at five, six, several years to find that out. 0:12:48.320 --> 0:12:50.360 So that's just in the very earliest stages. But that's 0:12:50.360 --> 0:12:52.480 exactly where a lot of the research is going right now. 0:12:53.200 --> 0:12:56.040 And just backing up to, you know, again this pipeline 0:12:56.040 --> 0:12:57.600 of all these other things that are coming, are they 0:12:57.600 --> 0:13:01.320 all using effectively the same approach that that is already 0:13:01.400 --> 0:13:03.679 up there now or are they going to different Yeah, 0:13:03.760 --> 0:13:06.000 so we're starting to see the beginnings of a shift, 0:13:06.080 --> 0:13:08.480 and some critics of the way he thinks would may 0:13:08.559 --> 0:13:10.800 you know, would probably say it's long overdue. But we're 0:13:10.800 --> 0:13:12.800 starting to the beginnings of the shift. And you know, 0:13:12.880 --> 0:13:15.959 drug companies focusing some of the research more broadly and 0:13:16.080 --> 0:13:18.960 different theories of disease and different mechanisms of the disease. 0:13:19.000 --> 0:13:21.880 In particular, brain information is one area that's getting a 0:13:21.920 --> 0:13:24.560 lot of focused now and drugs going into trials, and 0:13:24.600 --> 0:13:27.480 that may be the thing that's actually killing nerve cells, 0:13:27.800 --> 0:13:30.240 not the emily that builds up years and years before. 0:13:30.640 --> 0:13:34.240 Bob Langrath his healthcare reporter for Bloomberg News. Check out 0:13:34.280 --> 0:13:38.000 Bob's story. It's in the upcoming issue of Business Week magazine. 0:13:38.000 --> 0:13:39.960 You can read it now though on the Bloomberg terminal 0:13:39.960 --> 0:13:43.080 and also at Bloomberg dot com slash business Week. It's 0:13:43.120 --> 0:13:46.679 called the Alzheimer's drug approval. Mess is leaving millions in limbo. 0:13:47.040 --> 0:13:49.000 We're also very pleased this afternoon to be joined by 0:13:49.040 --> 0:13:52.200 Joel Webber, the editor of Bloomberg Business Week. He's also 0:13:52.240 --> 0:13:55.000 with us in the Bloomberg Interactive Broker Studio. Follow Joel 0:13:55.040 --> 0:13:58.160 on Twitter at Joel Webber Show, and also be sure 0:13:58.200 --> 0:14:01.280 to follow Bob on Twitter as well. Robert Langworth at 0:14:01.360 --> 0:14:06.280 Robert Langworth is his handle. This is Bloomberg Business Week 0:14:06.440 --> 0:14:10.400 with Carol Messer and Bloomberg Quick Takes Tim Stinovic on 0:14:10.559 --> 0:14:13.560 Bloomberg Radio. Well, you might remember the last hour, I 0:14:13.679 --> 0:14:16.120 talked a little bit about this on our simulcast. Today's 0:14:16.120 --> 0:14:19.200 Big Take, it's about the world's hottest housing markets are 0:14:19.200 --> 0:14:22.600 facing a painful reset. We're talking about places like Vancouver 0:14:22.680 --> 0:14:27.520 and Toronto in Canada, and then also places including Australia 0:14:27.520 --> 0:14:30.360 and other parts of the world. The story written by 0:14:30.400 --> 0:14:33.480 Ainsley Thomas and the Karen and edited by Kara Wetzel, 0:14:33.560 --> 0:14:36.520 our San Francisco bureau chief. She joins us right now 0:14:36.520 --> 0:14:39.000 on the phone from our San Francisco bureau. Kara, great 0:14:39.040 --> 0:14:41.960 to have you with us this afternoon. So, so, what 0:14:42.000 --> 0:14:45.760 are the themes that sort of tie these housing markets together. 0:14:46.080 --> 0:14:48.640 And where are we talking here, because not every single 0:14:48.680 --> 0:14:52.600 housing market is created equal. Yes, that's right, great to 0:14:52.800 --> 0:14:56.200 be here. Uh. The really, you know, the sort of 0:14:56.280 --> 0:14:58.400 the markets that were really in focus on are the 0:14:58.440 --> 0:15:01.440 ones that were just have and hugely bubbly lack of 0:15:01.480 --> 0:15:03.360 the better word, over the past few years of the 0:15:03.400 --> 0:15:07.400 pandemic boom. This is Australia and New Zealand, Canada, where 0:15:07.720 --> 0:15:11.320 investing in real estate just became a huge phenomenon. You know, 0:15:11.360 --> 0:15:15.280 you've seen price gains of plus per year and you 0:15:15.320 --> 0:15:17.680 know not apparently those are the ones that suddenly are 0:15:18.240 --> 0:15:22.680 rapidly cooling because now that we have this synchronized you know, 0:15:22.840 --> 0:15:25.800 interest rates from central banks around the world, um, borrowing 0:15:25.840 --> 0:15:28.600 costs are going up everywhere, and you have this combination 0:15:28.680 --> 0:15:31.400 of now prices or at record levels or were at 0:15:31.440 --> 0:15:33.920 record levels, and borrowing costs are now just wagh out 0:15:33.920 --> 0:15:36.600 of people's reach. So they're having the quickest come down now. 0:15:37.560 --> 0:15:40.840 You know, Kara, when I read about potential double digit 0:15:40.960 --> 0:15:43.680 home price declines, I kind of have a nasty flashback 0:15:43.800 --> 0:15:46.840 to uh, you know about twelve thirteen years ago and 0:15:46.880 --> 0:15:49.920 the financial crisis. I mean, you covered that, right, so 0:15:50.200 --> 0:15:52.960 if you're like, it's a little close to home for you, 0:15:53.080 --> 0:15:54.960 some chills up the spot a little bit. Yeah, but 0:15:55.720 --> 0:15:57.640 I'm wondering. I mean, so much has been done in 0:15:57.680 --> 0:16:01.480 the US to safeguard the financial system, and we've really 0:16:01.480 --> 0:16:04.920 moved away from those adjustable rate mortgages in the US 0:16:05.000 --> 0:16:08.320 that we're part of the problem back then. But I 0:16:08.360 --> 0:16:12.000 get the impression the rest of the world is still 0:16:12.120 --> 0:16:15.440 more exposed to adjustable rate mortgages than we are in 0:16:15.440 --> 0:16:18.400 the U. S Is that is that true? And you know, 0:16:18.720 --> 0:16:21.640 are there concerns out there about um some sort of 0:16:21.720 --> 0:16:25.600 ripple effects from a drop in property values into the 0:16:25.600 --> 0:16:29.160 global financial system. Yes, that's absolutely true. So the U 0:16:29.400 --> 0:16:32.960 s um has vastly come away from addressable rate mortgages 0:16:32.960 --> 0:16:35.800 in the aftermath of the financial crisis. It's it's been 0:16:35.840 --> 0:16:38.640 about um seven percent is average of loans are in 0:16:38.680 --> 0:16:41.200 the past five years. And it makes sense because you know, 0:16:41.600 --> 0:16:43.440 rates have been so low, why would you not just 0:16:43.880 --> 0:16:46.600 lock in those rates? But the US is actually something 0:16:46.640 --> 0:16:48.640 I've just found and working on the story is pretty 0:16:48.720 --> 0:16:51.160 unique in terms of having you know, thirty year fixed 0:16:51.200 --> 0:16:55.320 mortgages or even fishing here that a lot of these 0:16:55.360 --> 0:16:57.960 countries they are just the mortgage system works by they 0:16:57.960 --> 0:17:00.760 have mortgages that may reset every year depending on you know, 0:17:00.800 --> 0:17:03.960 what central banks do or what um or they may 0:17:04.080 --> 0:17:07.119 even reset just based you know, monthly or just you know, 0:17:07.240 --> 0:17:10.879 just be directly tied. So that is definitely sort of 0:17:10.880 --> 0:17:13.000 what some of the concern is in some of these markets, 0:17:13.119 --> 0:17:16.400 like in New Zealand for instance, more than fifty mortgages 0:17:16.400 --> 0:17:18.840 are going to reset to a higher rate UM by 0:17:18.880 --> 0:17:22.439 next June. So yes, so these are it's not just 0:17:22.560 --> 0:17:25.600 you know, home buyers that are affected by the rising 0:17:25.680 --> 0:17:27.480 rates UM as it largely is here in the U S. 0:17:27.520 --> 0:17:29.680 It's also homeowners who now are going to be facing 0:17:29.760 --> 0:17:33.040 higher monthly payments on loans. In some cases if they 0:17:33.080 --> 0:17:35.760 bought you know, at very high levels, probably were already 0:17:35.760 --> 0:17:38.120 stretching to make you know, to pay for these things. 0:17:38.119 --> 0:17:40.159 And so yes, that that is the concern, and that 0:17:40.480 --> 0:17:45.760 brings ripple effects of consumer spending and other other types 0:17:45.800 --> 0:17:48.000 of things for these economies. So that's something you know, 0:17:48.000 --> 0:17:50.680 again as a central banker's way how much to race 0:17:50.800 --> 0:17:53.000 rates and the effects on the broader economy. That's something 0:17:53.000 --> 0:17:55.320 I think those bankers have to keep in mind. There. 0:17:55.760 --> 0:18:00.119 Kara is there any silver lining here with with with 0:18:00.200 --> 0:18:03.119 this sort of coming down from from the sky high prices. 0:18:03.119 --> 0:18:04.920 And I asked this question fully realizing that we're in 0:18:04.920 --> 0:18:07.280 an environment where interest rates are higher. So you know, 0:18:07.320 --> 0:18:10.760 even if houses become more quote unquote affordable, that monthly 0:18:10.800 --> 0:18:13.359 payment could be even higher than it was for a 0:18:13.359 --> 0:18:17.840 more expensive house because of interest rates. Yes, it could. 0:18:18.000 --> 0:18:21.520 But me, yes, this liver lining is that I think 0:18:21.560 --> 0:18:23.600 you know, we've all been witnessed to this real estate frenzy. 0:18:23.720 --> 0:18:25.359 I mean in the US as well, where you know, 0:18:25.400 --> 0:18:27.600 you're bidding wars and you have to fight you know, 0:18:27.720 --> 0:18:29.879 fifteen other offers to get a home and that's not 0:18:29.960 --> 0:18:34.560 healthy either, and so slowing that down and that's um, 0:18:34.600 --> 0:18:36.880 you know, not necessarily a problem, and it kind of 0:18:36.920 --> 0:18:39.560 puts us back toward normalization. And yes, if home prices 0:18:39.600 --> 0:18:42.720 do come down a bit, you know, if you're a homeowner, 0:18:42.720 --> 0:18:45.000 you're still sitting on a fair amount of equity. Prices 0:18:45.000 --> 0:18:46.920 have gone so much it's hard to cry too many 0:18:46.960 --> 0:18:50.680 tears for like, oh, um, you know my house gained 0:18:50.720 --> 0:18:52.760 twenty percent a year, is now only a ten percent 0:18:52.800 --> 0:18:55.399 from that figure. You're still you know, you're still doing okay. 0:18:55.440 --> 0:18:58.040 So maybe this provides an opportunity for you know, a 0:18:58.040 --> 0:19:00.600 bit of a cool down in the market and this abilization. 0:19:01.440 --> 0:19:05.000 I'm fascinating in the story Care that it says New 0:19:05.080 --> 0:19:09.960 Zealand was really the poster child of the pandemic housing boom. Well, 0:19:10.040 --> 0:19:12.200 what's going on there? Is it just a matter of 0:19:12.400 --> 0:19:15.680 the lowest interest rates? We're people flocking to New Zealand 0:19:16.119 --> 0:19:19.560 in the pandemic? Have you seen those pictures? I'm willing 0:19:19.600 --> 0:19:23.720 to flock there personally, right, and we're all going to 0:19:23.800 --> 0:19:28.800 move there right right us in Peter Thiel right, Yes, exactly. Um, 0:19:28.840 --> 0:19:30.439 it's part of it. I think it's just becomes a 0:19:30.480 --> 0:19:33.359 cultural thing that this is where people see they can 0:19:33.520 --> 0:19:38.480 build their wealth and um, it's it's a big investment play. 0:19:38.560 --> 0:19:40.439 And like it's just the culture of you know, you 0:19:40.480 --> 0:19:44.080 need to be a homeowner, and so everybody um flocked 0:19:44.119 --> 0:19:45.639 to it and it kind of builds on itself. I 0:19:45.680 --> 0:19:49.280 think a similar thing happened in Canada. It's just, um, 0:19:49.320 --> 0:19:51.840