Rates Reshape Housing Market, the Retirement Gap, AI Botches Financial Tests

Hey everybody, it's Gene Marks, and welcome to this week's episode of the Paychex Thrive Week in Review. This is where we take a few items of news that are important to small business owners like you and me, and we talk a little bit about them.

So, before we get started, as you know, there is no crystal ball for business owners that shows exactly how every decision will pan out. However, what if you had formulas for HR metrics that make things crystal clear? The Paychex HR metric cheat sheet demonstrates how to calculate key metrics on workforce planning, profitability, and people so you can identify issues before they get costly.

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Alright, so let's get to the news, shall we? The first comes from the Wall Street Journal. Average 30-year mortgage rates reached 7.03%, surpassing 7% for the first time since early 2025, and creating another obstacle for an already sluggish housing market.

Now, while 7% has no special economic significance, economists say it is an important psychological threshold that could push more prospective buyers to postpone purchases. They ain't kidding. High rates are increasingly becoming normalized after several years of elevated borrowing, making adjustable rate and interest rate only mortgages more appealing despite their added risks.

The article notes that hopes for a 2026 housing rebound faded after rates, which briefly fell below 6% in February, rose again amid inflation and global uncertainty. Higher rates could also revive the lock-in effect, encouraging homeowners with low-rate mortgages to remain in place rather than sell.

Builders face additional pressure because mortgage rate buy downs used to attract buyers, they become more expensive, squeezing margins and potentially limiting new construction. And I want to emphasize that last point about builders facing additional pressure in a higher interest rate world. It's not just builders. The real estate economy, both commercial and residential, is anywhere from 15 to 20% of GDP. It is not just the people that are building houses, but it's all the people that are involved in transactions around houses: brokers and attorneys, and title companies, insurance companies. You know, all the people that that are involved in these things, in addition to the fact that you've got people building and also contractors who do work on houses when new houses, you know, exchange hands.

Seven percent mortgage is high. It is clearly not as high as it was back in the 80s, but that's you know, that was a million years ago. It is an issue and it is a deterrence for people to buy, particularly if they've got a two or three percent mortgage. So, that impacts countless small businesses around the country. It is definitely an issue. And there's no signs of it easing anytime soon.

Right now, the Treasury market yields are around 5%, they're very, very high, historically, and a lot of it is because they are expecting – the Treasury market is expecting – higher interest rates. And mortgage rates have nothing really to do with whatever the Fed's interest rate increases are. Mortgage rates are really tied to Treasury and Treasury yields because if the Treasury markets see inflation going up in the future, you know, think about it, you're a banker, you don't want to lock in people at mortgages at lower interest rates. You're gonna lose money. So, you are looking at the Treasury markets to see where inflation is going, and then you're adjusting your mortgage rates accordingly.

So again, if you're a business that's in the construction industry, the real estate industry, very, very difficult for me to say, like, here's what you do. Now, there are some pockets in the country that are doing great, real estate-wise. Obviously, valuation of a lot of homes are still pretty high, but you've got to continue to operate defensively; watch your overhead, invest in technology, be careful who you're hiring, be careful of if you're in the construction world, the debt that you're taking on, as well. These are all, you know, big issues.

It is still a very slow economy for people that are in the construction world. Data centers have made a big, big help for a lot of construction and contracting firms, but when I speak to people in the construction industry, they're struggling. It is tough. It's not a panic. It's not it's not like, you know, a bunch of them are going out of business, but it ain't a great time to be [in the industry].

A final word on all of that though is I do expect there to be some relief in the future. I don't think that interest rates are going to be coming down that much, but I do think that there will be a turnaround in activity once things really do stabilize with mortgage rates where we will see more buying and selling activity.

Then again, I thought that this was going to be the year where that was going to happen and, as usual, I was wrong. So, you know 2027, I'm cautiously optimistic, but again, right now things are very, very tough if you're in that industry.

All right, this next piece of news comes from PLANADVISER, and here's what they report: More than 76.2 million U.S. workers lack access to an employee-sponsored, er, employer-sponsored retirement plan. This is according to the Economic Innovation Group. It's an analysis of Census Bureau data.

Approximately 61 million are employees, and another 15 million are self-employed. Nearly half – 49.1% – of private sector workers lack workplace retirement coverage, including 77% part-time workers and 42% of full-time employees. Government workers fare better, although 30.2% still lack access. Employer contributions are also limited; only 37% of workers receive an employer match or contribution in 2025, with a median contribution of around $3,000.

The disparities are particularly pronounced by income. Among workers in the bottom 10% of household income, 88% lacked access to an employer plan compared with just 14% among the highest income, 10%.

EIG all argues that simply expanding access may not be enough. Matching contributions or other incentives are particularly important for lower-income workers who have less discretionary income available to save.

I’m in a similar boat. I’m a 10-person company, we have a relatively new 401(k) plan. You can get tax credits. There's tax credits available to me for starting up my 401(k) plan, which I've taken advantage of. There are tax credits for me when I contribute to a 401(k) plan. So, that also has been something that I take advantage of. So, you know, that that has helped quite a lot, and I do want to say that that is something that I you encourage all business owners to talk to their accountants about. You do get, if you're of a certain size, tax credits for contributing or matching your employees' contribution to a 401(k) plan, particularly a 401(k) plan that was started up in the past few years.

So, bear that in mind that that that is there. Most businesses though, you should have a 401(k) plan. Now, as this survey had said, just having one sometimes isn't enough. Your employees still won't contribute to it unless you help and you contribute, too. Just bear in mind that the more that they contribute to the 401(k) plan, the more that you can contribute to your own 401(k) savings, as well. 401k plans are a much better vehicle for business owners to put money away than even a simple … than an IRA. IRAs are limited in contributions, and they're limited based on your income, as well, whereas a 401, as long as you meet those discrimination tests, as long as your employees are contributing money, you can contribute money, too, and you can really save a lot.

So, strongly recommend that you talk to your benefits adviser and really consider the cost benefits of having a 401(k) plan in place. I am betting, because I did the numbers for my company, my small company, the benefits outweigh the costs for having a 401(k) plan in place. And that's – it doesn't even include the intangible benefits of offering a benefit, you know, of a retirement plan that it attracts workers, it retains workers, as well.

So, you can do it, you know, there's some cost for matching, but you know, again, the more that gets put into your employees' accounts, the more that you can put away in your own 401(k), as well, and I think that's really something to be considered.

So, again, talk to your retirement plan consultant and figure out whether or not a retirement plan, a 401(k) plan is right for you. I'm betting that it is.

In our AI news this week, a new study from financial services company, an AI company called Saturn, found that leading chat bots produced incorrect or substantially incomplete financial answers 57% of the time. Researchers tested 18 AI models, including ChatGPT, Claude, Gemini, and Copilot, against 121 financial questions, generating more than 10,000 responses. Across current models, average accuracy was only 43%. Performance deteriorated sharply as the questions became more complicated. Models answered just 12% of difficult questions correctly, while even simple financial literacy questions achieved only 54% accuracy.

Paid models performed better than free versions, which failed 63% of the time versus 49% for failed paid models – still a lot.

Common problems included incomplete responses, missing figures or deadlines, fabricated rules, outdated regulatory information. Saturn, the ones who did this study, also warned that AI often presents incorrect answers with the same confident tone as accurate ones, making errors difficult for consumers to identify.

The findings suggest financial professionals should treat general purpose AI as an assistance tool rather than an authoritative source of tax investment or retirement advice.

So, here's my advice to you guys, okay. If you're in the financial services world, you're providing financial advice, tax advice, accounting advice, get this article, okay? This article, just so you know it's an Investment News the week of September 21, all right? Make a copy of this article, make sure your clients know this, so that they understand that, like, they can't just go to ChatGPT and get answers if they don't know the questions to ask, and the unreliability of the responses is a big problem. They need you, they need financial advisers. They will always need financial advisers. They will always need to speak to humans.

When I speak to CPAs and financial advisers that are afraid of being replaced by AI, I always say, listen, AI is going to be a tool for a lot of people, but clearly it's not right anywhere near all the time. In fact, it's wrong more than half of the time. Our clients, you know, I'm a financial adviser, they're relying on me to – I can use whatever tools that I want, but I've verified and done the research and validated the information coming back. So, when I talk to my clients and give them advice, as a financial adviser, I've done the due diligence that they wouldn't have done so that I can really give them the right information and the right advice.

So, just bear in mind, you know, here we are. How many years into, you know, since 2022? It's four years. All these chatbots, they're great, but they're not accurate more than half of the time, according to the study. That's important, important to know if you're in that business.

Everybody, my name is Gene Marks, and you have been watching or listening to this week's episode of the Paychex Thrive Week in Review.

Remember, if you want to get all the HR metrics for your company, go to go.paychex.com/measure to learn how to create those metrics. There will be a link to that in the show notes, as well.

If you are looking for help or advice or tips in running your business, get our Paychex Thrive newsletter. Go to paychex.com/thrive, and as always, follow us on your favorite platform and on YouTube. We appreciate you checking in. I'll be back with you next week with more news that impacts your small business and mine. Until then, we will see you. Take care.

My name is Gene Marks, and you've been watching or listening to the Paychex Thrive Week in Review podcast. A few things to take away. First of all, if you are in need of HR or payroll help in your business, consider Paychex. Go to paychex.com/meetpaychex. That's P-A-Y-C-H-E-X.com forward slash M-E-E-T-P-A-Y-C-H-E-X. Please follow this podcast on your podcast platform or on YouTube if you are enjoying the content so you stay up to date on our latest episodes.

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Hope you found this information helpful. I'll be back with you next week with more news that impacts your small business and mine. My name is Gene Marks. Thanks so much for watching or listening. Take care.

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